Where is Indian electronic ecosystem headed?

The electronics industry is one of the fastest-growing industries in India where a major section of the society is handholding smartphones or tablets, or they are delved into working in laptops, which are connected to routers for internet connection. Electronics at home include televisions, printers, washing machines and air-conditioners. Total electronics market in India in 2019 – 20 was around $120 billion, according to press release published by MeitY in January 2022.

About $44 billion worth of the products are imported and $76 billion worth of the products are produced domestically. However, the domestic manufacturing value add was only 15 percent to 20 per cent , which is a very big challenge for this industry. This industry is expected to grow to $300 billion by 2025-26 as per this report by MeitY which includes $180 billion of local demand and $120 billion of exports.

Electronics manufacturing analysing the value chain of any electronic product suggests that 40 per cent value is in to components of PCB which are semiconductors, passives, connectors, display and battery. Now, there is hardly any component manufacturing ecosystem existing. So, we are importing more than 90 per cent components as we don't have domestic manufacturing of these components, missing out on 40 per cent value.

Next big value is into IP and technology design. We are doing very well as design services for the world or in captive design centres of the global company however IP value does not get recognised for India. There are very few product companies that are designing and manufacturing electronics products from India.

So, many times again, we miss out on the value of IP technology by acquiring a CKD or SKD kits from a global companies and only do SMT assembly or system integration in India, which gives only 10 per cent to 12 per cent in local value addition. In the whole process what's happening is that we are ending up doing very low value add manufacturing. This is the biggest challenge that the Indian electronics ecosystem has.

Development of electronics ecosystem

creating a component manufacturing ecosystem or supporting the Indian startups and Indian IP creator companies for successful product development is a step towards development of electronics ecosystem. Recognising IP technology in India also creates high manufacturing value addition.

Government of India has announced schemes of PLI, SPECS , Semiconductor Wafer Fab Policies, Design Link Incentive and EMC 2.0 have emerged as strong enabling instrument for attracting investments into the electronic industry.

With the new 3 Semiconductor Fab Policy, SPECS programme for Components and Design Link Incentive Scheme announced by Government of India "high value added "eco system will be possible.

Global semiconductor market was $440 in 2020, by 2030 it will be more than $1 trillion. Indian semiconductor market stands at $15 billion (Rs 1.13 lakh crore) in 2020 and is estimated to reach $63 billion (Rs 4.73 lakh crore) by 2026. Current Semiconductor Local manufacturing in India is less than 1 per cent.

Semiconductor industry can be broadly classified under three categories: Logic, Memory and DAO (Discrete, Analog and Others) with 42 per cent, 26 per cent and 32 per cent of the industry revenue, respectively.

India has great talent for VLSI chip physical design, Verification and related software development . All major global Semiconductor companies have their captive Design centers in India and our Design services industry doing major projects. There is great need to develop local fabless industry.

DLI Scheme to Develop Fabless Design Ecosystem

Tenure: Applications under the Scheme will be initially open for three years from January 2022. The applications received under the scheme will be appraised on an ongoing basis and implementation will continue as per the approvals accorded under the scheme.

Incentives under the scheme: Financial incentives shall be provided to approved applicants under the Scheme in the following manner Product Design Linked Incentive - Reimbursement of up to 50 per cent of the eligible expenditure subject to a ceiling of Rs15 crore per application will be provided as fiscal support to the approved applicants who are engaged in semiconductor design for integrated circuits (ICs), chipsets, system on chips (SoCs), systems & IP cores and semiconductor linked design.

The applicants should submit their proposals for development of semiconductor design for integrated circuits (ICs), chipsets, system on chips (SoCs), systems & IP cores and semiconductor linked design that can be demonstrated in an operational environment and are ready for volume production.

Deployment Linked Incentive - Incentive of 6-4 per cent of net sales turnover over 5 years subject to a ceiling of Rs 30 crore per application will be provided to approved applicants whose semiconductor design for integrated circuits (ICs), chipsets, system on chips (SoCs), systems & IP cores and semiconductor linked design are deployed in electronic products.

Semiconductor Wafer Fab Schemes in India: There are three schemes

CMOS Semiconductor Fab: This is for CMOS Fab for Logic or Memory or Ananlog: Wafer Size 300 mm.

Minimum Investment : 20,000 crores (approximately $3 billion).

Display Fab: Generation 8 & above TFT (Thin Film Transistor) LCD OR Generation 6 and above AMOLED (Active-Matrix Organic Light Emitting Diode) Capacity: 60,000 Panels / month or more for TFT LCD and 30,000 Panels / month or more for AMOLED

Minimum Investment : 10,000 crore (Approximately $1. 4 billion)

Compound

Semiconductor Fab: Silicon Photonics/ Sensor Fab / ATMP / OSAT For Power Semiconductor/ RF / LED/ Opto Devices / MEMS Sensors

Compound semiconductor market has witnessed rapid growth in the recent years. Increasing demand and adoption of emerging technologies in the semiconductor industry is one of the primary factors driving market growth. Moreover, rapidly increasing use of compound semiconductors in power semiconductors, radio frequency devices and LED applications is expected to drive the demand for the compound semiconductors even higher. Compound Semiconductors provide faster switching at high power with increased energy efficiency and suitable for high temperature applications.

Minimum Capital 100 crore and government support: 30 per cent

For ATMP / OSAT, minimum capital: Rs 50 crores and Government support: 30 per cent.

There are other components which also contribute around 15 to 20 per cent value which does not requires high investments like semicon wafer fab, components like capacitor, resistor, inductors don't require a very high investment or high tech management chain. Also, the Bare PCB, Connectors and Displays, LEDs, Analog ICS or MOSFETs - all these components don't really require a very high 4 or 5 billion dollar investment. So, we should be focusing on at least going after these low-hanging fruits. And that will also give 15 to 20 per cent value addition.

The Indian government is driving the "Make in India "program and Production Linked Incentive Scheme to encourage the development of electronics manufacturing ecosystem. But my point is, these incentive schemes should leverage developing local high value added ecosystem not just CKD assembly of the kits.

Mindset for success

Manufacturing things in India requires strong technology differentiating products, as without a differentiator, developers will be always competing on the price and not be competing on technology and feature. When developers are thinking of any high-volume product development or design, they should think what differentiator they are bringing, what is the unique selling point in their design. A developer should be creative, innovative, and have some next generation technology differentiator like IoT/ AI/ ML which is a breakthrough technology.

Indian Electronics manufacturers cannot compete with global players without proper planning as global players strategise and manufacture at a larger scale of volume. They get better costing and support from the component manufacturing system.

The $120 billion market is moving forward to reach $300 billion by the year 2025-26. It is evident that the market is growing and the OEMs have to create products designed in India, create a component ecosystem in India as well as focus on qualifying the products at global markets.

In India, many companies just go ahead with the available components or available microcontroller or processor and after working hard for one or two years, they realise that whatever product they have developed, either it is too expensive, or it is not meeting the market specifications or expectation fully. They again go back to drawing board and start redesigning or redevelopment.

So, one piece of advice for all the design teams or CTOs is to ensure that when developing any new solution or any new platform, you have to take care of techno-commercial aspect of the architecture or at the design stage.

During the design stage, you have to spend quality time to explore what are the options available to develop any particular solution. If you have a technically competent team, then your design cycle time is shorter. Ultimately success of any project or any program depends on the time to market, how quickly you complete the projects, how quickly you qualify that project, and how quickly you manufacture and take that product into the market.

Another important thing is when you are starting any new program or project, we must be doing the TAM (Total Available Market) analysis for a particular product. Your entire planning of manufacturing should be based on market competition, product price point, features offered by competitors and how your product can be different and affordable. Once you know the potential of the opportunity which you are developing, you can really plan based on target market share you wish to capture.

All these points are very important for project planning and successful electronics product development.

Electronics is a very large opportunity for India and developing high value addition to the ecosystem is a need of the hour.

(The author is CEO of Arvind Consultancy. He has more than 35 years of working experience as India Country Head in renowned American companies in India, National Semiconductor, AMD, Freescale Semiconductor, PMC Sierra and Arrow Electronics. He contributes impeccably to component and electronic industry. He is also Ex-Chairman of IESA.)