How India’s import dependence is spilling beyond oil, in charts
India's merchandise trade deficit widened sharply, driven not only by crude oil but increasingly by non-petroleum imports, particularly electronics components and industrial inputs
Electronics imports rose sharply to become India's second-largest import category after crude oil, even as India's own electronics exports (largely finished smartphones) also grew
The trade data show India functioning as an assembly hub for semiconductors, display panels, memory chips, sensors and precision machinery sourced from China, Taiwan, South Korea and Vietnam, rather than as a deep manufacturing base for these components
India's services trade surplus (software, consulting, business process management) continued to partially offset the widening merchandise trade deficit
Production-Linked Incentive (PLI) Scheme and the Assembly-vs-Manufacturing Distinction
The PLI Scheme for Large Scale Electronics Manufacturing (LSEM) was designed to reduce India's electronics import dependence by incentivising domestic value addition, but the current trade data reveal a gap between assembly-stage growth and deep, component-level manufacturing capability.
Key Details
- The PLI scheme for large-scale electronics manufacturing (mobile phones and specified components) was launched by the Ministry of Electronics and Information Technology on 1 April 2020, with an approved outlay of ₹40,995 crore and incentives of 4-6% on incremental sales
- Under the scheme, production reached about ₹11.01 lakh crore (against an original target of ₹8.12 lakh crore) and exports crossed ₹6.20 lakh crore, with smartphones emerging as India's top exported individual commodity in FY 2025-26, surpassing petroleum products and gems & jewellery
- Despite this export growth, high-value inputs — semiconductors, display panels, memory chips, sensors — remain almost entirely imported, meaning PLI has scaled assembly and final-stage value addition rather than upstream component manufacturing
- "Value addition" under PLI is measured domestically, but a large share of that value is imported components being assembled rather than fabricated in India
The widening non-petroleum trade deficit, driven substantially by electronics component imports, illustrates the structural limit of an assembly-led PLI strategy: exports and imports of electronics can both rise simultaneously if the domestic ecosystem stays confined to final assembly.
India Semiconductor Mission (2021) — Addressing the Upstream Gap
The India Semiconductor Mission (ISM) was set up specifically to move India beyond assembly into semiconductor fabrication and design, the segment most responsible for the electronics import bill highlighted in the trade data.
Key Details
- The India Semiconductor Mission was approved by the Union Cabinet on 15 December 2021 with an outlay of ₹76,000 crore, operationalised under the Ministry of Electronics and Information Technology (MeitY)
- It comprises multiple sub-schemes: incentives for semiconductor fabs (of any node), ATMP/OSAT (assembly, testing, marking and packaging) facilities, display fabs, and the Design Linked Incentive (DLI) Scheme, which reimburses up to 50% of chip design costs
- The Mission also covers compound semiconductors, MEMS (micro-electro-mechanical systems), sensors and discrete devices — the very component categories cited as import-dependent in current trade data
- As of the latest official updates, multiple semiconductor and ATMP/OSAT projects have received Cabinet approval, but commercial-scale domestic chip fabrication output remains limited relative to import volumes
The persistent, rising import bill for semiconductors and display components is the precise problem the India Semiconductor Mission was designed to solve — the trade data indicate that fab-level capacity is still years away from meaningfully substituting these imports.
Balance of Trade Composition — Petroleum vs Non-Petroleum, and the Services Offset
India's overall trade deficit is compiled from merchandise trade data released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), and is conventionally decomposed into oil and non-oil (non-petroleum) components to isolate structural, non-cyclical import dependence from crude-price-driven swings.
Key Details
- Petroleum trade deficit is volatile and tracks global crude prices and geopolitical disruptions (e.g., West Asia tensions), while the non-petroleum deficit reflects underlying industrial and consumption import dependence
- A widening non-petroleum (core) deficit — as seen with the recent rise driven by electronics, chemicals and ores — signals reduced domestic manufacturing competitiveness independent of oil price cycles
- India's services trade surplus (IT/software exports, business process management, consulting) is the principal offsetting item in the overall Balance of Payments current account, partly cushioning the merchandise trade deficit
- Reducing "import intensity of growth" — i.e., the extent to which GDP growth pulls in imports rather than domestic output — has been flagged as a core policy challenge distinct from simply boosting exports
By showing the trade deficit "spilling beyond oil," the data highlights that non-petroleum import dependence (led by electronics) is now a structural, not cyclical, drag on India's current account, requiring an industrial-policy response rather than only an energy-price-linked one.
- PLI Scheme for Large-Scale Electronics Manufacturing: launched 1 April 2020, outlay ₹40,995 crore, incentive 4-6% on incremental sales
- Electronics production under PLI: ~₹11.01 lakh crore (against ₹8.12 lakh crore target); exports: ~₹6.20 lakh crore (against ~₹4.88 lakh crore target)
- Smartphones: India's top exported individual commodity in FY 2025-26, surpassing petroleum and gems & jewellery
- India Semiconductor Mission: approved 15 December 2021, outlay ₹76,000 crore; Design Linked Incentive reimburses up to 50% of chip design costs
- Electronics imports: became India's second-largest import category after crude oil, driven by semiconductors, display panels, memory chips and sensors sourced mainly from China, Taiwan, South Korea and Vietnam
- Trade deficit decomposition: petroleum deficit tracks crude price/geopolitical shocks; non-petroleum (core) deficit reflects structural industrial import dependence
- Services trade surplus (software, BPM, consulting) remains India's principal offset to the merchandise trade deficit