Electronics consumption is the 3rd highest after oil and gold

Dataquest had a chance to interact with Somshubhro (also popularly known as Som) Pal Chaoudhury, managing director of Analog Devices India. Som takes us through the challenges and opportunities available in the electronics manufacturing space in India. ‘Make in India’ is current government one of the biggest initiatives which will get push if the electronics manufacturing activity increases in the country. Excerpts:

In the light of 'Make in India' campaign, how do you see the role of companies like yours?

While “Make in India” is still a wish list for all of us except in a few verticals, “Designed in India” is already happening across a myriad of market segments, thanks to the Indian engineering talent. Semiconductor companies like us have long realized that design locations and manufacturing locations are not the same for electronic systems designs. Hence semiconductor companies tend to incentivize their sales force based on design activity, where actual designs are getting done as opposed to where manufacturing happens. Manufacturing today is currently the prerogative of EMS companies in China and South East Asia. But with the “Designed in India” activities, semiconductor companies have already geared up the applications and sales support structure in India. Almost all semiconductor MNCs have significant amount of design activity from India. Separately, multiple design houses are also either doing full chips or supporting the design activities of the MNCs. The India R&D teams of the global semiconductor companies like Analog Devices have also become key centers of excellence, taking ownership of products, making key decisions and supporting global customers. According to the Department of Electronics and Information Technology (DeitY), nearly 2,000 chips are being designed every year in India and more than 20,000 engineers are working on various aspects of chip design. There are more than 120 companies in India focused on semiconductor design for global products. This semiconductor design industry in India has witnessed robust growth and share a high single digit market share of the global pie.

The current initiatives on #MakeinIndia would prompt three things in the electronics industry. It would give a boost to the Indian electronics OEMs especially for any kind of government procurement, incentivize global and local system OEMs to do more of the EMS activities in India and incentivize the OEMs to startup up their own manufacturing factories in India. All these would in turn prompt more design activities in India as well.

Hence, the semiconductor companies are prepared to partner and help electronics system customers with engineering support, education, relationships, recommendations and connections to support their #MakeInIndia endeavor.

How can manufacturing of electronics devices pick up in India?

The reasons for this current dismal status of the electronics industry are many including our archaicprocesses, taxation, power and infrastructure.The software and IT industry had a boom because of the entrepreneurship zeal, engineering talent available in India and tech revolution with internet connectivity. Unfortunately, manufacturing needs a well thought out strategy and approach along with a large capital expenditure with government incentives and intervention that many of the Asian economies have done.

The current focus of #MakeinIndia with an emphasis of Defense production andkey government procurementprograms, like National Broadband network and Digital India infrastructure is the step in the right direction. The Inverted Duty structure in the recent budget is being straightened in steps along with GST implementation upcoming. The large central and state level incentives to woo the global MNCs and local OEMs to setup their manufacturing seems to gather momentum once the quantum of investment required to avail these incentives was adjusted.

I would recommend an incentive structure for the EMS companies to scale and be globally competitive and as well as a substantial tax incentive for doing more R&D by the Indian OEMs, very similar to the current state of affairs in many developed nations.

India's strength has been product design. How does it compliment India in becoming a manufacturing hub?

In the last few years “Designed in India” has flourished, thanks to the growing number of MNCs and design houses active in electronic product designs from India. In many cases, the product was defined overseas, the specifications were given to the engineers and the engineering talent in India did a phenomenal job engineering the product from scratch. What we need to improve on is building the Product Management skillset to define the product based on market and customer needs. This would round up the Product Design talentin India.

India went from being an Agricultural economy to a Services economy, bypassing manufacturing which is a drastic departure from any other development model for any other country. While developed countries are also majorly services economies and have seen manufacturing ebb over the years, India’s lack of manufacturing is a grim situation for two primary reasons.

Firstly, our electronics consumption is surging and this is already the third highest in imports after oil and gold. The double digit growth of electronics consumption in the next several years will create a large lop sided trade deficit if we do not act today.

Secondly, as a country develops, you need less and less of people in agriculture and we see mass migration of people to our cities. We see the growing slums in our cities, the growing crime rate, millions working in construction jobs and other non-organized sector with no security or other benefits. We are a young population and to realize the full benefit of the demographic dividend, we have to create 10-12 million jobs every year for the youth entering the workforce. If we do not, the demographic dividend would work severely against us. This is not possible without mass scale manufacturing push.

So it is necessary to complement the Product Design with Manufacturing in India. As for how to go about doing so, I believe the government is serious and taking the right steps as highlighted before.

Will the coming of fabrication units change the scene in India?

While the semiconductor Fab is a right initiative by the government, it is a huge investment and will require few years to materialize.The most important aspect for any Fab is its utilization and hence the choice of the technology node, the type of chips that would be manufactured, the incentive structure for manufacturing in the fab – all need to be very well thought out and planned so that the Fab runs at an optimum utilization to ensure the returns to all stakeholders.

While the Fab initiative is moving along, there are several long standing demands by the Indian Electronics industry that needs to be looked into on a priority basis to increase the manufacturing of electronic systems. Few decisions in this year’s budget are steps in the right direction, but more faster and proactive initiatives are required across infrastructure investment, taxes, incentives for R&D and manufacturing (not just for exports but local consumption as well).

What are the opportunities? What are the mistakes which India need not repeat for pushing for 'Make in India'?

The opportunities and challenges of #MakeInIndia will have equal share of optimists and pessimists. Optimists will talk about the huge local consumption market and availability of a large engineering talent pool. Optimists will see the availability oflarge workforce availability and as well as the incentive structures being put in place. Pessimists will complain of the lack of infrastructure, red-tapism, the impossibility of training the workforce and competition against multiple established countries.

I believe the focus of manufacturing should be on areas of large local consumption like what we are seeing with #MakeInIndia for the defense market, the offset business, government procurement to build up the infrastructure. The focus in the short terms should be on economics and for High touch manufacturing that need low to medium volumes to continue to build up scale, while enticing some of the large OEMs for the consumer markets.

Manufacturing at the end of the day would be all about economics, and the government should look at what the other manufacturing countries have done. But most countries in recent past have created the policies and environment for export oriented manufacturing boost very similar toour software and services export model. For #MakeInIndia, however we need to start with the local consumption. The local OEMs and as well as global MNCs would be incentivized to setup their manufacturing looking at the large growing market, the proximity to customers, the incentives being offered, the state of the infrastructure and the recentB2C incentive to sell the #MakeInIndia products online.