Having carved a niche in global software development and services outsourcing, India seemed all set to take on the rest of Asia in the chip manufacturing business. This is because semiconductor firms such as Intel, Advanced Micro Devices and Freescale Semiconductor have already tapped India for chip design. But manufacturing continues to be an elusive dream. However, ground reality is in sharp contrast to what was widely expected?manufacturing is yet to commence. Instead, focus is shifting towards solar cell and photo voltaic module production, with state governments of Andhra Pradesh, Karnataka, Punjab and Gujarat announcing a slew of incentives.

For instance, Karnataka recently announced its semiconductor policy, offering various incentives to encourage solar photo voltaics manufacturing, start-ups into chip design and embedded software, research and development in the semiconductor sector and the setting up of assembly, test, marking and packaging (ATMP) facilities in the state. Industry analysts inform that several states in the country, notably Andhra Pradesh, Delhi, Karnataka, Punjab, Kerala, Orissa, Tamil Nadu and West Bengal, are in a race to attract Indian and foreign companies to set up facilities for electronics production and solar cell and solar panel manufacturing.

Jaswinder Ahuja, corporate vice-president and managing director, Cadence Design Systems (India) says, ?Solar photo voltaic fab activity will help build up the ecosystem, infrastructure and manpower base that is required for the more resource intensive semiconductor fab plants. All semiconductor hubs today have taken their own routes to develop their semiconductor ecosystems, and assembly, test, marking and packaging (ATMP) plants and solar photo voltaic fabs could be the route for India.?

The move by various Indian states to attract solar cell and photo voltaic module production coincided with global chip sales decline in 2009. According to Semiconductor Industry Association, worldwide semiconductor sales in 2009 were $226.3 billion, a decline of 9% from 2008 when sales were $248.6 billion. Thankfully, sales in the final quarter of 2009 were supported by healthy demand in a variety of end markets including personal computers, cellphones and consumer electronics, with China and India, two key emerging markets, driving demand. Sales especially picked up considerably in the last quarter of 2009.

Notwithstanding the fact that India had announced a semiconductor and electronics policy in 2007, harsh reality is that proposals worth billions of dollars for various projects are still awaiting clearance for subsidies and other concessions. What ails the semiconductor ecosystem in the country? Is it really wise to bypass semiconductor manufacturing? Is design still the best bet for semiconductor players or are there any impediments on the path to manufacturing? Above all, is the move to solar justified?

Industry analysts maintain that India will remain a global hub for semiconductor design. It is expected to strengthen in future, as all the major semiconductor companies are outsourcing their high-end design work to the Indian design centres. The captive design houses, that started off as contributing to just a small portion of overall design, have now evolved to design complete chips and solutions which are establishing the prominence of design activity happening in India.

However, despite dominance in design, the country is yet to build up the ecosystem to become a hub for semiconductor fabrication. Some of the prominent reasons that continue to mar India?s chip fabrication dreams are?the poor state of infrastructure, promotion of indigenous electronics manufacturing, as well as lack of emphasis on ecosystem development.

Vivek Sharma, regional vice-president, ST India operations and director India Design Centres says, ?Design companies are well established in India for some time now. However, since the market in India is still limited and estimated at only 3% of the global demand, it does not justify setting up a plant particularly front end manufacturing in India to serve domestic market. The export market is another possibility, which however, is very competitive.?

It is imminent that first the domestic electronics manufacturing needs to expand sufficiently in order to have high semiconductor needs to justify a fab for local market. At the same time the demand for solar is expanding rapidly which can justify the setting up of solar fabs. Such centres will play an enabling role by providing solutions for power conversion, storing, which in turn, can help electronic manufacturing and the overall value chain, Sharma adds.

Incidentally, the Indian solar photo voltaic market has come of age in the last two to three years, with the market growing from a 10-member sector to a well-organised market with more than 30 world-class photo voltaic module and cell suppliers. The aggregate module production capacity rose from less than 60 MW in 2005 to more than 1 GW in 2009, setting India up as a possible major manufacturing hub for the global solar photo voltaic market. In its recent report, Frost & Sullivan finds that the aggregate module production capacity in the market was 972 MW in 2008 and estimates this to reach 2,575 MW in 2015.

According to industry estimates, India?s electronic equipment consumption will grow about 5.5% in 2010 and by about 11% in 2015. This is a clear indication of the vast opportunities open to semiconductor companies in the country. The demand for electronics products and services in the Indian market is projected to grow to $125 billion by 2014 from $45 billion in 2009 and touch $400 billion by 2020.

Hemanth Nayak, industry analyst, Frost & Sullivan says, ?Successive reforms in the power sector and a plethora of policies initiated at the central and state level to control green house gas emissions and promote renewable energy has restored investor interest in the solar power industry.? The market can look forward to large-scale private investments across the photo voltaic value chain, especially in the production of polysilcion feedstock, silicon wafers, photo voltaic modules and cells, he adds.

To fuel the solar story, the Jawaharlal Nehru National Solar Mission (JNNSM) announcement is expected to infuse the much-needed competitiveness in the domestic market. This programme is mainly aimed at the wide-scale deployment of solar farms, roof top-based generation and rural electrification. Its implementation can benefit module suppliers, solar PV/solar thermal-based independent power producers (IPPs), and system integrators.

Deepa Doraiswamy, industry manager, South Asia and Middle East, automation and electronics, Frost & Sullivan observes that chip fabrication requires uninterrupted supply of ultra-clean water and electricity, both of which continue to be India?s Achilles? heel. Lack of well developed and well connected transport system is yet another woe for India. These are areas where China has been able to win over from India, attracting potential investments that were to happen in India, for instance, Intel?s fab unit. Also, despite the continuous increase in demand and consumption of almost all electronic products, the local manufacturing of most of the electronic products in the country is very limited. For instance, products like notebooks, LCD TVs and set-top boxes that have been growing in excess of 50-75% year-on-year are 90-100% imported with very limited assembling happening in the country.

As far as chip fabrication is concerned, the government did introduce the Semiconductor Policy in 2007, which is due to expire in March 2010. This policy has attracted some investments, but predominantly on the photo voltaic module side. The economic downturn for most part of 2008 and 2009 had also put a curb on investments by semiconductor firms. Industry feels that the policy needs to be extended till 2012 or better still, till 2015 for it to bring in the desired investments.

In the short term, the industry feels that it is a good start to see the investment in the solar photo voltaic sector. But in the medium term, the government should address the issue of backward integration as it is likely to ensure that more value-added activities are carried out of India. India Semiconductor Association (ISA) chairman BV Naidu feels that there are huge growth opportunities for the electronic industry in India, but there have been some missed opportunities in the past decade. ?While the future holds a lot of promise, we need to address existing challenges in infrastructure, taxation, supply chain and logistics, labour laws, R&D and funding,? he says.

Perhaps, Freescale Semiconductor India vice-president and country manager Ganesh Guruswamy best summarises the mood in the industry: ?While we are seeing a drastic growth in the manufacturing of electronic component with more and more original equipment manufacturers (OEMs) setting up manufacturing units in the country, the semiconductor manufacturing still has a way to go.?

In such a scenario, solar is perhaps the best bet.