India has one of the world’s largest software industries with a valuation of more than $200 billion, but the hardware industry is still at the nascent stage with a very small number of electronics items being manufactured in the country. And, the primary reason behind this is the lack of capacity in semiconductor manufacturing.
Semiconductors are the most essential element for any electronics product. The global semiconductor industry is valued at around 481 billion dollars as of 2018 and is dominated by companies from the United States, South Korea, Taiwan, and Japan. For the last few months, China is also pushing for indigenous manufacturing of semiconductors because the Trump administration crippled its electronics industry with a ban on the export of American-designed models to China.
Now the Indian government has also taken an initiative for indigenous manufacturing of semiconductors which shall lay the foundation for a strong electronics manufacturing industry in the country. “The government will give cash incentives of more than $1 billion to each company which will set up chip fabrication units,” a senior government official told Reuters.
“We’re assuring them that the government will be a buyer and there will also be mandates in the private market (for companies to buy locally-made chips),” s/he added.
In the last few months, countries around the globe including India are facing an excessive shortage of semiconductors. Automobile manufacturers, which are among the major consumers of chips because every vehicle today has some components that work on semiconductors, met with the government regarding developing indigenous capacity in semiconductor manufacturing.
Due to a lack of capacity in the semiconductors, India imports laptops, tablets in large numbers from countries like China. India imports laptops worth $5 billion every year and around 70 per cent of that comes from China. The laptops worth $3.5 billion which are imported from China every year could be manufactured in India if the government incentivizes the manufacturing of these and puts severe restrictions on cheap imports.
The global market for laptops and tablets is around $240 billion with major markets being the United States and the European Union. Given the fact that China’s relation with western powers is worsening with every passing day and the trade war with the United States is set to intensify further, India has the opportunity to become an integral player of the global electronics supply chain.
The United States recently banned the export of semiconductors to Chinese companies, India could fill up vacant space and become an electronics manufacturing powerhouse. Given the fact that India is already the second-largest player after the United States as far as the software industry is concerned, an edge in hardware manufacturing would make the country a tech powerhouse.
The future of any economy depends on consumer electronics given the fact the world is getting digitized at an unprecedented rate. India, along with the United States, is already a leader in the software component and now the government needs to work on an aggressive expansion of capacity on the hardware front. Only then India can become the third pole of the global economy with the United States and China.