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Semiconductor industry poised for dynamic growth in India

The meteoric rise of many user industries means an assured vigorous market

FAB FACILITY: Vinod K. Agarwal (right), President and CEO of SemIndia, signing a memorandum of understanding for setting up a Rs. 13,500 crore Fab City in Andhra Pradesh in the presence of the Chief Minister, Y. S. Rajasekhara Reddy (second from right), in Hyderabad recently. — Photo: Sivakumar P. V.

SEMICONDUCTOR PRODUCT consumption in India is still in early stages of growth as compared to developed economies. Several Asian countries joined the electronic manufacturing bandwagon early and built a strong electronic manufacturing industrial base to address primarily the export markets. During this period, India had a good engineering tradition focussed on the import substitution model for electronics manufacture. This combined with a complex taxation system contributed to a limited local electronic product manufacturing base reflected in low consumption of semiconductor products.

In the last few years, rapid liberalisation of several segments of industry and commerce combined with sustained GDP growth and world class software and services export business has pushed IT and communication product consumption in the country. Added to this, rising living standards and increasing disposable incomes have seen a surge in the consumption of consumer durables and hence demand for semiconductor products.

The major semiconductor user segments are mobile phones, communication infrastructure products, IT products such as computers, printers, display systems, networking products, televisions, industrial automation, process controls, point of sale terminals, audio equipment, washing machines, microwaves, energy meters, security systems, automotive electronics, defence electronics and space programmes.

Boost from telecom

The early 1990s saw rapid expansion of telecommunication networks in India. This along with indigenously manufacturing of switching and transmission equipment was the primary driver of semiconductor demand. The other key segments which supported the growth were indigenous designed computer systems and the television industry.

However, with the growth of wireless communication and slower expansion of terrestrial networks, manufacture of communication products declined. At present most communication infrastructure equipment such as switches, base stations and transmission systems are imported. Along with this, the entire range of mobile handsets used in the country is imported. As this market has grown at a phenomenal rate foreign suppliers are considering local manufacture of these products to serve the market more effectively and also reduce costs.

In the years to come, telecommunication along with wireless mobile phones, will drive semiconductor demand. In these segments India will also become a net exporter of manufactured products.

Strong production base

Consumer electronics is another fast growing segment. A number of international majors along with several local companies are competing to provide the latest products to Indian consumers. This will call for domestic production of electronics products and demand for semiconductors. Rapid computerisation of trade and commerce and the exponential growth of software and services industries has led to massive demand for IT and networking products.

With high consumption levels, manufacturing these products locally makes economic sense. Already a number of international and domestic companies have commenced their operations in India.

The growth in consumption of electronic products and the recent changes in regulation by the Department of Communications to encourage local manufacture for infrastructure products have attracted a number of foreign companies to establish manufacturing facilities in India.

These are expected to use India as a base to balance their global requirements. This is another vector that will fuel the growth of semiconductor consumption in the country.

India also leads in several segments. It is worthwhile to note that India is a leader in design, manufacture and deployment of digital energy meters. It has also led the way in electronics voting machines manufacture and their use in a massive way.

With the explosive growth of the automobile industry in India and stiffer enforcement of environmental and safety regulations, another user segment for electronics is emerging in a big way.

Automotive electronics such as engine management, cluster controls and safety systems will be key drivers for semiconductors.

A related area is infotainment and telematics in the automobile segment. These require complex DSP and analog semiconductor products. Television and entertainment is huge business in India. This is also a major source of entertainment for large sections of the Indian society. This segment is another major consumer of semiconductor products. This will continue to grow.

India with its large engineering and technical manpower is a major design destination for global players. This along with manufacturing will give it a distinct advantage in electronics products manufacturing. If this advantage is fully exploited by India it will create a number of new jobs and business opportunities in the future.

India will be a major electronic products consuming country in the near future and the trends are already there to see. No major global semiconductor producer can ignore India as a market.

Biswadip Mitra

The author is Managing Director, Texas Instruments India (Private) Ltd.

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