Monday, May 20, 2024

Growth Opportunities Connected With The Growing Semicon EcoSystem In India

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India must concentrate on electronics products and semiconductor components, as progress in one area reinforces the other. The country can unlock immense economic opportunities and enhance its global standing by aiming to capture a significant market share in these areas.

A country’s identity is determined by the products that the country creates, and technical progress is intrinsically linked to the innovative products that the country brings to the market. When we think of such a country, one name that often comes to mind is Japan. Products like Sony, Toyota, and Toshiba are synonymous with Japan’s identity. The types of products a country creates fundamentally define the destiny of a country and its place on the world map.

In the modern era, electronics and semiconductors have emerged as the lifeline for everyone. We use hundreds of semiconductor chips daily, driving almost every electronics product. From the moment we wake up to the car we drive, the computer we use, the mobile devices that keep us connected, movies and music we hear, electronics and semiconductor devices that drive them play an omnipresent role. These technologies are not limited to personal use – they permeate every sector, including education, mobility, healthcare, infrastructure, defence, space, etc. Electronics and semiconductors have become the foundation of our modern world and economies.

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Transformative impact of semiconductor on everything

Semiconductors have enabled most of the contemporary age technologies like 5G, IoT, AI, and others. AI has experienced unprecedented popularity and success in recent years and is considered the most critical technology of human evolution. We find AI applications in everything, from assisting us in crafting the perfect resume to solving complex problems in science & engineering. Generative AI today is transforming every industry. Although foundational AI algorithms such as ‘backpropagation’ and neural networks have existed for many years, they have not taken off because of limited computing and storage capacity. Simulating a simple neural network with just 500 nodes required a tiny supercomputer. However, the landscape has transformed dramatically over the years. The exponential growth in computational power and storage powered by semiconductors has been astonishing. Today, we can run very large language models (LLMs) with billions of parameters in seconds on our mobile phones—a task that would have taken a significant supercomputer decades ago. This quantum leap in semiconductor chips and storage has made AI successful, deployable, and accessible to various applications.

Fig. 1: India’s growth in the manufacturing sector

The growth in semiconductors and electronics has been the silent but indispensable driving force behind the success of AI, communication, electric vehicles, and other domains. What was once considered a computational challenge beyond reach is now a reality due to the strides made in these technological fields. Today’s computing power on mobile devices dwarfs what was available just a few years ago, demonstrating the monumental progress witnessed. These technologies have transformed daily lives and propelled AI and other applications to new heights, enabling it to harness its potential in previously unimaginable ways. The intertwined evolution of electronics, semiconductors, and AI showcases the power of human innovation and our ability to shape the future through technology.

Electronics: A thriving sector and manufacturing surge

India has seen remarkable growth and transformation in recent years. It is not just a nation with a burgeoning population of young and aspirational individuals but also a rapidly expanding market for electronics. The journey of India’s economic progress has been fascinating, and the evolution of its electronics industry is a pivotal part of this narrative.

India’s gross domestic product (GDP) reached the milestone of one trillion dollars ($1T) after nearly 67 years of independence. However, the subsequent years have witnessed an accelerated pace of economic growth. It took just seven years to reach the two-trillion-dollar mark ($2T) and another three years to accomplish the third trillion ($3T).

Fig. 2: Success story of mobile phone manufacturing in India from 2015 to 2022

This growth reflects the dynamic nature of India’s economy. The electronics sector has been on a remarkable trajectory at the heart of this growth. The consumption of electronics in India is surging from $67 billion in 2015 to over $310 billion in 2026, making it one of the country’s fastest-growing sectors. This sector’s expansion is driven by the aspirations of the Indian population and their increasing appetite for electronic devices for various aspects of life.

Along with the market, India’s manufacturing capabilities in the electronics sector have grown significantly over the past decade. From a meagre $35-40 billion in 2015-16, the nation is now poised to reach the $300 billion mark for electronics manufacturing before the decade’s end with more than $100 billion in exports. India has done an excellent job creating large-scale manufacturing capabilities that are growing quickly.

While India may manufacture a substantial portion of electronics for domestic consumption and exports, global companies design and own many of these products. More than 90% of the manufacturing in India caters to global brands and companies, leaving domestic product design and ownership at less than 10%. This situation poses several challenges. First, when India does not design its products, it has limited control over the choice of components used in these devices. Foreign entities primarily make decisions about components, suppliers, and quality in their headquarters, limiting India’s influence in semiconductor purchases

For instance, consider the iPhone. While it may be manufactured in India, the crucial decisions regarding its components, such as processors, memory, and connectivity chips, are made by Apple in Cupertino and its suppliers in places like Shenzhen, China. On the economic side, manufacturing companies, including global giants like Foxconn and Indian manufacturing companies, earn a small fraction of the product’s value, less than 10%. At the same time, the product and brand owner reap significant economic value and profits of upwards of 30%.

India needs to convert its outstanding ‘M’arket potential, strong ‘M’anufacturing foundation, and abundance of quality ‘M’anpower to develop India-designed products and brands to harness the economic and strategic potential of the electronics sector. This shift will enable the country to retain more value in production, create jobs, and enhance financial security. Security is a critical concern, as a lack of control over product design can threaten data and national security.

Chinese dominance in Indian mobile market

Self-reliance in electronics requires manufacturing and owning the designs and products. By doing so, India can ensure that its electronics industry remains sustainable, resilient, and economically fruitful in the long run. Manufacturing is essential and foundational, but manufacturing alone is not enough for India to move up in the value chain; domestic products and product brands are crucial to self-reliance and the growth of the economy.

India’s journey to self-reliance in the global electronics industry is complex and multifaceted. It requires leveraging the ever-growing manufacturing infrastructure and making India a hub of product design and innovation. This transformation will bolster India’s economic prospects and enhance its security and global competitiveness. As the nation continues to grow and evolve, it must take steps to shape its destiny in the electronics sector and truly become self-reliant through a good share of domestic products and brands and the preferred destination for manufacturing global products and brands.

The success story of mobile phone manufacturing in India, the journey from 2015 to 2022, paints a compelling picture. The green line on the growth chart illustrates a remarkable transformation, as mobile manufacturing in India surged from 1.69 billion units to an impressive figure and continues to grow. However, while the numbers represent strong growth in manufacturing, a closer look reveals a nuanced story of the growing dominance of global brands, especially Chinese brands, and the need for Indian brands to reclaim their lost market share.

Fig. 3: Learning from Dragon Strategy

The red curve tells a story of its own. In 2015, Chinese smartphone brands held less than 2% of the Indian market share. Today, they command more than 75% of the Indian smartphone market. The rise of brands like Xiaomi, Oppo, Vivo, and OnePlus has been meteoric. These brands have captured the market and become household names in India.


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