Can India Capitalise on the Next Chip Wave?
Article By : Faisal Kawoosa
India isn’t quite ready to lead the next wave of the chip industry. But it does have the potential if conditions are right.
Industry, government, and other stakeholders in India are cognizant of the electronics industry’s potential not only to strengthen the country’s presence on the global stage but also to advance technology in other domains for the greater societal and economic good. Fully exploiting that potential, however, has proved elusive.
New efforts in electronics are unfolding against a backdrop of haphazard economic development in India. Growth initiatives have been skewed toward the country’s urban centers, even as the majority of the population remains rural (about 66.46%, according to the World Bank), meaning that a large percentage of the populace does not see the full benefits of investment and development. For too many, access to quality infrastructure, education, and health care is a dream unfulfilled.
Since 2010, there has been a focus on the role that technology, and especially electronics, can play in harmonizing growth across India. For the chip industry in particular, four pillars of growth have been identified: an enabling and visionary policy regime, world-class infrastructure capable of creating world-class products and services, access to adequate and easy funding to propel growth, and a deep talent pool with the proper training to develop intellectual-property (IP) and knowledge repositories.
The government’s National Policy on Electronics (NPE) 2012 laid out a formal foundation for growth in the sector. The recently announced NPE 2019 is fundamentally aligned with the earlier policy but adds initiatives to promote exports out of India as well as enable the requisite volumes to give companies the justification to establish operations in the country. Those goals apply to the entire electronics industry, not just the chip sector.
Since the policy framework was created in 2012, government initiatives have included establishment of incubation centers for product and IP development, modified special incentive packages (M-SIPs) to attract investments in the sector, creation of an electronics development fund (EDF) to enable more risk-taking and provide funds for R&D, establishment of manufacturing clusters, and funding for Ph.D. programs in electronic-systems design and manufacturing. In addition, a preferential market access (PMA) policy was invoked in February 2012 to promote the procurement of domestically sourced electronics for use in security-related products and by government agencies. Around the same time, the government also approved plans to build two fabs in India, and a couple of global players expressed their intent to participate.
Looking at these policy interventions, especially between 2010 and 2014, one would assume that by now, India would have charted a strong new growth trajectory for the chip industry. There has been some progress in manufacturing, especially with the “Make in India” initiative, but overall, the domestic value addition has been negligible, even in marquee products. In mobile handsets, for example, the domestic value addition is not more than 15%, and India still relies significantly on imported components from a global supply chain.
The small value-add clearly does not result in any real growth in opportunities for the chip industry within India, other than in design services and embedded software — contributions to the value chain that are exported out of India and then consumed via products or components imported into the country. The entire Make in India program, including the phased manufacturing-program roadmap for components, mainly promotes assembly of electronic systems and components and has done little to foster homegrown manufacturing- and engineering-level companies.
Industry has voiced two primary concerns with respect to implementation of the policy. First, setting up a business under the single policy objective is a time-consuming process that can take years to implement in a tangible form. Second, the bureaucratic procedures and strict guidelines that need to be followed strip risk out of the process but leave decision-makers too little leeway for discretionary, creative problem-solving.
While positive overall about the policy, Jaswinder Ahuja, corporate vice president and managing director at Cadence Design Systems India, said that the country still lags in the implementation and time to execute.
P.V.G. Menon, president and CEO of VANN Consulting and former president of the India Electronics and Semiconductor Association, took issue with the one-size-fits-all approach. “The implementation of the policy has to be tailor-made [for] the vertical,” Menon said. “We cannot look at each vertical with the same vision.”
The fab question
The three weak links in India’s chip industry — semiconductor fabs, incubation centers, and manufacturing clusters — are at different levels of progress.
The house is still divided on whether India should have its own fab. Those who argue in favor of a fab presence cite emotional as well as strategic reasons. Ahuja comes down on the side of a domestic fab but has suggested that 28nm might be the most economically viable technology node for such a facility. Not only would it be less capital-intensive than a 10 or 7-nm fab program, but in the history of semiconductor manufacture, the 28nm node has been the longest-serving and has yielded the highest volumes.
As for incubation centers, there are two potentially good ones. Electropreneur Park, the first systems-design–focused incubation center, is funded by the Indian government, managed by Software Technology Parks of India (STPI), and located on Delhi University’s south campus. The other center is Maker’s Village Cochin, a startup initiative of the government Ministry of Electronics and Information Technology (MeitY) with the Indian Institute of Technology (IIT) Trivandrum and Kerala Startup Mission.
These two institutions lead product development and IP creation for electronic systems in India and are fostering the startup ecosystem. There could be more incubation centers to come that would target specific industry verticals and geographies. For example, the city of Pune, which is the hub of automobile design in India and caters to global markets as well, could accommodate an incubation center for automotive electronics.
Funding shortage for fabs and startups
Funding is the most serious concern for the chip industry in India, especially in relation to a potential fab buildout and the funding ecosystem for startups.
Even after a commercial launch of its product, a chip startup might find it doesn’t have access to the capital that could help it become self-sustainable. There aren’t enough avenues in the venture-capital and private-equity markets, probably because of a lack of benchmarks for investors to evaluate business plans and the potential return on investment.
Furthermore, the boom in digital startups, whose business models are often easier for the investor communities to understand, makes those startups potentially more lucrative investments in terms of returns with known risks. In comparison, the risks in the chip industry are rarely exposed to the funding ecosystem available to Indian startups, especially outside of India.
Talent in abundance
The least of the chip industry’s challenges is talent, though the higher up the value chain you look, the scarcer the required expertise becomes. If India is to catch the next wave of chip industry growth, it has to nurture a talent pool of engineers whose skills extend beyond the country’s traditional strengths in design, verification, and embedded software.
Cadence’s Ahuja pointed to one significant development globally.
“Historically, there have not been many chip architectures available; but as we see more AI [artificial intelligence], ML [machine learning], and other forms of deep tech scaling up and [posing] new challenges, the chip architecture also needs to change,” he said. “This is what startups globally are working on. India also stands a chance and must focus on this area. However, we may not have the requisite talent levels to do this.”
If the country pursues the requisite skills with vigor and steers its knowledge base in the right direction, it could see a couple of startups emerge in the semiconductor value-chain domain. But Indian companies need an environment to accelerate this potential, or they will find it frustrating to build a business in India.
For example, it took Saankhya Labs, developer of a software-defined-radio SoC platform, 10 years to reach a point where it could see a sustainable future, said CEO Parag Naik. It would have taken only three to five years to achieve the same result if Saankhya Labs had been based in Silicon Valley, he said.
Over the past decade, government intent has been somewhat aligned with industry’s aspirations. But implementation of chip-industry–friendly initiatives has been slow, and the government and private investors alike remain averse to the risks associated with investment in electronic-systems design.
India isn’t quite ready to lead the next wave of the chip industry. But it does have the potential if conditions are right.
Faisal Kawoosa, Founder and chief analyst at techARC, which provides market insight and advice in areas such as consumer tech, telecom, and semiconductors in addition to contributing to policy advocacy in India.