How FTAs could offer India a $1 trillion electronics export window, with caveats

The conclusion of long-awaited free trade agreements (FTAs) with the European Union and the United States in recent weeks is set to open a vast export market, particularly for India’s fast-growing electronics sector. This market could act as an industrial catalyst for the economy at large, including manufacturing. Electronics is today India’s second-largest export sector. NITI Aayog’s trade watch quarterly report, released last week, said that the US and the EU together have a combined market size of approximately $1.6 trillion — representing about a third of the total global electronics demand. Demand-supply match The NITI Aayog said that Europe’s strong import demand and India’s comparative advantage in electronics indicate a high degree of alignment. India’s exports to the EU across six key electronic products categories total $8.88 bn, against an export opportunity of nearly $336 billion in the EU market, the report said. “The gap is most pronounced in mobile phones and telecom equipment, where India captures just $7.56 bn despite a potential exceeding $139 bn, and in power equipment and electrical components, where exports remain below $1 bn even as EU demand remains substantial,” the report said. The electronics manufacturing sector, concentrated in states like Tamil Nadu, Karnataka, Uttar Pradesh and Maharashtra, currently employs more than two million workers directly. The sector supports a network of component suppliers, assemblers and technology service providers. Sources said that India and the EU resolved their WTO dispute during the FTA negotiations. While the details of the resolution could be available when the deal is officially signed, the dispute was a major irritant for India-EU electronics trade. Brussels had dragged New Delhi into the World Trade Organisation’s (WTO) dispute settlement mechanism in 2019, challenging its levy of import duty on a wide range of ICT products, arguing that the duty was inconsistent with global trade norms and was hurting €600 million of its tech exports to India. Supply chain challenges A significant hurdle in the sector realising its potential is the fact that India remains heavily import-dependent for components such as semiconductors or chips, integrated circuits, batteries, and displays. A comparative analysis shows that while India is competitive in the mobile phones, telecom equipment and power electronics segments, it remains marginal in high-value, technology-intensive components that anchor global value chains, the report said. In the financial year 2023-24, India imported electronic components worth over $12 billion from China and $6 billion from Hong Kong. Imports from these two destinations alone accounted for more than half of total such imports to India. Growing dependence on electronic goods from China has been an area of common concern between India and the US, too. “The United States and India will establish rules of origin that ensure that the benefits of the Agreement accrue predominantly to the United States and India,” the India-US joint statement read. Experts said that most trade deals that the US is getting into has an element of ringfencing China, its largest strategic rival. Despite chips accounting for nearly one-third of global electronics demand in 2024, India’s export share in this category increased only marginally from 0.01% to 0.02% between 2015 and 2024, the report said. A similar divergence is visible in batteries and displays; India’s export shares increased by just 0.06% in batteries and 0.05% in displays, the report said. Geopolitical headwinds that are forcing several global companies to diversify from China are helping India attract investments. Global smartphone companies, like Apple and Samsung, have set up production bases in India. The government has also shifted its focus to deepening local value addition in the sector through the Rs 76,000 crore India Semiconductor Mission for chip fabrication and packaging, and the recently announced Rs 23,000 crore scheme for passive electronics components. This is over and above the production-linked incentive (PLI) schemes for smartphone and laptop assembly. “India’s export gains have instead been concentrated in products where global demand growth was modest or declining by capturing newer markets. Mobile phones and telecom equipment illustrate this contrast clearly. While their share in world demand fell from 18.4% to 13.7%, India’s export share rose sharply from 0.14% to 3.5%, a gain of 3.34%. This indicates that India’s export growth in this category came primarily from capturing a larger slice of an existing market rather than from rising global demand expansion,” the report said. The report pointed out that across electronics segments, global trade is marked by a strong concentration of both demand and supply in East Asia and advanced industrial economies, with China and Hong Kong consistently occupying central positions as both major importers and exporters. Competitors in Thailand, Malaysia, and Vietnam NITI Aayog pointed out that while China, Japan and South Korea have been the front-runners in the electronics manufacturing space, new players are working to go up the electronics manufacturing value chain, such as Thailand, Malaysia, and Vietnam. They pose tough competition to the Indian industry. “Thailand’s roadmap prioritises chip design, fabrication, packaging, and testing to establish a “Made-in-Thailand” semiconductor value chain. Malaysia is pushing into advanced semiconductor segments, including IC design and higher-end packaging, under NIMP 2030. Vietnam aims to establish 100 chip design firms, one fabrication plant, and 10 packaging/testing facilities by 2030, with a long-term goal of $100 bn turnover by 2050,” the report said. Notably, the market leaders, such as Japanese and South Korean firms, have consistently maintained high R&D intensity (around 2-4% of GDP). The report pointed out that Japan’s electronics success was built on long-term state leadership through the Ministry of International Trade and Industry (MITI), which prioritised the sector, coordinated government-industry action, and steered firms toward high-technology production, turning Japan into a global electronics leader by the 1970s-80s. “China institutionalised a similar model through successive Five-Year Plans, notably the 13th Plan’s innovation push and R&D spending of about 2.4% of GDP, and the 14th Plan’s expansion of the digital economy and large-scale infrastructure such as 5G,” the report said. In comparison, the Economic Survey 2025-26 said that India’s Gross Expenditure on Research and Development (GERD) as a percentage of Gross Domestic Product (GDP) is 0.64%. Ravi Dutta Mishra is a Principal Correspondent with The Indian Express, specializing in economic policy and financial regulations. With over five years of experience in business journalism, he provides critical coverage of the frameworks that govern India's commercial landscape. Expertise & Focus Areas: Mishra’s reporting concentrates on the intersection of government policy and market operations. His core beats include: Trade & Commerce: Analysis of India's import-export trends, trade agreements, and commercial policies. Banking & Finance: Covering regulatory changes and policy decisions affecting the banking sector. Professional Experience: Prior to joining The Indian Express, Mishra built a robust portfolio working with some of India's leading financial news organizations. His background includes tenures at: Mint CNBC-TV18 This diverse experience across both print and broadcast media has equipped him with a holistic understanding of financial storytelling and news cycles. Find all stories by Ravi Dutta Mishra here ... Read More