Mumbai: The aggressive manufacturing push, especially in the electronics space, driven partly by the relocation of Asian supply chain away from China, is unlikely to yield any tangible results to India’s growth at least in the next three years, according to a foreign brokerage.
Tanvee Gupta-Jain, the chief economist at UBS Securities India, said that if the country continues to benefit from the supply chain shifts away from China and structural reforms, GDP should rise to 6.25-6.75 per cent annually by 2030 under an optimistic scenario and generate up to 4 million jobs annually.
In the most optimistic scenario, the growth is likely to be 6.75-7.25 per cent.
According to Gupta-Jain, the present manufacturing push under the various PLI (Production Linked Incentive) schemes, particularly for electronics, is unlikely to yield any major benefit to GDP or exports.
This is because at present, there is no economies of scale in the absence of a manufacturing ecosystem wherein components are also locally manufactured/sourced as against the present mode of purely importing all the components and assembling them locally, she added.
“As a result, we are importing more and exporting more, with the mobile sector being the best example, where we’ve become the second largest after China. Yet, our share of global mobile production is only under 7 per cent now but has the potential to scale to 25 per cent when we develop a well-oiled component ecosystem,” Gupta-Jain told reporters during a conference call on Thursday.
In the medium term, say at least in the next three years, “I don’t see any tangible benefit accruing to the economy or in incremental GDP growth. In this sense, the net benefit from the present manufacturing push is zero,” she noted.
On the overall growth for this fiscal, the brokerage firm has retained its previous forecast of 6.2 per cent, which is 10 basis points higher than the consensus average and 40 basis points lower than the Reserve Bank of India (RBI) forecast.
Even as growth momentum is holding despite the uneven underlying recovery, UBS’ India composite economic indicator rose 4.4 per cent sequentially in the June quarter as against 3 per cent in the previous quarter.
Gupta-Jain said that she expects the rupee to average 82-83 against the US dollar till December and then gradually, rise to 79 by March as the RBI is likely to allow the rupee to strengthen before the elections.
On the market, she said UBS house view is that domestic equities are over-valued now and therefore has an “under weight” for this year.
Given the prevailing pressure on food prices, Gupta-Jain said she expects the retail price index to be above 7 per cent in August or near the July level of 7.44 per cent which was a 15-month high.
“But our internal assessment of the past one decade shows that food prices especially vegetables have always gone up in June and July and have moderated significantly from August and September and I see the same happening this year as well,” she said.
She also said that tomato prices are correcting from the Rs 350 per kilogram high seen last month and going forward, the prices should significantly moderate further.