Towards a Modern Nation of Semiconductor Manufacturing

With an ambitious aim of taking the share of manufacturing in the country's GDP from about 16% to around 25% by 2025, as per the National Manufacturing Policy, the government has turned the spotlight on to all key manufacturing segments that will help substantially boost industrial output, employment and exports. Undoubtedly, India has a huge market for electronics. With demand projected to reach $400 bn by 2020, the importance of this industry in nation-building is undeniable.

The growth opportunities in India are unparalleled. Driven by a growing population with rising per capita income, rapidly increasing domestic demand and a stable economy-more and more devices are being consumed by the domestic market. The penetration of cell phones, tablets, laptops, and other smart devices has moved beyond the metro cities and penetrated into tier-2 and -3 cities as well. The boom in e-learning and e-governance initiatives has also been contributing to the rising demand for electronics in India. Domestic consumption will continue to surge and the gap between demand and supply will only widen if domestic production which is at present less than 45% of domestic consumption does not catch up. Further, electronics exports are expected to reach $15 bn by 2014 and $80 bn by 2020. With the rising electronics import we may soon find the electronic import bill surpass the oil bill.

The Indian Manufacturing Sector

However, the Indian manufacturing sector has not kept up in line with the rising demand. The current and even future manufacturing will be with low value addition in the country. With an aim to increase the value addition in our country, we need to component ecosystem to move to India. In this direction, the government introduced Modified Special Incentive Package scheme (M-SIPS) programme and Electronics Cluster Programme as part of the electronics policy to foster India's electronics manufacturing sector. Issues like high transactional costs, high cost of power, and finance however, still continue to hamper the manufacturing of electronic components in India. The scheme therefore; aims to boost domestic and global investments in the electronics manufacturing sector; boost manufacture of semiconductors, components, and electronic products; reduce dependency on imports to procure semiconductors wafers, components, equipment, etc.

The electronics industry has a high potential for domestic value addition and creation, in segments like semiconductor design and electronics system/product design. Semiconductors represent the convergence of many devices, systems, and technologies and are widely recognized as technology enablers for the entire electronics value chain. If India really wants to add value addition, more and more design capabilities will have to be developed here. Design is a key element to the manufacturing industry especially in semiconductors and semiconductor manufacturing.

I was the Chairman of the Task Force that was set up in 2009, where many recommendations were aimed at changing the electronic design and manufacturing environment in the country. Our first recommendation was to focus on the creation of Brand India around electronics, the second was on semiconductor manufacturing-to encourage design and manufacturing in the country. Last year, the Department of Information Technology came up with an expression of interest for the same, and now the government has given approvals to two consortiums to set up semiconductor manufacturing units in the country.

Currently semiconductors form around 15% of the electronics market. Today, even all major cars have hundreds of microprocessors and these continue to increase. Even in industrial products electromechanical controls are moving to electronics. The total market for semiconductors in 2011 stood at $6.03 bn which will grow to $9.66 bn by 2015 according to a recent Indian Semi-Conductor Association report. However, the threat lies in the fact that most of these are being imported and not locally manufactured.

Semiconductor manufacturing in all countries across the world have received an impetus through major incentives from the government. India is also planning to provide these. India had also announced the preferential market policy to support more manufacturing and value addition.

However, the recent plan for a relook at PMA will be detrimental to the tremendous interest created by the electronics policy globally.

Core Advisory Group for Research and Development in the Electronics Sector (CAREL), also recommended that India must create its own Indian products at Indian prices like set top boxes, tablets, phones, micro ATMs, smart energy meters, smart cards. The only way these can be created is to use more and more SOCs (System on a Chip) etc, to add value and reduce cost. SOC designs usually consume less power and have a lower cost and higher reliability than the multi-chip systems that they replace and with fewer packages in the system, assembly costs are reduced as well. Hence, there is a move towards more and more SOCs being created to build cost effectiveness.

Strategic Needs

India as a nation has strategic needs of its own. Sectors like defence, space, nuclear, homeland security, etc, all form a major share of the manufacturing demand. In a scenario like this it is essential to build internal capabilities and a hardware cluster to manufacture and meet the growing demands as at any time we could be subjected to import restrictions as was faced earlier by the industry. If we compare India with Asian countries like China, Taiwan, Korea, Japan, etc, India still has a long way to go to establish its manufacturing and design capabilities in electronics. These countries have positioned themselves as experts in the semiconductor value chain, starting from design, manufacturing and right up to packaging, etc.

Growth across product segments including mobile devices, IT, consumer electronics, automotive and industrial growth has propelled the demand and usage of semiconductors. The government has done their bit to boost domestic manufacturing. It is time critical now to move fast and get semiconductor manufacturing off the ground. The need of the hour is to hasten the decision on simiconductor investments in India which in turn will also help spur more investments in electronics. With that the road for India to emerge as a major electronics location is not far.