India’s standing in electronics industry

G Srinivasan
It is small wonder that the government is quite serious on its objective of spurring overall semiconductor ecosystem
Even as India’s overall exports seem gaining tepid traction in the wake of a pronounced slowdown in world trade, electronic exports are doing its mighty mite by clocking robust growth. This is borne out by the salutary show of electronics goods exports during fiscal 2022-23, aggregating $25.3 billion over its fiscal 2021-22 performance, logging an increase of 49 per cent. A particularly praiseworthy point to note is that in the fiscal 2022-23, the electronic goods sector surged ahead to get into the sixth slot among all merchandise goods exports, overtaking readymade garments (RMG) segment for the first time. Interestingly, it positioned itself in the fourth spot in manufacturing goods front, kindling hope of making the overall manufacturing segment to get its niche in the country’s industrial and consumer goods exports, going forward.
It would be pertinent to dive into the components that constitute the country’s electronic goods exports that range from computer hardware, peripherals, and electronics components to medical and scientific equipment and instruments. With the government handholding a few strategically chosen sectors for focused thrust in recent times, electronics has emerged as the biggest beneficiary industry, cornering a considerable chunk of spurs proffered to the industry. India’s advantage in direct manufacturing costs as an export podium is illustrated by a recent study report of the Boston Consulting Group (BCG) titled ‘Harnessing the Tectonic Shifts in Global Manufacturing’ which contended that the average cost (including the factory wages, productivity, logistics, tariffs and energy) of Indian-made goods imported into the US is about 15 per cent lower than those goods being manufactured in the US, thereby giving a distinct price competitiveness to the domestic consumers there. The study specifically cited India’s shipment of semiconductors and materials to the US saw a significant spurt of 143 per cent over the past five years. Already the government has set in motion the Semicon India programme with a total outlay of Rs 76,000 crore spread over a span of five years for the development of semiconductor and display-manufacturing facilities. With a flexible structure, the programme is designed to extend financial support and fillip to firms investing in semiconductors, display manufacturing and design ecosystem in order to make the pathway smoother for the country’s increasing presence in the global electronics value chains. The Future Design: Design Linked Incentive (DLI) Scheme has been approved as part of the Semicon India Programme to encourage and bolster design and deep tech start-ups involved in semiconductor production system in the country. The Future Design: DLI Scheme is aimed at extending financial spurs as well as design tools support across various stages of development and deployment of semiconductor design(s) for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), System & IP Cores and semiconductor linked design(s) over a period of five years. As semiconductors remain at the core of electronics, it is small wonder that the government is quite serious on its objective of spurring overall semiconductor ecosystem to further broaden the country’s already expanding electronics manufacturing and innovation ecosystem. In response to a query in the Rajya Sabha, Union Minister of State for Electronics and Information Technology Rajeev Chandrasekhar said on July 28 that as per the industry estimates, several thousand chips are being designed every year in India with more than 1,25,000 engineers working on the various facets of semiconductor chip designs, R&D and verification. The Minister conceded that as on date, the country does not command any significant contribution to the global semiconductor manufacturing industry as there is no commercial semiconductor fabrication; still, he added sans much ado, that India contributes to the semiconductor design industry in a big way as it is one of the leading centers for global semiconductor design companies. Most global semiconductor design companies have set up design R&D innovation centres in India, due to exceptional semiconductor design talent pool making up to 20 per cent of world’s semiconductor design engineers with a high number of design patents/intellectual property rights (IPRs) having been registered in India.
Critics have however carped at this tall claim stating that many efforts need to be put in place to strengthen domestic design talent capability substantially and in substantive ways. Even as some dollop of fillips such as the design-linked incentive scheme exude hope in this regard, the bulk of outlays remain focused on the assembly and subsidising of big manufacturers, with most of the raw or basic building blocks and intermediate materials still being imported heavily, draining foreign exchange.
With the constraints in the elbowroom for what PLI funds could do laid bare loud and clear, multinational chipmakers are covertly uppity to make solid commitments. That is the reason why the authorities have to claim that “the withdrawal of Foxconn from the joint venture with Vedanta for setting up a semiconductor fab in India was their independent business decision”. It is interesting to recall that the former RBI governor and a well-known economist Raghuram Rajan was skeptical about extending huge investment spurs to overseas investors for the development of semiconductors and display manufacturing ecosystem when it was unveiled a couple of years ago. Rajan said there was no surefire guarantee that these companies would continue their operations once the fillips move into the sunset clause. But the erudite tech-savvy Union Minister of Electronics and IT Ashwini Vaishnaw scoffed at such apprehensions, even as the response to the PLI on semiconductor and design system has not been overwhelming. Against this evolving setting, private investment is also volatile in its course of direction to focus with advancements in chips and emerging technologies such as artificial intelligence, rendering the policymakers surmising on how efficiently to allocate resources to enhance their technological position for the foreseeable future.
The option is clear as to weigh warily by the authorities, so contend policy wonks — is this an issue of safeguarding cyber sovereignty to protect the country from any supply-chain shock, goading the domestic electronics industry to make electronics goods cheaper for droves of consumers or moving towards making India as a global electronics manufacturing hub?
Meanwhile, a study recently published in the India Business and Trade (IBT) journal of the Trade Promotion Council noted that the domestic consumer electronics market saw phenomenal growth in the first half of the year.
The technical consumer goods (TCG) sector, covering a host of electronic goods and gadgets, showed an 8 per cent growth in overall value compared to the same period of the preceding year. According to Gfk Market Intelligence that monitors physical store sales, the value of smartphones and mobile phones rose by 12 per cent, despite a 4 per cent drop in sales, reflecting the growing preference among consumers to go in for advanced features and innovative experience in their electronic devices. This is reflected in the fact that during the first half of 2023, there was a noticeable growth in the premium smartphone segment that covers phones priced above Rs 30,000. Such premium smartphone sales volume registered a remarkable 50 per cent surge coupled with a 54 per cent growth in value. Citing the GfK Consumer Life 2022 report, it said that Indian consumers have a yen for an immersive entertainment experience, with audio home systems and PTV/Flat television sets exhibiting a higher growth trajectory.
All these figures demonstrate in no unmistakable terms that the indigenous electronics industry is adjusting to consumer preferences for aesthetic visual delight in the purchase of sophisticated electronic sets, going forward that augurs well for the industry with the government coming forward to help ramp up volume by conducive policy spurs to the industry for enlivening the lives of demographically youthful populace!
(G Srinivasan is a senior economic journalist based in New Delhi)