Indian Semiconductor Market
Indian Semiconductor Market is one of the leading and fastest flourishing markets in the world and in India. As per government of India Task Force report (DeitY), gross size of the global electronics industry is evaluated at about US$ 1.9 trillion and is anticipated to reach US$ 2.4 trillion by 2020. The numbers are impressive and act as a big motivation for investments in this sector. The National Electronics Policy 2012 says the demand in the ESDM (Electronics System Design & Manufacturing) industry in India is expected to reach US$ 400 billion by 2020 as global electronics and hardware manufacturers are looking to increase their manufacturing base in India to cater domestic market as well as the Middle East, Africa and SAARC countries. Production is estimated to reach $104 billion by the year 2020, creating a gap of $296 billion. This creates a unique opportunity for companies in the ESDM sector to look at India as their next destination to cater to domestic Indian demand as well as act as an exports hub.
India has a low domestic manufacturing base and a low-value addition due to which the demand-supply gap is likely to reach US$ 300 billion by 2020. As compared to global leaders India is lagging considerably in the field of semiconductors and electronics. Around 90% of Indian Semiconductor Market is dominated by foreign players. Whereas, according to the Semiconductor Industry Association, China accounted for 44 per cent of the global semiconductor industry’s total revenue of $339 billion, in 2016. Chinese companies are acquiring US semiconductor companies, which has set off alarm bells in the US. Indian government and companies are taking note of this development in global Semiconductor Market and have implemented policies to promote manufacturing of semiconductors in India. In order to meet this appalling state of Indian Semiconductor Market, and to intensify local manufacturing and value-addition in electronics systems design and manufacturing (ESDM), the Department of Electronics and Information Technology (DeitY), Ministry of Communications and Information Technology (MoC & IT), along with the government of India have rolled-out the National Policy on Electronics in 2012. The NPE 2012 aims to draw investments of US$ 100 billion and to create employment of 28 million by 2020.
According to Union Minister of Information Technology, Foreign Direct Investment (FDI) in electronic manufacturing has reached an all-time high of US$ 18.34 Bn in 2016 primarily due to government reforms and it’s Make in India initiative. The Government of India has allowed 100 per cent Foreign Direct Investment (FDI) under the automatic route in Electronics Systems Design & Manufacturing sector. The Ministry of Electronics and Information Technology plans to revise its policy framework, which would involve the government taking a more active role in developing the sector by providing initial capital, with the aim to attract more private players and make India a global semiconductor hub. With the government of India’s flagship program ‘Make in India’ to push local manufacturing and with initiatives like smart cities and ‘Digital India’, the industry expects the country to reduce its dependency on electronics imports by 50 per cent by the fiscal year 2016-17.
India is the most lucrative market across the globe with 7.7% GDP growth rate in the 1st quarter of 2018. The impressive demographic dividend, continuous rise in the proportion of middle class, changing expenditure patterns are the distinguishing factors of the current Indian economy which are consequently attracting the global investment. The local demand Indian Semiconductor Market is anticipated to be driven by the growth in income levels directing to the higher take-off of electronics products. The government policies and incentives as well as the electronic manufacturing cluster policy will help the industry to grow at anticipated pace. Steps are being taken to boost domestic production of electronic items and cut down dependence on imports. These include enforcement of basic customs duty on specific items falling outside the ambit of IT agreement, levy of education cess on imported electronic products for parity, etc.
The key drivers to the Indian semiconductor market include telecom infrastructure equipment, wireless handsets, notebooks and other IT & office automation products, set-top boxes and smart cards. Growth sectors, including healthcare equipment, automotive, consumer goods and industrial goods – all of which progressively use electronics – are as well expected to encourage semiconductor consumption in India. With the location of a wafer fab in India, the country could achieve a level of independence in electronics and partly cut back the very high supply chain risks that the country is exposed to, without an alternative source for procurement.
Even as Indian Semiconductor Market grows, home-grown start-ups in the semiconductor sector are struggling for funds. The investments required are generally high, the payback longer, and it requires considerable domain knowledge and, more importantly, favourable government policies. If one was to make a check-list, there are some tick marks — domain knowledge and, to some extent, Make in India are helping the sector. But there are significant cross marks too. Funds is the biggest stumbling block in Indian Semiconductor Market. It feels ironical, considering the fact that the Indian Semiconductor components Market is expected to hit $32.35 billion by 2025, according to IESA.
The semiconductor companies are inclined to partner with the entrepreneurs and start-ups and assist them to accomplish the overall objective of growing the ESDM industry. The global giants are acting positively forming consortiums and creating various partnership models with Indian players in Indian Semiconductor Market. NXP Semiconductors which in partnership with Sony Corp. invented NFC technology in the first place has accompanied YELDI Softcom a recently established Chennai based NFC technology company to develop NFC handsets, cards, backend infrastructure and mobile apps. PVR, one of India’s premium and preferred retail Entertainment Company is now streamlining its retail function with NEC. These solutions empower PVR to enhance customer experience through better payment mechanisms and streamline its retail functions at a radically low total cost of ownership through its exceptional serviceability and reliability.
Indian Semiconductor Market is heavily dependent for semiconductor chip imports on Asian countries such as China, Taiwan, South Korea and Japan, although electronic manufacturing service companies in India have reached considerable maturity for final assembly, testing, packaging and distribution services. Chinese and Taiwanese companies compared to western players, are making the major inroads in Indian semiconductor market.
The ministry of electronics and information technology (MeitY) is revising its policy framework towards making India a global semiconductor hub, which will see the government taking a more active role, including initial investment, in a bid to attract private sector players. The existing policy has not worked as it offered little commercial viability for the private sector. Earlier, a Jaypee-led consortium pulled out midway from a project for setting up of a semiconductor wafer fabrication manufacturing facility. Recently, another consortium, led by Hindustan Semiconductor Manufacturing Corporation (HSMC) including ST Microelectronics and Silterra Malaysia, which had also received approval to set up a fab unit, has been facing challenges in tying up the funding. The two projects were worth Rs 51,000 crore. Still, India has a competitive advantage over other countries because of its large engineering skill pool. It offers a large pool of a technically and scientifically-skilled workforce. At the same time, the country has ample semiconductor design talent at competitive costs.
The future design companies in Indian Semiconductor Market will arise with the emergence of fabless design companies from India. These companies would be focusing on creating products for the Indian Semiconductor Market. India can take the lead in electronic systems design and electronic product manufacturing. The absence of systems or a legacy creates for India, the unique opportunity to leapfrog technology. The government of India has directed the department of electronics and information technology to ensure the net import-export balance for the sector to be brought down to zero by 2020. It is very encouraging to see an increased focus on the ESDM sector in the last couple of years and a significant amount of work was done to bring out National Electronics Policy and National Telecom Policy, by the government in consultation with industry. 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 Special Incentive Package Scheme (M-SIPS).