Emerging Opportunities and Growth in ESDM Industry

The global electronics industry, valued at $1.75 tn, is the largest and fastest growing manufacturing industry in the world, and is expected to reach $2.4 tn by 2020. Globally, the semiconductor companies weathered the myriad challenges of fluctuating economies and natural disasters to maintain the growth from 2010 and for the first time ever, it crossed the $300 bn mark in revenues. In the global market scenario, the trends around mobility and application-driven design continue to provide tremendous opportunity but will also challenge the designers to come up with new ways to deliver ever increasing functionality and performance on very tight schedules while reducing cost at the same time.

The prognosis for Indian ESDM industry is looking very positive. It is likely to grow 9.9% CAGR in 2011-15, as per the latest study by the India Semiconductor Association (ISA) in partnership with Frost and Sullivan. In India, the global variables had minimal impact and according to the report, the semiconductor market grew an impressive 28.3% over 2010, driven primarily by mobile devices, telecommunications and IT sectors. With the Indian government's IT spending estimated to be `36,800 crore in 2013 (Gartner) and the National Electronics Policy, which envisaged the incubation of a $400 bn Electronic System Design and Manufacturing (ESDM) sector in India by 2020, India ESDM is poised at the crossroads of tremendous development.

Resolute focus on the ESDM industry and favorable policies to incentivize investment, adoption of new technologies, catalyzing innovation & entrepreneurship, enhancement of skills and addressing the disability cost of developing ESDM products domestically are the key ingredients to elevating India to a leading player in the global arena. The India government is providing a lot impetus to ESDM and semiconductor industry with the National Electronics policy which will provide financial support for the development of Electronic Manufacturing Clusters (EMCs). These EMCs would aid the growth of the Electronic Systems Design and Manufacturing (ESDM) sector, help the development of entrepreneurial ecosystem, drive innovation, and catalyze the economic growth of the region by increasing employment opportunities and tax revenues.

IMPACT OF GOVT POLICY TOWARDS SETTING UP FAB SEMICONDUCTORS IN INDIA

As part of the efforts to promote the electronics sector, the India government has given the approval to set up two semiconductor wafer fabs. India has become the hub for semiconductor design with nearly 2,000 chips being designed per year and more than 20, 000 engineers are working in various aspects of chip design and verification. Annually India is generating nearly $2 bn in revenues for the chip design services. This provides an enabling environment for the semiconductor wafer fab which will come up in India.

Some of the success factors in making this initiative a success in the coming years would be:

• Build a value chain ecosystem from wafer to OEM to help bridge supply-demand gap.
• Support incentive for SMEs/startups as part of this ecosystem.
• Best practice adoption and continuous benchmarking globally-‘fab global council' can be set up.

FUTURE OF ESDM INDUSTRY IN INDIA

Over the last couple of decades, India has been the epicenter of consumer demand fueled by consistent GDP growth. The demand for electronics hardware in the country is projected to increase from $45 bn in 2009 to $400 bn by 2020 (Source: Task Force Report).

The estimated production will reach $104 bn by the year 2020, creating a gap of $296 bn in demand and production. This creates a unique opportunity for companies in the ESDM (Electronic System Design & Manufacturing) sector to look at India as their next destination to cater to the domestic Indian demand as well as act as an exports hub.

A SUMMARY OF KEY SUCCESS FACTORS

• Some of the initiatives outlined in these policies are already in the process of implementation such as Preferential Market Access (PMS), Electronics Manufacturing Clusters (EMC), and Modified SIPS.
• Promote public-private partnerships to address the demand-supply gap with engineering graduates by 2015.
• Provision of the deemed export status of domestic products as they are substituting imports.
• Address >20% disability cost in developing domestic ESDM products thru normalizing duty structure and cost of working capital.
• Expedite EDF set up with initial focus on fabulous and ESDM startups. Encourage participation of the GOI in focus funds to develop an ecosystem.
• Mandate preferential market access (PMA) in all central, state government, and public sector units (PSUs) procurements with immediate effect.
• Establishment of 10 ESDM innovation centers across the country where electronic product ideas can be taken to prototype and end product.
• India specific standards for the key products catering to domestic need.

To summarize, some of the key drivers to realize the gap in demand would be a continued focus of the government on policies to enable electronics manufacturing, early success stories with initiatives like the fab and strong public-private partnership in this sector. There is every reason to believe given the macro-economic drivers coupled with strong policy support and public-private partnership, ESDM would be a sunrise industry in the coming years in India.