By 2020 the demand for electronic goods in India is expected to breach the US$400 billion mark, with the import bill estimated to set the country back by US$300 billion. In fact, it is expected to trump the energy import bill. India is staring at an import nightmare of unprecedented proportions that can push the country into a spiral of high imports that would necessarily require higher external and internal borrowings. There are several South American economies that have gone down that route for us to learn our lessons and not implode. The National Policy on Electronics (NPE) 2012 is primarily aimed at ramping up India’s Electronic Design and Manufacturing (ESDM) capability. It is by far the most comprehensive policy intervention inpost-independent India to boost indigenous production of semiconductor components and chips. The policy comes on the back of a strong and sustained demand for consumer electronic goods that accounted for a hefty bill of US$125 billion last year.

However, just about 10 percent of India’s consumption was produced internally; the rest was imported. In the last two decades China has become the second largest manufacturer of electronics goods in the world with its sales revenues crossing US$840 billion in 2013. This development must necessarily be seen in the context of China having overtaken the US in 2010 to become the world’s dominant manufacturing economy. China beat its competitors in world manufacturing, notching up US$2.9 trillion in output in 2013. In contrast, the US generated US$2.43 trillion. The Indian sales revenues for the year 2012 stood at slightly above US $68 billion, less than even one-tenth the size of the Chinese juggernaut.

What is interesting to note is that in 1995, less than two decades ago, the annual sales revenue of China’s electronics manufacturing industry–– which the Chinese government curiously insists on referring to as electronics information industry––was only worth about US$48 billion, which is less than India’s billing of 2012. Yet, in less than 20 years China has become a global powerhouse: its annual revenues from the electronic manufacturing sector have routinely grown three times faster every single year in the last decade than the national GDP growth rate. In fact, it has outstripped the growth in machinery, manufacturing and metallurgy industries. Interestingly, however, the value addition of the sector has consistently hovered around the 23 percent mark compared to a rising national average across other sectors, which is now touching almost 33 percent. It is a stark indication of how difficult it is to research, develop and own technologies, and set up domestic semiconductor and chip manufacturing bases, as opposed to setting up assembly-based units. China has obviously done something right. At the very least it has created the right policy environment for an appropriate eco-system for electronics manufacturing to grow by leaps and bounds. Just as there are several humbling positive lessons to learn from its neighbour, there are also some pitfalls India has the opportunity to recognise and avoid. For instance, an analysis conducted in 2009 found that while iPhones, which are produced exclusively by Foxconn in China, contributed around US$2 billion, close to 0.8 percent of the country’s bilateral trade with the United States of America, all that China got out of every US$ 600 iPhone was US$ 6.50. That is slightly over 1 percent of a single unit’s value. China’s phenomenal growth in the space of ESDM and semiconductors shows that India is on the verge of a similar paradigm shift, especially in the context of NPE 2012. It is estimated that the Indian ESDM industry will grow at a compounded annual growth rate (CAGR) of 9.9 percent to reach US$ 94.2 billion by 2015.

The seriousness with which the Chinese are eyeing the Indian emergence can best be explained by an eccentric but true story. Charles Sterns, an American businessman and Chief Executive Officer (CEO) of Coral Springs, a Florida-headquartered specialty medical supplies company, was held hostage by his Chinese workers last year after they discovered his company’s plans to shift its entire production base to India, on the outskirts of Mumbai. He was, of course, eventually released. The story not only shows India’s attractiveness for a host of companies, but also showcases the perception of India as a serious competitor on the global stage. India has been particularly working with Japan and Taiwan to set up electronics manufacturing zones. Since Taiwan is not directly recognised by India, it is directly negotiating with several state governments, notably Karnataka and Tamil Nadu. Forty seven Taiwanese companies are already setting up their plants and offices at a 300-acre cluster zone near the Bangalore International Airport.

Additionally, indicating the seriousness with which Taiwan is looking at Karnataka, the Taipei Computer Association, a grouping of 4,500 companies, has set up an office in Bangalore. Similarly, in January 2014, the first India-Japan Joint Working Group on IT and Electronics announced the setting up a Japanese Electronics Industrial Township in India. India has also extended a package of incentives to Japan in order to encourage investment in ESDM. The government has also given its go ahead for setting up of two Semiconductor Wafer Fabrications manufacturing facilities, with each plant requiring an investment of approximately Rs 25,000 crores. These plants will employ over 22,000 people, and indirectly provide benefits through ancillary jobs and employment to over 100,000 people. Initially each plant will produce 40,000 wafers per month of 300mm size, but in the second and third phases wafers of 90, 65 and 45, 28 and 22nm sizes will be produced. While these wafers will be sufficient to power devices like energy meters, inverters, auto electronics, instrumentation panels of bikes and low-end tablets like Aakash, India will still require technical and production capacity to fabricate wafers of 10-14nm size to power high-end electronics products. It is this age-old challenge of developing indigenous research and development, fabrication expertise and capacity that the NPE 2012 seeks to overcome.