ESDM sector a challenge for ‘Digital India’

In the previous post, we saw how E-Governance is an integral part and a vital factor in the success of Indian government’s ambitious Digital India programme. Here we will see the factor which has the potential to be a major road block for India’s digital future. The factor which could become a ‘spanner in the works’ of Digital India is India’s excessive dependence on imports of critical electronic components mainly semi-conductors, to meet the voracious appetite of its electronic products consumer.

With high level growth in GDP rates and increase in the aspirations levels among youth in the country, the consumer demand for electronic products is galloping. According to a government report, the total demand for electronic hardware goods would become $400 billion by 2020. At present levels, Indian manufacturers would likely be able to cater only $104 billion worth of demand, the rest of the demand would be met through imports.

The situation is more pathetic when it comes to semiconductors. India imports 95% of its semiconductor requirements from outside. The future high growth industries like mobiles, wearable gadgets, aviation, defence, auto-mobiles, home automation, drone technology, solar power PVs etc all have semi-conductors as a common critical component. Because of this, the demand for semiconductors will grow exponentially in coming years. Also with Indian government’s thrust on smart cities and ‘Digital India’ programme, the demand for electronic hardware and semi-conductors will further increase.

It was an Indian engineer Vinod Dham, who created the first Pentium Chip for Intel. But ironically, in 2014-15, India met 65-70% of its demand for the electronics system design and manufacturing (ESDM) products through imports.

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ESDM sector

For the ‘Digital India’ programme to succeed, India needs to have easy access to affordable digital tools including internet related equipment, telecommunication and other electronic products. Also India needs to possess the know-how of cutting-edge technology in semi-conductors and related research domains.

Heavy dependence on imports of EDSM products is a major problem for these reasons:

  • Dependence through imports on other countries, for our technology needs does not translate to easy accessibility for India. This is because international politics is a relatively volatile arena and one cannot take for granted indefinite supply of exports to India even from close allies.
  • Indigenous manufacturing of EDSM products would be much cheaper than importing of the same, so from affordability point of view India needs to overcome the problem of import dependency.
  • In 2014-15, India spent around $90 billion of its foreign exchange reserves to import electronics products, this produces a great stress on our current account(deficit increases as our imports exceed exports, reducing our foreign exchange reserves). According to government, by 2020 the total import bill for electronic products would exceed that of crude oil bill. For a favourable Balance of Payments(BoP) situation, India needs to develop a indigenous EDSM manufacturing base.
  • Also, EDSM industries are labour intensive. According to India Electronics and Semiconductor Association (IESA), the industry has a potential of creating 27 million jobs in the coming 5 years. By depending on imports, we are denying job opportunities for our young people.
  • As the world is transforming in to a Knowledge economy, the country which possess the most advanced technology will have the most advantage. Countries regulate their manufacturers from exporting critical technologies which could be used for strategic purposes. For long term needs of the country in the domain of Space technologies, Nuclear research, alternate fuels etc, India needs to develop an indigenous research and development base in semiconductors which are one of the critical components in any advanced S&T project.

Recognizing the importance of indigenous manufacturing base of semiconductors for the success of Digital India programme, government needs to dovetail its flagship programmes of ‘Digital India’ and ‘Make in India’. India presently do not have the required technology to set up its own FaB plants making it dependent on the technology of other countries. Government needs to encourage FDI investment from companies like Intel, present in advanced economies to set up their semiconductor fabrication plants and ‘Make in India’, in partnership with Indian companies. The government has taken some steps in this regard to encourage investment and young entrepreneurs of the country to set-up indigenous plants. Through these efforts government hopes to bring down the import dependency of ESDM sector to 50% by 2016-17.

There has been a positive news last week regarding this issue. Government is planning to invest $10 billion in two semiconductor plants(these have been already selected by in 2013) and another $400 million investment in a micro-processor unit to kick start ‘Make in India’ programme in the electronics sector.

However, there exists many challenges for building the two planned semiconductor wafer fabrication(FaB) units:

This industry is highly capital intensive, but with government’s backing by providing financial assistance and subsidies on land and power, this hurdle could be overcome.

In 2007 itself, AP government had created a SEZ type dedicated area of 1100 acres called ‘FAB city’ to encourage manufacture of semiconductor devices in India. But the project could not take off for several reasons, the failure was mainly blamed on the slow down in the global economy because of the 2007 financial crisis which dried up investment and demand. The global economy is slowly recovering but an immediate global crisis could have effect on India’s ESDM manufacturing future.

FaBs require huge volumes of water and large acres of land, allocation of these natural resources to MNCs would have political consequences for the government. As we have seen activists halting/delaying other such strategic and long term projects(ex: Kudankulam nuclear plant) in ‘public interest’, government needs to show considerable resolve to push through these plants.

Though road & port infrastructure is not a big issue for FaB plants, twenty four hours power supply is again crucial for them which is available in only some parts of the country.

Another challenge is the lack of skilled human resources. Indian students have good skills in designing Semiconductor ICs but lack material knowledge of electronics which is needed for manufacturing. This is the reason why chip manufacturers like Intel have offices in India where designing of ICs takes place but do not have FaB units here. Indian institutes need to be encouraged to conduct cutting-edge research in chip designing and manufacturing and encourage pure science in universities rather than overemphasising engineering.

Overcoming all these challenges would not be easy but doing so would result in the success of government’s ‘Make in India’ and ‘Digital India’ programmes; and make us ready to face challenges of the future better.


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