India's semiconductor mission in perspective

Semiconductor is not only the 4th most traded commodity, but more importantly, it has become a geopolitical and national security issue. Like many other major economies, India has bolstered its semiconductor mission with massive subsidy packages, tax differential, and bilateral agreements with major semiconductor players like the USA, Japan, and Taiwan. Although India has yet to meet its aspiration of being a semiconductor power house, India's mission in semiconductor has a long history.  It started, in 1894, with the theoretical and empirical work of Sir Jagadish Chandra Bose for detecting radio signals using semiconductor junctions. Since the 1960s, there have been numerous initiatives for building the semiconductor industry in India. During this period, semiconductor has grown from scientific curiosity and technological invention to a major industrial driver. For example, India's consumption of semiconductor devices is estimated to grow to $64 billion by 2026. Despite this, India is yet to emerge with a globally competitive capacity for meeting domestic demand and taking a pie of the $600 billion global market, which is expected to reach $1 trillion by 2030. 

In all economies, domestic consumption of semiconductors has been increasing due to its growing role in evolving all kinds of products, starting from automobiles, toys, washing machines, and mobile handsets to fighter jets. Furthermore, due to its ability to increase quality while reducing cost simultaneously, semiconductor has been reshaping the dynamics of competitiveness. In retrospect, the exploitation of semiconductors has played a key role in empowering several economies like Japan, South Korea, and Taiwan to sustain prolonged economic growth through the creation of an idea economy, propelling them to high-income status. Hence, all major economies have been taking advantage of semiconductors. And India is no exception. But despite having a long history and multiple attempts, why is India's aspiration still unmet? Through the current massive subsidy-driven race, with the initial pot of $10 billion, tax differential, and production-linked incentive (PLI), will India's semiconductor mission take off? How have other countries succeeded in this mission? What lesson does India's path of building the semiconductor industry offer to other aspiring less developed countries?

SCIENTIFIC EXCELLENCE DID NOT SPIN OFF INDUSTRY: Unlike many other industries, the semiconductor industry started with the advancement of basic science, known as quantum mechanics. The advancement of knowledge about atomic structure and electrons led to the invention of semiconductor diodes or valves by German scientist Karl Ferdinand Braun in 1974. Subsequently, Indian scientist Sir Jagadish Chandra Bose became a pioneer in detecting radio signals using semiconductor diodes in 1894. Such development led to innovations in wireless telegraphy, creating jobs and firms in Europe and the USA. But unfortunately, India failed to leverage it in seeding the development of the semiconductor industry out of this possibility.

FOREIGN DIRECT INVESTMENT COULD NOT PENETRATE: Further advancement of knowledge about solid state devices and technique of forming diode led to the Nobel Prize-winning invention of a three-legged device, having two junctions, by the US Bell Labs in 1947. It's called transistor. The rapid adoption of transistors and integrated circuits comprising multiple devices on the same substrate, led the labour-intensive bonding, testing, and assembling jobs. Hence, in the 1960s, multinational semiconductor device makers started setting up bonding, testing, and assembling plants in less developed countries. As a result, the labour-intensive semiconductor industry started taking root in South Korea, Malaysia, the Philippines, and Thailand, among others. These MNCs, notably, the USA's Fairchild Semiconductor Corporation, attempted to set up such a factory in India in the 1960s. However, Indian bureaucracy and infrastructure posed barriers.

HOMEGROWN MANUFACTURING STEPS DID NOT SUCCEED: In the 1960s, India's state-owned enterprise Bharat Electronics Ltd (BEL) acquired Germanium and Silicon technologies for producing semiconductor devices. Besides, in 1964, a private sector initiative led by Gurpreet Sing, formed a partnership with California's Continental Device Corporation for semiconductor manufacturing in India. However, these initiatives did not end up in starting and sustaining a chain reaction. It's worth noting that the success of the semiconductor industry depends on continuously generating knowledge and ideas and converting them into product and process features, leading to quality improvement and cost reduction simultaneously. Despite the success of replication for import substitution, unfortunately, India's industry could not acquire this vital capacity, in more or less all industries, notably in semiconductors. 

STATE-SPONSORED SEMICONDUCTOR LABORATORY YET TO BE SEEDBED: In the 1970s, India's Department of Electronics realised the need for domestic capacity for the design and fabrication of semiconductor devices. Subsequently, the cabinet approved the plan for the establishment of a semiconductor complex (SCL). This facility with the capacity of designing, fabricating, testing, and packaging came into existence at Mohali in 1984, at an approximate cost of $50 million. But unlike Taiwan's Industrial Technology Research Institute (ITRI), India SCL focused on operating the imported equipment and production process. As a result, the facility failed to be the seedbed for creating India's edge in semiconductor process yield advancement and device innovation, like the way Taiwan succeeded. Besides, a fire destroyed this facility in 1989, which was rebuilt in 1997. Due to the focus on operating imported capital machinery, it has lost its edge-creating the demand for additional government funds to the tune of more than $1 billion for modernisation.

SEMICONDUCTOR DESIGN SUCCESS NEEDS FURTHER MOMENTUM TO LEVERAGE INTELLECTUAL ASSETS: Although SCL could not grow as a silicon seedbed of India, its initiative of training designers led to the supply of human capital. To tap into it, multinational semiconductor firms like Intel, Texas Instruments, and IBM started setting up their captive design centres in India. Besides, homegrown chip design firms have come into existence to offer chip design services to foreign firms. Although it has created more than 20,000 microchip designing jobs, such success has yet to form the foundation in the form of fabless companies, like the way Taiwan has succeeded. Although the contribution of these designers in designing more than 2000 microchips per year is highly notable, India's gain is limited to wages earned from multinationals, which is around $14,000 per year, far less than Taiwan's success of deriving more than $300,000 per designer. To scale up this success, India has taken a massive programme for empowering 85,000 graduates in related areas to be chip designers.

SUBSIDY RACE FOR ATTRACTING FDI RUNS THE RISK: As explained, so far, India's success has been limited to creating approximately 20,000 microchip designing jobs and producing a few microchips by SCL for the domestic space and defence programmes. But India's mission has been to be a major player in fabricating microchips at scale. Hence, India has embarked on subsidising as high as 75 per cent of capital expenditure for alluring MNCs like Intel, TSMC, and others to set up fabrication facilities in India. Despite initial interest, so far, the success has been to book USA's Micron Technology's $825m investment, by offering $1.95b subsidies as capital expenditure, for setting up memory chip testing and assembling facility-creating 5,000 low-end jobs. Besides, India has been offering four to six per cent production-linked cash incentives. Such reality raises a vital question-does such a massive subsidy-driven approach offer a profitable proposition in building the semiconductor industry? 

A SNOWBALL EFFECT FROM SPECIALISATION YET TO GET ATTENTION: Like many inventions, semiconductor devices like diodes and transistors were also invented in primitive form. They were not immediately profitable in serving the consumer market. Europe and the USA leveraged their defence needs to nurture such inventions-creating firms and industries. However, due to weak linkage with national programmes in leveraging early-stage inventions, India could not succeed in building the semiconductor industry by taking advantage of Sir Jagadish Chandra Bose's inventive work. On the other hand, due to the lack of attention of the bureaucracy in the building industry through tapping into MNCs's interest, India could not seed the labour-intensive semiconductor industry in the 1960s either, like the way the Philippines or Malaysia did. Besides, due to the labour-intensive focus on assembling and manufacturing, India could not capitalise on transistor to reinvent consumer electronics, like the way Sony-led Japan did. 

Due to a lack of focus on institutionalising R&D for profitably advancing semiconductor processes and products through a flow of homegrown knowledge and ideas, the initiatives of BEL and Gurpreet Sing could not replicate the success of Japan. For the same reason, despite seeding the design service industry, SCL could not scale up success like the way Taiwan's ITRI did. Although unfolding recent government initiative appears to be aggressive, but major subsidy need has been raising a serious question about return on investment. Unless India succeeds in creating a snowball effect through the domestic flow of knowledge and ideas, such an approach runs the risk of failing in priming India's semiconductor industry.

Rokonuzzaman, Ph.D is academic, and researcher on technology, innovation, and policy.
Zaman.rokon.bd@gmail.com