Chips: Why govt's dream to make India self-reliant may be premature -

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By Surajeet Das Gupta Rediff.com » Business October 10, 2022 11:46 IST
Mumbai-based Indian Semiconductor Manufacturing Company (ISMC) and Singapore-headquartered IGSS Ventures have one strategy in common: They have told the government in their application for semiconductor fabrication plants that they will export the bulk of the chips they make in India in the initial five or 10 years.

Photograph: Michael Buholzer/Reuters
The third applicant, Vedanta-Foxconn, which is also building a fab plant, has said it will concentrate on the needs of consumer electronics and mobile device markets, and earmark 80 per cent of output for domestic consumption, but has not specified its customers.
Finding a viable domestic market could well be the biggest challenge for India’s renewed tryst with semiconductors. Fab plants do not sell directly to end users but to intermediary chip design companies — such as Qualcomm or MediaTek.
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The chips made by them are then processed further by assembly, testing, marking, and packaging (ATMP) players (the Tata Group is setting up an operation) and then shipped to the end user.
Many global fab plants have ATMP operations; others outsource it to independent companies.
The problem is, India does not have domestic chip design companies (except a few small ones with total revenues of $20-30 million) that can provide critical mass for the fab plants setting base in the country.
Foreign chip design players who sell their products in India source from global giants such as TSMC in Taiwan — aggregating their demand from across the world in these large plants and deriving the advantages of scale.
Ironically, these companies also design a substantial portion of their chips in Indian R&D centres but their intellectual property rights (IPs) are held globally, not in India.

Less than 5 per cent of the chips consumed in India are designed with IPs owned by home-grown companies.
But the government’s semiconductor scheme has a different expectation from fab plants coming up with a 50 per cent subsidy — it aims to make India aatmanirbhar (self-reliant) in chips.
The government is betting on the potential size of the local market, which is estimated to hit $65 billion by 2026 and grow further.
Aware of the initial challenges in achieving this, the government has incorporated a design-linked incentive scheme to support 20 domestic chip design companies.
They will be provided 50 per cent of their eligible expenditure subject to a ceiling and incentives of 4-6 per cent over net sales turnover for five years.
But it will take time for domestic chip designers to emerge. Ajay Jalan, founder of New Orbit, which leads the ISMC consortium, said, “For the initial five to 10 years, most of the chips will be exported because there are no major chip design companies in India as of now.
"So, Tower Semiconductor will take 50 per cent of the capacity.
"We are talking to other global players to book capacity.”
Tower Semiconductor is an Intel subsidiary and New Orbit’s technology partner and is expected to invest in it at a later date.
IGSS founder Raj Kumar added that 20 per cent of the wafer (40,000 wafers a month) will be bought back by an undisclosed integrated design manufacturer (IDM) partner based in the US, and another 40 per cent will be bought
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