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Why the Cabinet Approval for Semiconductor Fabs is a Big Deal

ElectronicsYesterday, the Indian government approved 2 proposals to setup fab units in the country. The nearly Rs 25,000 cr investment is one of the biggest developments that has taken place in the sector. Here’s why it is a big deal.

1. India imports semiconductors worth around $7 bn a year, and this import bill is growing 22% annually. The growing outflow of dollar is not a desirable position for a country like India, where demand for electronics is growing at a rapid pace. India’s IT hardware import bill is expected to reach $400 bn by 2020 and surpass its fuel import bill!

2. Nearly 15% of an electronic device is made up of semiconductors. Having a local fab, will reduce our dependency on imports and improve domestic production. Fabs are core to the Electronic System Design & Manufacturing industry. A Frost & Sullivan report notes: Disability costs associated with the absence of an ecosystem has been a very critical challenge for electronics manufacturing in the country to take off.

3. It will take about 3 years for a fab to be production ready. Until then, the other parts of the chain can be developed, says the report. It notes: these Fabs can produce chips that go into some of the electronic products that will be high in demand in India in the near future such as set top boxes, LED Lights, smart meters, mobile phones, PoS terminals, smart cards and medical devices.

4. In an earlier interview, Abhi Talwalkar, President and CEO of LSI Corporation told me, if you look at the design + software talent we rate it higher as compared to China and even if you compare to Taiwan. According to Talwalkar the Electronic goods worth $400 bn (systems) would be about $40 bn in semiconductors. It is typically a 10:1 ratio. In the context of worldwide semiconductor consumption this year, it is about $325 or 350 billion. India can now not only design, but also fabricate semiconductors to cater to that demand.

5. “If you project that out another 6-7 years, it is over $400.  So India would be about 10% of the market. Ultimately consumption will drive what has to happen in terms of local capability, China is projected to consume more than half of the world’s semiconductor content in two to three years,” he says.   The report says: If India starts making at least 50% of its domestic manufacturing needs by 2015, it will create direct employment of 2 lakh. India already has a robust semiconductor design ecosystem.

Image Credit: Shutterstock

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