Indian electronics industry worried as local manufacturing share expected to decline by 2012

India’s electronic chip market — an indicator of overall electronics consumption — grew by a whopping 28% in 2010 — according to research conducted by the Indian Semiconductor Association and Frost & Sullivan.

The consumption of electronic chips — almost none of which is produced in India — rose from $5.1 billion in 2009 to $6.55 billion last year, thanks to booming sales of mobile phones.

Memory chips made up the biggest chunk of semiconductors consumed by Indians, contributing around 23.4% of the total revenue market.

Mobile devices, including tablets, accounted for $2.07 billion or 32% of the total market, almost as much as the $2.05 billion worth of chips consumed by the computer and office automation industry.

Chips, called Semiconductors, are used in all electronic equipment, including home appliances such as refrigerators to computers and defence and automobile equipment.

The Industry, led by the Indian Semiconductor Association, has been trying hard to put pressure on the government to give incentives to foreign and local companies to start making the chips in India itself. At present, not only are the chips not made in India, but even the finished products — such as mobile and laptops — are also made close to where the chips are made — China or South East Asian countries.

The absence of local manufacturing of final products such as computers was brought out in the report by the ISA.

The lowest proportion of local manufacturing was seen in the computer industry, with just around $600 million of the $2 billion chips consumed by Indian manufacturers. The remaining chips, though destined for Indian consumers, are bought by foreign manufacturers who they ship the finished product to India.

The proportion of local consumption was nearly double in mobile category, partly due to the presence of a huge Nokia manufacturing plant in Chennai. Nearly $1.25 billion worth of chips, around 63%, was consumed by Indian manufacturers.

Similarly, out of the $1.25 billion worth of semiconductors consumed by telecom equipment, $632 million, or half, was consumed by India-based players.

However, the ISA expressed worry that the total Indian addressable semiconductor market — the proportion consumed by India-based manufacturers, is projected to decline with the rapid growth of the electronics industry.

The semiconductor consumption itself will grow from $6.55 billion to $9.86 billion in just two years — a growth of around 23% per year — as more and more Indians buy electronic goods. The addressable market — denoting local manufacturing — will grow from $3.14 billion to $4.71 billion, the report forecast.

The proportion of Indian manufacturing is expected to decline in mobiles, computers and automotive, according to the forecast.

With India’s electronics and chip import bill set to rival that of its oil import bill, the ISA called for immediate action by the government to stem the tide.

“The need of the Hour is a focused mission for local electronics manufacturing promotion,” the ISA said in its report, “If, o2011-2020 is Indian Electronics Industry’s Golden Decade…. it Ought to be the Indian Semiconductor Industry’s Silver decade.”

Among its suggestions are sbsidies for manufacturing; funds for R&D; extended tax breaks; hardware development parks etc..