Semiconductor push: ‘Government doing everything to bring India at par with global chip industry’

With the world in the throes of a severe chip shortage and geopolitical tensions in Taiwan, which dominates the global chip market, India has taken the opportunity to plunge into semiconductor manufacturing. In December, the Indian government announced incentives of Rs 2.3 lakh crore ($30.7 billion) to make the country a global hub for electronics manufacturing, with semiconductors as the building block.

Sanjeev Keskar is a semiconductor veteran, with over three decades of experience. He headed the Indian operations of National Semiconductors, Freescale Semiconductors and AMD, and was managing director of PMC Sierra and Arrow Electronics, the $30 billion electronics and semiconductor distribution company. Keskar was also chairman of the India Electronics and Semiconductor Association (IESA).

Last year, in his quest to support ‘Make in India’ projects and drive electronics manufacturing in India, Keskar founded Arvind Consultancy, named after his father. He works to connect Indian entities with global technology companies and has been informally advising governments at various levels. In an interview with Moneycontrol, Keskar shared his thoughts on India’s road ahead. Edited excerpts:

India is very strong when it comes to semiconductor design… or any software development related to semiconductors. We are leaders in that. The only challenge is that the talent in India is working in captive design centres of leading global companies. We hardly have fabless product design companies from India, for India and global. We don’t have IP creations for India; all the IP created is for someone else, and patents are filed outside, which gets recognised outside.

The other aspect of semiconductors is about manufacturing… designs get ported onto a semiconductor wafer, those wafers get packaged into an ATMP  (assembly, testing, marking and packaging) facility, and then the integrated circuits are made.

India was already aatmanirbhar when it came to electronics. Look at the scenario before 1996 – our wireline telecom revolution was entirely dependent on C-DoT technology, which was manufactured in India. Consumer electronics was dominated by BPL, Videocon and Onida. We used to have HCL, Wipro and Zenith PCs and laptops. Even PC motherboards were manufactured in India by companies like HCL, TCL, and Altos. We were truly self-reliant.

I won’t say failure – it was never a priority and the severity of it was never realised. We signed the World Trade Organization agreement and allowed electronic products to be imported at zero duty. We started getting Samsung, LG, Sony TVs and consumer electronic products at very competitive prices. Dell, HP and Acer desktops were available at competitive prices. Wireless revolution of GSM and CDMA were driven by companies like Nokia, Ericsson, Alcatel Lucent, Huawei. C-DoT technology took a backseat. This was a setback to the hardware manufacturing industry in India. We did not protect our domestic industry, which many countries did.

The electronics market in India is currently $160 billion. It is estimated that by 2026, this will be $400 billion. Of this, there is a value addition of only 15 percent to the Indian economy. The remaining 85 percent is either imported or completely knocked down units or semi-knocked down units (CKD/SKD) and are absorbed by the Indian economy without any value creation.

Forty percent of (an item’s) value is in components and another 40 percent is in IP and technology. So your design should come from India and that IP value should get recognised in India. Patents should be filed in India.

In all this, only EMS (electronics manufacturing services) picked up in India, which creates only 15-17 percent value recognition. There are so many mobile phone manufacturing companies in India, but the entire kit comes from outside. We are just doing the soldering and assembly. In a $100 phone, India makes only $10… This is definitely creating blue-collared jobs and manufacturing, but what about value creation?

The opportunity, therefore, is to increase value addition to the Indian economy from 15 percent to a larger share, thereby growing the Indian economy. That is the potential of the market: to increase this percentage of value addition in the economy by creating more manufacturing jobs in India.

India should have had its own semiconductor fab decades ago. Sadly, so far, local manufacturing was never on anybody’s agenda. At least now, the importance has been realised and incentive schemes have been launched. The government is doing everything it can to bring us at par with the global industry. The political will has been evident. We will see now how many proposals we will get from global and local players.

The government… announced four schemes for the electronics manufacturing cluster and things have started happening. With the DLI (design-linked incentive) scheme, on a Rs 30 crore investment, the government will reimburse Rs 15 crore as support for a fabless design startup – no equity, no questions asked. They aim to create 100 fabless companies in India. With chip design being our core strength, if people working in MNCs are encouraged to start their own units and work for creating IP in India, it will be a big boost for our ecosystem.

Another sub-scheme, product deployment-linked incentive, is where after the chip (that is designed in India) is successfully fabricated, a 4 to 6 percent incentive will be given. It may get manufactured anywhere in the world… This will promote IP and technology development in the fabless semiconductor domain.

There are other schemes for wafer fabs, CMOS wafer fab scheme, and display wafer fab scheme. In these schemes, the government will fund 50 percent, up to a maximum of $1.6 billion (Rs 11,800 crore).

At present, all TFTs (thin film transistors), LEDs, automotive clusters, infotainment, and even smart watches are imported. This will change when manufacturing happens in India.

The third scheme supports compound semiconductor, which is a big industry. The proposals can be for Rs 50-100 crore and the government will fund 30 percent of the investment. This scheme is for photonics, sensors, and ATMP facilities. Once the wafer is made, it goes into ATMP.

These schemes are very comprehensive and will incentivise the semiconductor ecosystem.

There is definitely a red carpet laid out to all investors who want to come to India. Ministry of electronics & IT secretaries are personally in discussions with anyone who shows interest. They are driving things. I’m seeing a very positive environment to attract industry. Tata and Vedanta have expressed their interest. The three manufacturing schemes and the design scheme are well thought-out and should yield very positive results.

Absolutely. Having a technology tie-up is critical. In India, we don’t have manufacturing domain competency in wafer technology. Global semiconductor companies need to come in, either as a captive company, as part of a collaboration, or independent wafer fabs like TSMC (Taiwan Semiconductor Manufacturing Company).

Attempts for semiconductor fabs have been made since 2009. Now we are talking about 50 percent incentive from the government as against 25 percent a few years ago. There is a sea change in the policy, which I think will be very attractive for global companies to consider India. As for why those companies did not come earlier, maybe they didn’t find the schemes attractive, and India’s infrastructure was not ready then.

For Foxconn, which is a very large electronics manufacturing services company, there is strategic importance in partnering in such an initiative with Vedanta. Last year, in Taiwan they (similarly) invested in a JV with a component manufacturing company called Yageo. Vedanta has big plans, so this partnership, I think, will be a sort of a backward integration for Foxconn.

As regards capability, when they are investing such big money, I’m certain they have a technology plan in place and will bring on board some technical partners, which they have not disclosed.

Today, there is no silicon which doesn’t touch India in one way or the other when it comes to chip design. Truly, India has emerged as a global leader in semiconductor design. Attracting global companies to set up their chip design facilities was a great achievement. Look at companies like TI, which has been here for decades, Intel, Qualcomm, STMicroelectronics, Infineon… you name it – and they continue to invest in team building. IESA definitely deserves credit for building this chip design ecosystem, be it a design services company or captive design centres.

Also, communicating the importance of semiconductor manufacturing electronics, advocacy to the ministry of electronics about various policies and schemes. IESA has played a very critical role in taking India’s semiconductor agenda to other nations. It has been a great influencer in bringing India to a stage where we can confidently say we are geared up to have our own fab.