Excerpts from S Krishnan’s speech at the 10th G Ramachandran Endowment Lecture
India’s Digital Economy
Major companies like Qualcomm, AMD and IBM rely heavily on Indian talent for their design operations. This presents significant opportunities for job creation and economic advancement, particularly in research and development. The digital economy encompassing electronics manufacturing and digital companies, is growing at nearly twice the rate of the rest of the economy. The aim is to scale this segment to about a trillion dollars as India’s overall economy reaches five trillion dollars, translating to roughly 20 per cent of the total economy.
In the electronics manufacturing sector, India’s share of the global market stands at around 3 per cent, with China dominating at 60 per cent. To mitigate dependence on single sources and geopolitical risks, India aims to enhance its share of global electronics production. Historically, domestic electronic production in India was higher, but policies like the ITA agreement in 1997 led to increased imports and a decline in domestic manufacturing. While this facilitated easier access to IT products, the need for resilience and strategic autonomy now drives the push for growth in the electronics manufacturing sector. The goal is to triple electronics manufacturing to around USD 300 billion in four years.
Today, mobile phones alone represent about one-third of the total electronics output. Various segments such as auto electronics, IT hardware, medical electronics, consumer electronics and industrial electronics need to witness substantial growth to bolster India’s supply chains and ensure resilience.
Efforts in this direction are critical for the Ministry of Electronics and Information Technology. The growth is expected to exceed 17-18 per cent. It underscores the importance of a robust digital economy to propel India’s overall economic development.
AI and Industry 4.0
Technologies like AI, ML, robotics, cloud computing and IoT have the potential to revolutionise industries, economies and even organisational management and governance. However, despite the widespread adoption of 5G networks, we are yet to fully exploit their potential, especially in industries. In the context of India’s aspirations to become a major economy, the focus should not solely be on GDP rankings but also on improving per capita income and overall well-being. This requires leveraging technology to enhance productivity and ensure equitable distribution of wealth. However, technological progress must be accompanied by investment in human capital, providing people with the skills needed to thrive in the evolving job market. Reskilling and upskilling are vital.
Component Manufacturing
India has succeeded in relocating assembly and packaging units, contributing to about 18-20 per cent of value addition in mobile phone production. While achieving complete vertical integration may not be feasible, focusing on areas where India can make a significant difference and increase value addition to about 38-40 per cent.
Capacity building and encouraging industrial champions are crucial for private sector participation in global value chains. Indian conglomerates like the Tatas and the TI group are stepping into semiconductor manufacturing, indicating a shift towards high-value-added manufacturing. Notably, certain states like Tamil Nadu have become hubs for electronics manufacturing, primarily focused on assembly operations. However, this is labour intensive and it poses problems as the basic skill level is quite high in the state. These operations can be moved to locations where labour is available and states like TN can focus on value adding component manufacturing.
The concept of “China plus one” is gaining traction as companies seek to diversify their supply chains away from China. However, geopolitical tensions between India and China necessitate careful consideration. The Indian government is evaluating policies regarding direct investments and visa issuance for Chinese entities. This shift requires India to attract not only Chinese but also Taiwanese and American companies with manufacturing bases in China.
India houses 45 per cent of global GCCs
Today, India proudly exports over USD 200 billion worth of software services annually. However, the industry faces challenges, particularly with the emergence of artificial intelligence threatening traditional outsourcing models. This year has been particularly tough for many large IT companies, with decrease in headcounts and overall growth volumes.
To address these challenges and foster growth in the industry, one key opportunity lies in global capability centers (GCCs). India hosts around 45 per cent of all GCCs globally, showcasing its attractiveness as a destination for high-value-added services. They play a crucial role in delivering advanced services, especially in areas like design and semiconductor development. Promoting the establishment of more GCCs can create high-quality jobs and leverage India’s skilled workforce, particularly in STEM fields.
Climate action
Much of India’s startup innovation stems from the digital economy. As we discuss resilience and the potential impacts of climate change, technology emerges as a key solution. The ministry of electronics collaborates with other ministries, including renewable energy and environment, to develop technological solutions that mitigate climate change and promote sustainable practices. However, technology also poses challenges, such as the energy consumption of data centers, highlighting the need for efficient power management and renewable energy integration.
Addressing climate change financing involves technology-oriented solutions, particularly in mobility, transport and energy sectors. Power semiconductor manufacturing, including silicon carbide and gallium nitride, presents significant business opportunities aligned with the energy transition agenda, fostering sustainability and resilience. Embracing a circular economy, especially in electronics, gains traction as it emphasises recycling rare materials like lithium and gold. Startups, such as those at IIT Madras research park, and institutions like C-MET in Hyderabad, actively contribute to material recycling efforts, reducing dependence on external sources and mitigating geopolitical risks associated with material supply chains.
India’s Semiconductor Mission
Many of the programmes we’re currently designing and implementing, including the semiconductor mission, represent significant endeavours. This mission, in particular, stands as one of the largest industrial support programmes globally and one of the most generous subsidy programmes in industrial policy. With almost USD 10 billion allocated by the centre and an additional 50 per cent from states, the total impact amounts to approximately USD 15 billion. Notably, a substantial portion of this investment, around 75 per cent, is directed towards establishing new semiconductor facilities. Unlike traditional approaches where subsidies are paid upon production commencement, here, subsidies are disbursed progressively during the construction phase – a strategy crucial for semiconductor capacity development. The India AI mission, recently launched with a budget of about Rs 10,400 crore, holds significant promise in providing access to AI-based computing resources for innovators, startups, researchers and industries nationwide. Under the mission, supercomputing capacity, comprising over 10,000 GPUs (graphics processing units), will be made available within the next 24 – 30 months.
