Building Digital Muscle: India Needs a World Class Chip Manufacturing Ecosystem

Creating a world-class chip manufacturing ecosystem from the current state takes a big step forward.

By TV Mohandas Pai & Nisha Holla

In the 21st century, every nation must protect its sovereign digital territory as rigorously as its physical territory. During the border dispute with China in 2020, India became aware of the uncomfortable reality that Chinese apps like TikTok dominated 60% of its digital territory. The vast datasets generated by Indian users on these apps provided an easy way for a foreign, undemocratic power to dominate precious digital territory. To protect the sovereign rights of Indian citizens, the government has cautiously decided to ban nearly 200 Chinese applications and to regulate the flow of Chinese investment capital into Indian start-ups and venture capital funds.

India was already a prodigious producer of applications. The ban has led to a new explosion of native apps like Mitron TV, Chingari and Koo, an alternative to Twitter. These apps are rapidly on-boarding millions of new users, responding to Indian digital demands, and giving impetus to the government’s Atmanirbharta policy. Open competition has led to the development and expansion of exceptional applications. Unlike many countries which are mere app consumers, India stands out as both a producer and a massive consumer. It is also a pioneer of large-scale cross-platform digital utilities like India Stack. As a result, India is one of the world’s three digital powers, along with the United States and China.

The accelerating trend of the Indian digital ecosystem, along with new communication architectures such as 5G and 6G and frameworks of highly connected IoT devices, is accumulating massive demand for electronics in India. The central component of all these devices is the silicon chip. As India rapidly integrates large parts of people’s lives into the digital world, a new phenomenon becomes apparent: the impending shortage of silicon chips in the world. With the uncompromising need for self-reliance, India must find a way to ensure a constant supply of electronics and advanced devices to citizens without depending on foreign actors like China. It is an integral part of protecting India’s digital territory.

Since the dawn of electronics in the 20th century, India has been a major importer. Inadequate policies and investment decisions over the past forty years have destroyed the electronics manufacturing industry. Imports of electronics currently stand at $ 40 billion and are expected to soon reach $ 200 billion, even surpassing oil imports. It is an economic and strategic handicap. India is a huge market for electronics and appliances; it makes absolutely no sense to remain dependent on imports.

The NDA government recognized this handicap early on and launched the Production Incentive Program (PLI) with incentives based on production and value added. This plan paid dividends. India is now the second largest mobile phone maker in the world, with more than $ 250 million, while actively exporting for $ 5-6 billion, which is expected to increase. These incentives have led to the establishment of electronic component industries across the country. Big multinationals like Samsung from South Korea and Xiaomi from China are now setting up factories in India.

The success of the PLI program demonstrates the value of good governance in advancing India’s digital ecosystem. The next step towards digital self-reliance is chip manufacturing. Although India lacks a chip manufacturing ecosystem, it is full of human capital. The country has one of the highest concentrations of chip designers and testers in the world, around 250,000. They are mainly concentrated in Bengaluru, where there are more than 300 chip design and test companies, many of which are multinational R&D centers. This unique abundance of human capital must be converted into a competitive advantage for the country.

Creating a world-class chip manufacturing ecosystem from the current state takes a big step forward. This requires significant indigenous investments and physical infrastructure to supplement the abundance of human capital. And strategic international partnerships.

Neither Japan nor the United States has any notable chip manufacturing yet. On the other hand, China has realized that high-end chip manufacturing is its Achilles heel; $ 50 billion in state-sponsored grants spur ecosystem development to fill this gap. The only company opposing China’s end-to-end domination of the electronics industry is the Taiwan Semiconductor Manufacturing Company (TSMC). TSMC is at the forefront of chip manufacturing. It is in India’s interest to invite the best in the world to jointly build a world-class chip manufacturing ecosystem.

India demands that its most prominent companies and business leaders, like Reliance, Tatas and Azim Premji, take the lead. Suppose they invest $ 5 billion in setting up large-scale joint venture chip manufacturing plants with, say, TSMC. This will create the perfect foundation for having a world class chip manufacturing ecosystem in India. The advantage for TSMC is to enter a growing market far from its original base in Taiwan.

Undoubtedly, India must support the establishment of several generations of chip manufacturing factories and the intentional development of a total ecosystem. Governance and government incentives are as crucial to the success of this business as private capital. It is satisfying to note that the government has finally realized that incentive programs based on production and exports, and driven by transparency, are essential for nurturing industries and advancing manufacturing capabilities. Now he must expand the success of the PLI program to create a cutting edge chip manufacturing ecosystem that will serve as a strategic moat for Indian electronics.

Pai is President, Aarin Capital, and Holla is Technology Fellow, C-CAMP

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