The Aakhya Weekly #58 | Notes from Semicon India 2023

Jul 28, 2023

We return to you with the third instalment of our recurring series on the semiconductor sector in India, straight from the sidelines of SemiconIndia 2023! For our regular readers, welcome back; and for those of you who are new, we strongly recommend that you read Semicon Games I and II to get a bit of context. Do stick with us as we track the progress of India’s new foray into the (yet) uncharted waters of the global semiconductor industry.

Semicon season is here

Semicon India 2023 began today in Gandhinagar, Gujarat, with PM Modi inaugurating the event. Semicon India is an annual conference organised by India Semiconductor Mission (ISM) under the aegis of the Ministry of Electronics and Information Technology (MeitY).

This year’s Semicon India is the second chapter of the conference, with the flagship event launched last year. ISM itself was launched in December 2021 as a standalone unit to proactively drive growth of the semiconductor industry in India. As we noted in Semicon Games II, the global chip shortages caused by the Covid-19 pandemic and the Russia-Ukraine conflict have had a debilitating impact on many sectors like mobile phones, electronics, automobiles, and so on, which rely heavily on these chips to manufacture their products. This has caused everyone - from governments at the highest level to chipmakers and electronics companies - to rethink their priorities from the perspective of protecting the global semiconductor supply chain. This is where India has come in.

Day 1 of SemiconIndia 2023 began with a momentous announcement – with US-based chipmaker Advanced Micro Devices (AMD) announcing its plans to invest around US$400 million in India and build its largest design centre worldwide in Bengaluru. The investment is expected to create 3,000 new engineering roles within the next five years, with the design centre slated to come up by the end of this year. AMD Executive Vice President and Chief Technology Officer Mark Papermaster announced the investment at the inaugural session of SemiconIndia 2023. AMD Inc. is at the forefront of cutting-edge semiconductor technology, having recently released the new Ryzen 7000 series chip with a built-in artificial intelligence (AI) engine, geared at AI content creation.

It's raining chips!

The year 2023 heralds the beginning of a new journey for India, which has taken up the challenge of entering the crucial sector of semiconductor manufacturing. A few short weeks ago, Prime Minister Modi embarked on his first State visit to the USA. The trip was viewed as a resounding success and was marked by a few key announcements relating to investments in India’s semiconductor ecosystem.

The first of these announcements came from Micron Technology – a world leader in manufacturing of memory chips – which has committed to investing up to $825 million in setting up a semiconductor assembly and test facility in the western State of Gujarat. Micron’s CEO Sanjay Mehrotra, who is also present at Semicon India 2023, stated that the upcoming Assembly, Test, Marking and Packaging (ATMP) project in Gujarat will create close to 5,000 direct jobs and about 15,000 additional employment opportunities in the next few years. ATMP facilities are critical to the global semiconductor supply chain, and are viewed as a first step towards naturally establishing full-fledged capabilities in the sector. India’s Eastern neighbour, China, also began its first foray into semiconductors a few years ago by establishing ATMP facilities. Not only do such investments create jobs in themselves, the ensuing agglomeration effects can ensure that similar industries sprout nearby. One investment can, in time, set the ball rolling for many more.

Another key announcement during PM Modi’s US visit was from Applied Materials, which is looking to build a collaborative engineering centre in Bengaluru with an investment of US$400 million. Applied Materials has been working closely with several academic institutions such as the Indian Institute of Technology, Bombay, where it has founded a Materials Development centre that focuses on research and innovation related to chemicals and materials required by the semiconductor industry.

Lam Research India has also announced its intentions to contribute to India’s semiconductor ecosystem, with a pact with the Centre for Nano Science and Engineering at the Indian Institute of Science (IISc), Bengaluru to develop a customised course on fabrication technology using its own software that could be adopted by universities across India to upskill engineering students. Lam Research also previously announced that it will use the Government’s skilling ecosystem to train 60,000 highly qualified Indian engineers in nanotechnologies in the next decade.

Microchip Technology has also thrown its hat into the ring, announcing a US$300 million investment in a new research and development facility at Hyderabad, with a capacity for about 1000 employees focused on R&D. Microchip is also expanding its footprint in India, with sales offices in multiple cities.

SemicOnwards!

The flurry of investments by foreign chipmakers in India in recent weeks indicates a favourable wind for India's semiconductor ambitions. The Government has promised to roll out the red carpet for all those who are interested in setting up business in this sector in India. As PM Modi said in his inaugural address, the question in just the past year has changed from “why invest?” to “why not invest?”

Setting up capabilities in semiconductors will be a long and arduous journey, but chipmakers have indicated their confidence in India and are willing to pledge their support in making this ambition a reality. Semiconductor capabilities will open India up to a range of avenues as a potential manufacturing hub, and will reinforce India's position as an invaluable contributor to the global supply chain. India's burgeoning engineering talent and tech-savvy youth are poised to meet this challenge. We look forward to seeing it happen.

Top Stories of the Week

India imposes ban on non-basmati white rice

In a bid to stabilize domestic prices and ensure sufficient availability, India imposed a ban on non-basmati white rice exports on July 20th. This move follows similar restrictions in 2022, where India introduced a ban on broken rice exports and a 20% export duty on non-basmati rice. Despite these measures, India's rice exports increased by over $25 per tonne in the year, signaling the complexity of the market dynamics at play.

The ban on non-basmati white rice exports is expected to reduce its worldwide availability by approximately a fifth. Non-basmati rice, favored for its affordability, is especially popular in regions like Bangladesh, Nepal, and parts of sub-Saharan Africa. The reduction in its supply may prompt import-dependent nations to explore more government-to-government deals to overcome shortages and control escalating prices. As the largest rice exporter in the world, accounting for 40% of global trade, India's decision could have significant consequences on an already vulnerable market. Adding to the worries is the potential effect of a strengthening El Niño in South and Southeast Asia, which may further reduce rice production, compounding the ban's impact. With India’s recent ban, the Food and Agriculture Organisation’s monthly rice-price index has also reached its highest level since the 2008 food-price crisis, heightening concerns about increased food price volatility.

The severity of the ban's impact hinges on several factors, including weather conditions in the coming weeks and the duration of the export restrictions. If India allows sales of non-basmati rice to neighboring countries or if the ban proves temporary, the market impact may be limited. However, a prolonged "hard" ban could have far-reaching consequences. India's export ban could lead to market disruption as seen in the food price hike of 2008 when Vietnam's rice exports ban caused other countries like India, China, and Cambodia to follow suit, resulting in a 52% increase in global rice prices. If more countries impose export restrictions, prices could surpass the levels observed in 2008.

A credit guarantee scheme for animal husbandry

The Ministry of Fisheries, Animal Husbandry, and Dairying launched the first-ever "Credit Guarantee Scheme" under the Animal Husbandry Infrastructure Development Fund (AHIDF) to provide collateral-free credit for MSMEs in the livestock sector. The scheme aims to enhance the credit delivery system and support entrepreneurs in the vital livestock industry, which contributes significantly to India's rural economy. Lack of access to credit has been a major obstacle for first-generation and underprivileged individuals in the sector, who lack collateral security for their ventures.

The AHIDF Credit Guarantee Scheme has two primary objectives. First, it aims to provide financial assistance to underserved segments in the livestock sector, with a special focus on supporting first-generation entrepreneurs and underprivileged individuals without collateral security. Second, the scheme intends to incentivize lenders to prioritize project viability while offering credit facilities, based on the primary security of the assets being financed. This initiative seeks to promote investments in various aspects of the livestock sector, including dairy and meat processing, animal feed plants, breed improvement technology, waste management, and veterinary vaccine and drug manufacturing facilities.

The scheme includes an interest subvention of 3% on loans, allowing MSMEs to avail up to 90% of the total project cost from scheduled banks and the National Cooperative Development Corporation (NCDC). To facilitate this, the scheme establishes a Credit Guarantee Fund Trust of Rs. 750 crores in partnership with NAB Sanrakshan Trustee Company Private Ltd, providing credit guarantee coverage of up to 25% of credit facilities extended to eligible MSMEs by lending institutions. Additionally, a user-friendly, rule-based B2B portal called the "credit guarantee portal" has been introduced to streamline access to the scheme.

There remain certain obstacles to the success of the scheme. Potential beneficiaries may not be aware of the scheme and its provisions. Lending institutions also have limited reach in rural areas, where the livestock sector is prominent. Evaluating the creditworthiness of MSMEs in the livestock sector, particularly those without traditional collateral security, may pose difficulties for lenders. Specialized expertise is required to assess the viability and risks associated with livestock projects, which some lenders may lack. Although the scheme is well-intentioned, to be effective, it must be alive to these difficulties and find ways of overcoming them.

A Few Good Reads

Milan Vaishnav and Jamie Hinston discuss the issues with India’s impending delimitation exercise, and the solutions to its conundrum.
Ben Tarnoff looks at why Joseph Weizenbaum, the inventor of the first chatbot, turned against AI - and what that says about how we should view the technology.
Are Indian start-ups innovating? They are, but not in a conventional sense, argue Aneesha Chitgupi, Karthik Suresh and Diya Uday.
Kiran Sharma, Sanskrita Bharadwaj and Faisal Mahmuh explore how the Bramhaputra and Bangladesh have become sites over which the India-China conflict plays out.
Riya Sinha makes the case for American spending on South Asian infrastructure.

The Aakhya Weekly