FTAs as a Catalyst for India’s Electronics Export Surge

Source: The post “FTAs as a Catalyst for India’s Electronics Export Surge” has been created, based on “How FTAs could offer India a $1 trillion electronics export window, with caveats” published in “Indian Express” on  16th February 2026.

UPSC Syllabus: GS Paper-3- Indian Economy

Context: India’s electronics sector is emerging as one of the fastest-growing export sectors, and proposed free trade agreements with major markets like the European Union and the United States could open a massive export window. Together, these markets account for nearly one-third of global electronics demand, creating the potential for India to target exports worth up to $1 trillion in the long term. However, India must address structural challenges in supply chains, technology capability, and research and development to fully benefit from these FTAs.

Opportunities from FTAs

a) Access to Large Markets

1. The EU and the US together have an electronics demand of about $1.6 trillion, offering a huge export opportunity for Indian manufacturers.
2. India currently exports less than $9 billion worth of electronics to the EU, despite a potential market of more than $300 billion, showing significant untapped scope.
3. FTAs can reduce tariffs, remove non-tariff barriers, and improve standards recognition, making Indian products more competitive.

b) Boost to Manufacturing Growth

1. Electronics is already India’s second-largest export sector and employs over two million workers directly.
2. FTAs can increase demand for Indian electronics manufacturing hubs in states like Tamil Nadu, Karnataka, Uttar Pradesh, and Maharashtra.
3. Higher exports can create multiplier effects in logistics, component manufacturing, and services industries.

c) Integration into Global Value Chains

1. FTAs can attract global firms looking to diversify supply chains away from China.
2. Companies such as Apple Inc. and Samsung Electronics have already expanded manufacturing in India.
3. Better trade access can help India become a reliable alternative manufacturing base in electronics.

d) Strategic and Geopolitical Gains

1. Trade deals with advanced economies can reduce India’s dependence on imports from China and strengthen supply chain resilience.
2. Rules-of-origin provisions in FTAs can prevent indirect imports and encourage domestic value addition.

Key Challenges and Caveats

a) Import Dependence for Components

1. India remains heavily dependent on imports of semiconductors, integrated circuits, batteries, and display units.
2. Imports of electronic components from China and Hong Kong alone account for more than half of India’s total imports in this sector.
3. Without local component manufacturing, export competitiveness will remain limited.

b) Weak Presence in High-Value Segments

1. India is competitive mainly in mobile phone assembly and telecom equipment but has a negligible share in chips, displays, and batteries.
2. Chips account for nearly one-third of global electronics demand, but India’s export share in this category remains extremely low.
3. This limits India’s ability to capture value in global electronics supply chains.

c) Low Research and Development Spending

1. India’s Gross Expenditure on R&D is about 0.64% of GDP, which is far lower than countries like Japan, South Korea, and China.
2. Successful electronics manufacturing nations have maintained high R&D spending and strong industry-government coordination.
3. Without innovation capability, India may remain stuck in low-value assembly operations.

d) Global Competition

1. Emerging electronics hubs such as Thailand, Malaysia, and Vietnam are rapidly building semiconductor ecosystems.
2. These countries offer strong incentives, skilled workforce availability, and integrated supply chains.
3. India must compete with them on infrastructure, logistics, and policy stability.

Government Initiatives to Address Challenges

1. The India Semiconductor Mission aims to build domestic chip fabrication and packaging capacity.
2. Production-Linked Incentive schemes encourage smartphone, laptop, and component manufacturing.
3. A new scheme for passive electronics components is aimed at deepening local value addition.
4. WTO disputes with the EU over ICT tariffs have been resolved to facilitate smoother trade.

Way Forward

1. India must develop a complete electronics ecosystem including semiconductors, batteries, and displays.
2. It should increase R&D spending through public-private partnerships and university–industry collaboration.
3. It should invest in logistics infrastructure, ports, and reliable power supply to improve competitiveness.
4. Skill development programmes should be expanded to create a specialised electronics workforce.
5. India should ensure stable and predictable trade policies to attract long-term investments.

Conclusion: FTAs with the EU and the US offer India a historic opportunity to expand electronics exports and become a global manufacturing hub. However, this opportunity can be realised only if India strengthens domestic supply chains, boosts innovation, and moves up the electronics value chain. With strategic reforms and sustained investment, India can transform its electronics sector into a trillion-dollar export engine.

Question: Free Trade Agreements with major markets such as the European Union and the United States could open a trillion-dollar export opportunity for India’s electronics sector. Discuss the opportunities, challenges, and policy measures required for India to realise this potential.

Source: Indian Express