US-India trade: Set for a Reset

  • Industry News
  • Jun 30,23
During Prime Minister Narendra Modi’s recent visit to the US many new initiatives were announced by the two countries.
US-India trade: Set for a Reset

During Prime Minister Narendra Modi’s recent visit to the US many new initiatives were announced by the two countries. The two sides expressed their intention to push bilateral trade to $ 500 billion by 2030, with US President Joe Biden describing the country-to-country partnership as one of the “most consequential in the world”.

New initiatives included the GE-HAL deal (which may allow India to co-produce jet engines for use in Tejas Light Combat Aircraft and Generation 5 fighter jets), Boeing setting up logistics support in India, the US Navy finalising agreements with Larsen and Toubro and Mazagon Dock Ltd for ship repair facilities in three locations in India, etc. After his meeting with PM Modi, Elon Musk, Chief of the US automaker Tesla, rekindled interest in setting up manufacturing unit for electric vehicles in India.

With the deeper co-operation between the two countries, India’s apparel industry sees an opportunity to grow volumes to the US. Apparel exports from India to the US swelled 34 per cent year on year in 2022, to $ 6 billion, with the Indian ready-made garment trade share of the US market estimated at 5.7 per cent.

Semiconductor industry also got a boost with Micron Technology agreeing to build new semiconductor assembly, testing, marking, and packaging (ATMP) unit in Gujarat. Of the total $ 2.75 billion required for setting up the new unit, Micron will invest $800 million and Indian Semiconductor Mission will foot the remaining bill.

Foxconn - the manufacturer of Apple's iPhone - has also expressed interest in opening a production site for electric two-wheelers in India. The Taiwanese firm recently began construction for its new $ 500 million factory in Telangana to produce iPhone.

Mobile manufacturing sector has seen a robust growth in the last few years. India surpassed a remarkable $ 10 billion worth smartphone exports in the financial year 2023 - thanks to the Production-Linked Incentive (PLI) scheme. Electronics, along with pharma, has shown a strong pickup in value addition due to PLI scheme. According to the Ministry of Commerce and Industry, the domestic value addition (DVA) in the electronics sector and in smartphone manufacturing stands at 23 per cent and 20 per cent, respectively.

Due to PLI Schemes, there was a significant increase of 76 per cent in FDI in the manufacturing sector in FY 2021-22 ($ 21.34 billion) compared to previous FY 2020-21 ($ 12.09 billion), stated the Department for Promotion of Industry and Internal Trade (DPIIT). Sectors for which PLI schemes exist and have seen an increase in FDI inflows from FY 2021-22 to FY 2022-23 are drugs and pharmaceuticals (up by 46 per cent), food processing industries (26 per cent) and medical appliances (91 per cent). PLI Schemes have transformed India’s exports basket from traditional commodities to high value-added products such as electronics and telecommunication goods, processed food products etc. PLI Scheme has led to major smartphone companies shifting its suppliers to India, for example, Foxconn, Wistron and Pegatron. In fact, India is set to cross Rs 1,200 billion in mobile phone exports in the current financial year compared to Rs 900 billion in the previous financial year, driven by tech giant Apple, on the back of the PLI scheme. The government is now reviewing the PLI scheme to make it more effective.

The US has invested $ 118 billion in China over last 20 years while only $ 60 billion into India during the same period. With the alliance with US in place and manufacturing sector drawing investments, our FDI funnel could get bigger.

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