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Inside India?

Inside India?
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First Published: Mon, Feb 26 2007. 12 22 AM IST
Updated: Mon, Feb 26 2007. 12 22 AM IST
Five years ago, tech analysts and industry insiders were dismissive of India’s potential as an electronics manufacturing destination. The country, naysayers (including N.R. Narayana Murthy of Infosys Technologies) said, had no chance of catching up with high-tech Meccas Taiwan, Southeast China, Korea, Israel, even Malaysia and Singapore. By 2004, cell-phone vendors—from Nokia to Motorola—were looking at India seriously for manufacturing. Cut to today: Nokia made some 25 million phones at its Chennai facility in 2006 and is scrambling to get its component suppliers to set up shop locally.
Having noted the rapid growth in India’s cell-phone and automobile sectors, semiconductor manufacturers—a powerful section of the global electronics ecosystem—are naturally attracted. They want a part in India’s electronics market that’s projected to grow more than a dozen times to cross $360 billion by 2015. Demand for chips in these segments could top $40 billion. Chipmakers, from Intel to AMD, have therefore urged the Indian government to make a splash into electronics. The lobbying seems to have worked. On Thursday, communications and information technology minister Dayanidhi Maran said India would, as part of its semiconductor policy, give up to a quarter in tax exemptions and capital subsidies to semiconductor fabrication facilities, known as fabs or foundries.
Will the policy help stoke multi-billion dollar investment in fabs in the country? The answer is a cautious yes. The fiscal support just about levels out the playing field—Israel offers 25% and Germany 40%—in an intensively competitive global market. Already, two companies have announced plans exceeding $3 billion; a few more are in the pipeline.
But here’s the sobering part: Most of the investment will be in low-end semiconductors used in low-end mobile phones, automobiles and television set-top boxes. Not for the top-end chips that go into computers, gaming consoles and third-generation phones.
Still, the market for the low-end semiconductors is not small: Chipmakers estimate a chip going into a mobile phone average at $20 each and the chips going into a car cost about $80-100. In two years, the market for chips from just these two industries will exceed $2 billion. Chips used by televisions, microwave ovens, printers, projectors, refrigerators, DVD players and other consumer electronics will account for more.
Would local chip plants have any edge over their competitors? They would have a small edge, since shipping these low-end chips from Taiwan or Korea involves additional costs—of shipping.
A key risk in setting up a local semiconductor plant is availability of the high-purity water used by chipmakers. Fabs require as much as 3 million gallons (more than 11,300 kilo-litres) a day. Given that the cost of purifying ground water is prohibitively expensive, chipmakers will have to depend on river water. Chip-making facilities, under pressure from environmental groups, do deploy water-recycling technologies. But even the best of these return less than a third of the water used. This issue could therefore spiral into a larger debate and pose a distinct project risk.
Can India become a competitive chip-making destination? Comments are welcome at views@livemint.com
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First Published: Mon, Feb 26 2007. 12 22 AM IST
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