India has long been an oasis for the world’s spiritual journeys. That story reaches back from the ancient Chinese millennia ago to more modern pilgrimages like that of tech icon Steve Jobs.
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These divergent spirits emerged to become giants in their own worlds, creating phenomenal 21st-century miracles. China embraced a lightning-speed transition to transform a great nation experiencing economic frailty to the number two economy in the world. Jobs went on to build arguably the most iconic tech company in history, transforming the lives of everyone from beggars in the streets of Calcutta to the world’s super-elite.
These two players are iconic figures in the world of technology. Yet now their legacies sit at opposite sides of a table, the uncomfortable truth of a modern trade war between them. Technology, intellectual property, and semiconductors, form a fundamental battlefront of this modern conflict. Ancient India, the land that was wide awake when the rest of the world was sleeping, sadly lumbers along in the modern era of manufacturing. Today, when the developed world is embarking on Industry 4.0, India is still at an early stage of Industry 3.0. Modi has passionately championed `Make in India’ and while it continues to be a mantra recited at the highest levels, it is yet to be practised as a way of life.
It is essential that India becomes a land of manufacturing, embracing it as the `dharma’ that will determine the well-being of the nation with the largest youth population on this planet.
Let us roll back time. India’s Semiconductor MIPS policy was introduced in 2011. The Indian authorities earmarked US$5B to enable two semiconductor fabrication facilities (Fabs). When questioned why India needs to get into fabs, policymakers rightfully stated that India can afford to invest and take a calculated risk of US$5B for national security and strategic reasons. Eight years later, the policy has expired without a rupee spent. The semiconductor industry did not take off. The two selected entities and their global partners failed to execute their part of the bargain. Industry players need to learn from this failure to ensure we get it right this time around.
India is certainly a nation with opportunities and challenges.
The challenges, once overcome, could accelerate further opportunities and growth with the reality of that potential clear:
- The global semiconductor market is expected to grow steadily to $800 billion, with India’s own semiconductor domestic content reaching ~$75 billion by 2025
- India will become the fifth-largest consumer market globally by 2025
- The middle-class is expected to grow from 80M today to over 300M by 2025
- Standard and Chartered predict India will overtake the become the world’s second-largest economic power by 2030, with a nominal GDP of $46.3 trillion
For the above to become a reality, vision and action must be executed well, or continue to lose opportunities. It is worth reminiscing two decades ago, the experts were debating whether China or India would become the next economic power, with many predicting India to win. As a keen observer that visited both nations during this time, it was clear to me who would be the winner. Within the last decade, nobody argues this point anymore.
There is a need for hard facts and decisiveness if India is going to take its rightful place on the world stage. It is not about the Elephant and Dragon. The world needs both. It is about creating infrastructure, jobs, investing in strategic industries wisely and enabling equitable global growth.
Manufacturing is a key engine for job creation. If `Made in the US’ is still required 70 years after the US has dominated the global economy, how much more important is this sentiment for India, with 4X the population and a fraction of the economic wealth? ‘Make in India’ must happen on multiple fronts. This needs to be the number one goal for the next 20 years economically, politically, and even one can argue spiritually. Infrastructure and factories need to be India’s next temples. India needs more jobs!
Let’s focus briefly on Make in India-semiconductor for its importance. Yes, the country needs to immediately inspire industries beyond just the semiconductor. But semiconductors power technologies and innovation which will continue to transform our lives today and into the future – Industry 4.0, electric vehicles, medical/biomedical, smart cities, AI, IoT, robotics, 5G and smart homes will become the norm. Technology will control economic power.
That’s why the US, China, Europe, Japan, Taiwan and South Korea have invested big and continue to focus on this industry. It is a strategic necessity to have access to the technologies, as well as a multiplier of economic effect.
Chinese authorities have invested more than US$500B directly into semiconductors, which has created millions of jobs directly and indirectly. Its semiconductor and electronics ecosystem is one of the world’s best. More than 60% of global semiconductors transit through China today as a truly global manufacturing house. A huge and well-employed population has enabled China to become the number two economic power today.
To recap an interesting discussion I had with Indian officials in 2012; why should India focus on semiconductor manufacturing when China is losing money on these industries. One of the vital frameworks for nation builders is to create quality jobs which will increase the purchasing power of its people. Though China might have only just broken even on semiconductor manufacturing, it has earned a hundred times more through its electronics, land appreciation and the earning power of its people due to the existence of these strategic industries.
New York and other specific US locations, as well as Europe and Asian powerhouses, continue to support semiconductor projects with up to 35% incentives, even after 60 years of semiconductor dominance. These nations recognise semiconductor technology as a strategic industry that has a multiplier effect.
Well-intended critics have argued against semiconductor fabs in India, citing Indians in general as too vocal and not disciplined enough to work in cleanrooms. It is interesting to note that some of the most powerful global semiconductor and technology companies employ Indians from CEOs to front-line clean-room jobs.
The semiconductor industry needs to strategically encompass the fabs, outsourced semiconductor and testing facilities (OSATs) and importantly the fabless entities to support industry growth. But India does need a differentiation strategy to tackle the world’s 35-year head-start. India can do things differently if it puts its mind to it. Its space program offers testimony, driving forward an industry as an elite global player at a fraction of typical investment.
India’s semiconductor industry needs a similar mind-set, differentiation and focused strategy, where the nation’s decision-makers need to empower the right leaders and experts to lead this mission. Capability without passion and accountability never goes anywhere.
So, what are the real challenges for India’s semiconductor industry?
- The strategy needs to be right and it needs to include vital differentiation. There needs to be a coherent and centralised semiconductor policy that is formulated by semiconductor experts with commitment. India doesn’t have the time or excess funds to learn from its own mistakes. It needs to learn from the mistakes and strengths of others. For starters, the strategy needs to leverage its large domestic electronics consumption and to focus on differentiated emerging semiconductor technologies where it can compete globally, yet at a fraction of standard investments of China and other nations.
- India’s infrastructure and semiconductor ecosystem are a known problem. Efforts need to be accelerated. In a vast country with such problems, India needs to focus on selecting the best locations for the first 10 years, before expanding to other locations. There is no reason why a 10 km radius can’t be developed to international industry standards. The semiconductor ecosystem, which is almost non- existent today, can be solved with the right strategies and financial incentives for the pioneers to support `Make in India’.
- India needs to implement bold economic policies and incentives, with the industry lobbying to gain rightful acceptance. Every semiconductor nation has either fully or heavily funded its first pioneers. India must do the same. It should further leverage its domestic markets to build a framework that attracts Indian semiconductor pioneers. This includes both local and global players who can develop the first fabs, OSATs and relevant supporting industries. Support for local fabless startups and attractive global startups must be a priority. Do away with blunt policies that don’t incentivise cost-effective ways to start the industry, for example ‘funding incentives’ confined to brand new tools which overlook refurbished tools. Refurbished tools reduce investment by 20-30%; so why ignore them? The MIPS in 2012 provided 50% incentives. If that can be expanded for the first fabs, OSATs and 100 fabless IC entities, why not support that if it enables players to launch projects successfully. India also doesn’t have national investment entities that can launch this scheme as do many other nations. This should be addressed separately.
A positive path through smart global partnership
India’s path ahead is not one it should travel alone. Many nations can be incentivised to become partners and help start this pioneering industry in India. The government must leverage the value of its domestic markets and global opportunity to build strategic partnerships with global semiconductor players.
Public-private partnerships can help address the need for industry investment, alongside the wider infrastructure challenges which must be overcome to nurture a positive environment for the sector. It will be equally crucial to identify the correct private or public Indian entities to drive forward this mission. There must be clarity around the long-term vision and the ultimate responsibility for ensuring that vision is delivered.
A journey of a thousand miles starts with the first step. India needs to embark on that first step in semiconductor manufacturing to take its rightful place amongst the world’s manufacturing powerhouses. In supporting this strategic industry selectively, and Make in India more broadly, we not only unlock a better future for India, but provide a new spiritual journey of equitable global growth for all.