A Tale of Two Sectors

Context: Oil/gas and Electronics, and IT sectors offer unique opportunities to script India’s aatmanirbhar vision. 

Oil and gas sector in India: 

• Issues:
  • High import dependence: Imports of oil and gas are around $125 billion a year, around 25% of India’s total imports.
  • Falling domestic production: Every year for the last seven years.
  • Concentration of production and supply globally: The Opec cartel controls supply and, therefore, price of crude oil.
  • Ageing oilfields: The reason production is falling is because the oilfields are ageing, and it is technically tougher and more costly to extract oil.
  • Revenue focused government intervention: Government levies and taxes can go up to 65% of the price of a barrel of oil, leaving a small amount with the producer to further invest.
  • Significance: Oil and gas underpin India’s energy security and macroeconomic stability.
  • Initiatives: The Open Acreage Licensing Policy (OALP) brought in a globally benchmarked policy regime for future production and investment.
• Suggestions:
  • Reducing the levies: By reducing levies on domestically produced oil, GoI can help enhance investment and production.
  • Deregulation: India has abundant reserves of oil and gas. However, to extract them viably, the policy regime needs deregulation. So far, big-ticket greenfield FDI has been largely absent.

Electronics sector in India:

• Issues:
  • High import dependence: Imports have grown at 7% a year compound annual growth rate (CAGR) in the last seven years; The share of electronics in total imports has risen from 7% to13% in the same period.
  • Chinese domination: In fundamental semiconductors and display fabrication, there are only a handful of producing countries - China, South Korea, Taiwan, Japan, with China dominating.
• Significance: 
  • Electronics is fundamental to Digital India and India’s communications and connectivity security.
  • Rising demand: The electronics sector will grow very rapidly in the coming years. The ownership of electronic devices will only grow as incomes rise. Demand may also rise from other sectors, like automobiles.
  • Initiatives: A concerted effort has been made to bring assembly of key products like mobile phones and televisions to India by raising import duties and introducing production-linked incentives (PLI).
• Suggestions:
  • Move beyond final stage assembly of mobiles and televisions and expanding production in semiconductors and display fabrication.
  • Leverage PLI: PLI has set a precedent of government support compliant with WTO laws. It must be tweaked to support capital investment in this space.