07/12/2021 - Indian Economy

KEY POINTS

·        For most economies in Asia, the robust growth in goods exports has more than compensated for the loss of services exports.

·        For India, the bottlenecks have mostly been reflected in higher commodity prices, and to an extent greater freight costs.

·        However, the shortages of certain products, especially semiconductors have increasingly been impacting production, especially for automobiles.

·        Indeed, auto production in the last six months has been 16 per cent below 2019 levels for passenger vehicles, and 24 per cent for two wheelers.

·        This issue appears to be especially debilitating for India’s nascent electronic vehicles industry. In line with weak production, sales have declined, and the backlog of orders has built up dramatically.

·        So far, India’s imports have been rising rapidly, and understandably, the focus is first on securing energy supplies.

·        The government is looking to add more incentives, but a typical large semiconductor manufacturing facility needs almost two years to build.

·        However, given the starting point for India remains one of import dependencies in varying degrees on capital and consumer imports.

·        We need to be watchful and pragmatic in understanding and addressing the supply chain bottlenecks, to shield our nascent recovery.

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