The Aakhya Weekly #50 | India's Chip Game Plan
Semicon Games II: Decoding India's strategy
By Sujaya Sanjay
In last week’s edition, we examined the importance of semiconductors and understood why nations like India are looking for a place at a big table already dominated by players like the US, China, Taiwan, and others. This week, we delve further into India’s strategy as a new player (we are revisiting the poker table analogy from last week, so please bear with us, and we promise you it’ll be worth it!).
As a developing and growing nation in a key geostrategic position, India’s prospects as a semiconductor manufacturer are being viewed with interest by the dealer (the global semiconductor manufacturing companies), who is recovering from losses caused by global chip shortages following the Covid-19 pandemic and (more recently) the Russia-Ukraine conflict. The dealer’s position at this poker table is a powerful but vulnerable one; and in this case, its survival and independence will determine the continuity of the game. The current tech war between the US and China creates a window of opportunity for India to become part of this crucial value chain. If India makes progress as a player, it will bolster its own economic prospects and help subvert Chinese dominance, which threatens the dealer and – by extension – the whole table.
Opportunities
To win the game, India needs a pair of aces: (a) design; and (b) manufacturing to scale. There is a huge opportunity in semiconductor design, particularly in the Very Large Scale Integration (VLSI) segment and upwards. VLSI accommodates upto one million transistors on a single microchip and thus offers superior performance and speed, less storage space, and lower effective cost. As a result, VLSI chips are used in many devices – from computers and graphics cards to automobile safety systems and medical electronics systems.
Both design and production capabilities need to be developed in tandem – something that the Government of India has kept in mind while rolling out schemes. In December 2021, the Ministry of Electronics and Information Technology (MeitY) flagged off its Design Linked Incentive (DLI) scheme to provide financial and infrastructural support for chip designing in India – to local companies, start-ups, and MSMEs. The Government has prioritised the creation of indigenous intellectual property (IP) through chips designed in India for security and economic resilience. MeitY also announced a series of Production Linked Incentive schemes, targeting various portions of the semiconductor value chain.
Chip design, a crucial component (at which India excels), has a value-add of over 50 percent in finished electronics products. In design, India is already viewed as a serious player, accounting for 20 percent of chip design talent worldwide. Nearly all major global chip and microprocessor companies have R&D centres in India and are keen on investing more. The Government of India is looking to avail this opportunity by modernising the education curriculum, creating an ecosystem for industry-academia collaboration through schemes such as the Chips-to-Startups (C2S) initiative and Future Design roadshows in collaboration with India’s engineering institutions. The Indian Institute of Technology, Madras, has successfully designed India’s first indigenous microprocessor, SHAKTI, fabricated at the Semiconductor Laboratory (SCL), a government-owned fab at Mohali.
Indian India Semiconductor Research Centre (ISRC), which is in the works, is also expected to be established soon and will be steered by private industry to bolster research. SCL is also being modernised and will be co-located with the ISRC. (We are definitely covering SCL in more detail in a future edition, so stay with us!)
Challenges
Semiconductor manufacturing requires extremely specialised talent. To power its ambitions, India needs to develop the right kind of curriculum, ideally with industrial collaboration, to meet sector-specific skill requirements. In addition, designs being developed at India’s engineering institutes need to be developed to scale at sophisticated fabrication facilities.
Building a modern semiconductor fab and creating an ecosystem for its operation through infrastructural development and creation of supply chains is where India needs to go “all in” – a risky gamble at this early stage. A semiconductor fab is a complex ecosystem in itself and needs stable water and electricity grid connections, multiple supply chains for electronics components, a skilled team to operate the fab, and so on. To illustrate, the RISECREEK chip developed by IIT Madras was fabricated in the United States in a 20-nanometre facility, while SHAKTI (fabricated at SCL in India) was at a 180-nm facility. Modernising SCL and creating new, state-of-the-art fabs therefore is a priority. To to develop expertise in running a fab facility, India will need to rely on senior technical experts from outside India for at least the initial years – similar to how design capabilities were developed in India.
Other players (who have been at the table for a while) have already built up some of this ecosystem. No single player has a presence across the value chain, however, meaning that there is always space at the table, with ample opportunity and incentives to forge alliances. On the other hand, every player is also a potential competitor, looking to expand their own footprint in the sector. Economies like the US and the EU have a huge advantage over India, because they can offer higher amounts in financial incentives. Others like Vietnam and Malaysia are competing for the dealer’s attention by offering competitive tariffs and aggressively negotiating free trade agreements (FTAs) to build up their supply chain capabilities. India faces a tough challenge on both of these fronts, with high tariff barriers for entry into the electronics industry, and a greater reluctance to make large concessions for concluding FTAs.
The priority for India is to forge ahead by cultivating strong partnerships with players like the US, on which it has been working actively. In March 2023, India and the US signed an MoU to facilitate private sector cooperation in semiconductors and to develop a strong, resilient ecosystem – which the US has focused on in light of the recent global chip shortages. Further, preparations are underway to implement the Indo-Pacific Economic Framework (IPEF) supply chain agreement, through which India is, with US assistance, developing standards for goods and services for semiconductors and other strategic sectors.
Thus, India has several opportunities and is making use of them by rolling out incentives and is assessing the many challenges to building a semiconductor by leveraging partnerships and building local capabilities. It's still a new player, but with strong potential.
The game has just begun. Let’s see what’s in store.
Top Stories of the Week
No spectrum for private networks
In the latest turn of events in a long-running saga, the Department of Telecom has decided against allotting spectrum directly to private entities, supposedly because it could not be accommodated under the current legal framework.
If spectrum were to be allocated to private entities, they would be able to build out private cellular networks. The equipment for setting up such networks has hitherto been too expensive for a private entity to purchase, but recent innovations have now made this feasible. Much like our phones can connect to public 5G networks, any device with a compatible SIM card can access a private network. To the user, the network offers the same value as a wi-fi network. It is easier to deploy over large regions, however, and offers coverage to a wider area with better quality. It also allows one to simultaneously connect with many IoT devices at once.
Private networks, however, would eat into the enterprise services that telecom companies offer. While companies like Infosys and GMR seek spectrum from the government, telecom companies like Jio and Airtel oppose any such move.
After several flip-flops, the DoT approached Attorney General R. Venkataramani for his view on the matter. He reportedly noted that the move could invite questions, much like the 2G debacle. This appears to have prompted the DoT to change its view.
India-EU foster cooperation in advancing clean energy
Power and New and Renewable Energy Minister, R. K. Singh, convened a meeting with a prominent delegation from the European Union (EU) in New Delhi to explore avenues for collaboration within the EU-India Clean Energy and Climate Partnership. Leading the delegation was Frans Timmermans, Executive Vice President for the European Green Deal. The discussions revolved around various aspects of clean energy and climate action. Minister Singh underscored the surging power demands faced by India, forecasting a remarkable doubling of the country's capacity to 416 GW by 2030. Despite India's commendable low per capita and cumulative emissions, Singh highlighted its trailblazing role in energy transition and climate action. He emphasized the indispensability of energy storage to ensure round-the-clock renewable energy and a smooth transition to a net-zero emission economy. Singh proposed collaborative pilot projects with the EU, particularly in the realms of green steel and frontier technologies. Additionally, he lauded India's ongoing pilot leveraging hydrogen and ammonia for uninterrupted renewable energy supply.
The Executive Vice President of the European Green Deal praised India's leadership in renewable energy and energy efficiency, and put forth the suggestion of establishing global energy efficiency targets on the international stage. The discussions encompassed potential collaborations in grid-scale battery-based energy storage systems, recognizing India as a significant market for green mobility. Furthermore, the need to provide clean energy to underserved populations and detoxify agriculture were also addressed. The EU delegation, comprising Ugo Astuto, ambassador of the European Union to India, and other representatives, collaborated with the Indian delegation, including Power Secretary, Alok Kumar, New and Renewable Energy Secretary, Bhupinder Singh Bhalla, and other officials, to explore possibilities for fruitful cooperation.
This Week in Policy
Economy and Taxation
India’s GDP growth rate for the final quarter of Fiscal 2023 beat all expectations, clocking in at 6.1%. In a year where much of the global economy has come to a standstill, this pegs India’s estimated GDP growth rate at an impressive 7.2%. In more good news, India’s manufacturing PMI hit a 31 month high of 58.7.
The growth of India’s core sector industries fell to 3.5% in April, the lowest since October 2022. The same month last year saw growth of 9.5%.
Sustainability and Energy
Ministry of Power waives Inter-State Transmission Charges (ISTS) for offshore wind projects (commissioned by 2032), green hydrogen/green ammonia projects (by 2031), and projects drawing majority of their power from energy storage systems. Post the expiry of 100% waiver, the ISTS charges gradually increase on a predetermined trajectory.
Emerging Technology and Media
The Government of India has launched a pilot programme for the electronics repair services outsourcing industry in Bengaluru for three month on a trial basis.
The Reserve Bank of India will lead talks on cryptocurrencies and the associated macroeconomic and cross-sectoral risks at the G20 under India's presidency.
The Telecom Regulatory Authority of India will soon publish a Consultation Paper on proposed measures to address the issue of call drops and is working on improving Quality of Service (QoS) norms with a specific focus on 5G services.
International Trade and Foreign Affairs
External Affairs Minister S Jaishankar met with Minister of State for Foreign, Commonwealth and Development Affairs Lord Tariq Ahmad and discussed a range of issues including the Indo-Pacific, G-20, and the free trade agreement being negotiated between India and the UK.
India and China held high-level diplomatic talks on disengagement at the Line of Actual Control (LAC) and have agreed to hold the 19th round of talks in due course.
Healthcare
The next edition of the National Family Health Survey shall contain ten questions on COVID-19 and COVID vaccination. These include questions around people’s suffering during the pandemic, deaths, hospitalisation and financing.
Banking, Finance and Insurance
SEBI rolls out guidelines for Investor Protection Fund (IPF) and Investor Services Fund (ISF). The IPF guidelines surround the constitution of the fund, the role of trustees, contribution mechanisms, and the utilization of funds whereas, the ISF guidelines outline the purpose, funding sources, and utilization strategies for the same.
The RBI is proposing to introduce an expected loss-based approach for provisioning during 2023-24 as part of its course of action to strengthen the bad loan resolution ecosystem. This will permit banks to design their own credit loss models and spread the higher provisions over a five-year period under a newer system of setting aside money for lending.
Logistics and Infrastructure
The Indian armed forces plan to set up additional joint logistics nodes across the country to boost integration in their logistical needs and streamline their supply chains.
Government data shows that India's infrastructure output expanded by 3.5% year-on-year in April. Infrastructure output, which comprises eight sectors, including coal and electricity, accounts for nearly 40% of industrial output.
India's national security agencies, in collaboration with the tri-services, are presently engaged in a weeklong cyber defense exercise to assess the durability of India's essential civilian and military infrastructure.
Labour
Urban unemployment fell to 6.8% in the quarter of January - March, 2023, as per the NSO’s Periodic Labour Force Survey, from 8.2% in the same period last year. The rate was also lower than that for the preceding quarter, of 7.2%.
Tracking the G20
India, along with other G20 member countries, are negotiating to arrive at a common framework to define startups with a view to furthering the growth of new ventures. The 3rd Startup20 Engagement Group meeting will be held on 3 - 4th June, 2023 in Goa. A common framework would help investors and other stakeholders of the startup ecosystem in the G20 member countries. In other G20 news, the Second Disaster Risk Reduction Working Group (DRRWG) meeting came to an end this week, focusing on the role of social protection systems in mitigating the impact of disasters on the most vulnerable population groups. Additionally, the second meeting of the G20 Anti-corruption Working Group concluded on the 27th of May in Tehri, Uttarakhand.
India is also taking the G20 abroad, organising the Third Employment Working Group meet at the headquarters of the International Labour Organisation at Geneva.
Also, check out this op-ed looking at the widening schism between India and China, in light of China’s dissent of India hosting events in Kashmir.
Upcoming Events
National Summit on Trade Finance for Inclusive Growth
June 8 | New Delhi
ASSOCHAM is organizing the 4th National Summit Trade Finance for Inclusive Growth on the 8th June, 2023, in New Delhi. The main focus of the event is to promote problem-solving under the Trade and Investment Working Group (TIIWG), and showcase “India solutions” where possible. The summit will also talk about the potential of supply chain finance to set the sustainability quotient in buyer-supplier relationships. More Information
Harnessing Benefits of Nature Based Solutions for Ecosystem Restoration
June 5 | Virtual
FICCI is hosting the 3rd webinar on Harnessing Benefits of Nature Based Solutions (NBS) for Ecosystem Restoration on June 5th, 2023 as a part of its B4E Webinar series. The webinar will explore the nature-based solutions with special focus on ecosystem restoration and also deliberate on harnessing the long-term benefits from these solutions for sustainable economic practices. More Information
A Few Good Reads
Beulah Rose pens an intriguing historical piece in the Hindu about the commercial centre of ancient Madurai, and the roaring black pepper trade that drew merchants from as far as Rome in search of the spice.
Navdeep Suri critiques the opposition to the COP28 presidential delegate, Dr. Sultan Al Jaber, for its inability to truly conceptualise the world’s pathway to decarbonisation.
Despite its purported socialism, China is struggling to impose a property tax. Keith Bradsher examines a fascinating policy quagmire.
Most technological innovation is not an international race, writes Scott Alexander. Pradyumna Prasad pushes back, arguing that it very much is, and losing a technological race might just lose you a world war.
Read Sharda Ugra’s beautiful piece on the wrestlers’ protests.
Tweets of the Week
SRK tweets a love letter to the people of India with this video of the new Parliament Building:
An excellent new database:
Key Notifications and Reports
Department of Science and Technology has put out a report highlighting India’s Climate Research Agenda for 2030 and beyond.
The RBI has released its annual report for the year 2022-23.