Given the current geopolitical situation, the govt must reform its policies for Electronics manufacturing, to enable India’s security and self-reliance
In 1996, ITA 1 agreement was signed by India to bring in a zero-duty regime for IT hardware products by 2005. This was signed without any discussions with the industry. It led to the decimation of the SMEs , and destroyed innovation as the country was not prepared for it. A country that created IT products ground up (HCL, Wipro, etc) slowly moved to cheap imports and trading instead of manufacturing.
In 1999, prime minister Atal Bihari Vajpayee set up the PM’s Task Force for hardware, of which I was a member. Under the leadership of Late Dr Seshagiri and Jaswant Singh, we created a policy to prepare the industry for 2005. Alas, it never saw the light of the day.
Come 2005, we wrote a paper on bringing the semiconductors (SIPS) and component-manufacturing ecosystem to India. This also floundered.
Further, in 2009, the government set up a task force chaired by me. This had deep representation of the industry, and we made path-breaking recommendations—most of which were accepted by the government. We had predicted that the electronics import bill will gallop and exceed the oil import bill. The recommendations were:
1. setting up of a National Electronics Mission on the basis of space (this was not implemented),
2. MSIPS-incentive scheme for manufacturing: This was implemented, but the internal approval process killed it,
3. preferential market access for domestically manufactured products—was vigorously opposed by vested interests and never really got traction (now, we are talking about vocal for local),
4. creating a semiconductor fab—still floundering, and
5. Electronic Development Fund to promote R&D in electronics—partially implemented.
In 2011, the PSA created a core advisory group for R&D in the Electronic Hardware Sector (CAREL). I co-chaired this, and we recommended that we should focus on ‘volume’ products and create a strategy to design these through a ‘design challenge’ and then provide these designs to various manufacturers to make in India. The following products were suggested: smart meters, micro ATMs, tablets & converged mobile devices for education, telemedicine, surveillance cameras, low-cost Indian smartphones, and set-top boxes.
There was progress on none of these, except for creating a local STB software. By now, we could have had Indian products. So, this was a case of missed opportunities, and the country lost precious time to make itself self-sufficient.
By such time, the Chinese companies started dominating phone imports into the country. Then came the new electronics policy in which the phased manufacturing programme (PMP) was created specifically for mobile phones. This revived the industry and created a vibrant manufacturing ecosystem albeit with low-value addition. However, the domestic brands just could not survive, and today, the industry is dominated by the Chinese.
The geopolitical status has dramatically changed this year. China has been very aggressive, and entered Indian territory. China has been flexing its muscle in a large number of countries. China and Pakistan seem to be working together to destabilise India. Most people don’t know, but as per Maroof Raza (TOI, June 6, 2020), the Chinese agenda is to have access to an abundance of water to manufacture microchips.
In the meantime, the government has come up with a very attractive scheme to invite mobile manufacturing and the component ecosystem to India. A Production Linked Incentive (PLI) scheme provides 4-6% incentive for those who can do volume manufacturing, and the concept is to get five global champions and five domestic champions. This is applicable from August 1. Twenty-two applications have been received as this has attracted investors globally. It would be good if we take a quick decision within the next three-four weeks to ensure that the interest is kept alive.
Also, the government has rightly turned policy to a new direction, towards Atmanirbhar Bharat in key identified industries, to create global scale. If we really want to utilise the key strengths of India, we must focus on ‘design in India’ as well as ‘manufacture in India’, as design creates IP and higher value addition in the country. Today, all major IT companies like HCL, TCS, Wipro, do a lot of designing for global customers. But with all this capability, we hardly design for India.
So, now we need to urgently move beyond mobile phone manufacturing in electronics. We need to look at high volume products like TVs and set-top boxes in consumer electronics, and also go after the $360-billion global market for desktops, laptops, servers and datacom products. The demand for such products has dramatically increased due to ‘work from home’ and online teaching. We should look at providing a similar PLI scheme to attract investments. We have not really paid attention to reviving the MSMEs (the backbone of India) for creating the component ecosystem. They should also be covered under the PLI scheme. A major import item, PCBs, should also be covered under PLI.
We have not acted on IT products till now due to WTO, but given the current security threat posed by China, we can easily take such decisions to ensure a trusted value-chain for the digital security of the nation. How do we know anything about ‘backdoors’ and spyware sitting inside electronic hardware? These can result in serious cyber-attacks on major defence, power, space, homeland security, financial infrastructure, and can bring these down overnight. India has already made a start by barring Chinese apps. The time has come to take action on hardware which can be more dangerous than software. The US has taken strong action on this.
A range of med-tech products should also be identified for design and manufacture in India. But, SMEs should not be overlooked, as I can see happening in the draft policy.
“Modern wars are fought with semiconductors” – Senator Ben Sasse, Senate Intelligence Committee, USA.
Should we or should we not create fabs in India? In trying to answer this question, we have lost 10 years or more. Now, the geopolitical situation has dramatically changed. It is no longer a question of “should we or should we not” but “what to do, how to do and when to do”. India, with its electronics-import bill ballooning to $55 billion and facing a security threat if any of the chips used in the product are designed in China, needs to cover lost ground fast. (Are there backdoors somewhere?)
I strongly believe we should create a full ecosystem, with strong incentives, to go after this. This will entail:
1. creating an R&D facility on the lines of IMEC, Belgium,
2. quickly acquiring second-hand fab of 28 nm, which will take care of a large part of India’s current need, instead of going after the most modern fab; this will not cost more than $500–700 million. Alternatively, attract a Samsung-type company to move existing fab to India,
3. setting up a fab, for speciality technologies—GAN, SIC, high-voltage devices, RF, AMS; this will have a good domestic market for inverters, chargers, EV, etc, and will not cost more than $500-700 mn,
4. upgrading the strategic SCL fab to 90/65 nm,
5. attracting at least two assembly-test-mark-pack (ATMP) facilities, and
6. creating at least 100 fabless start-ups and giving PLI benefits to them.
Also, we must bring in an NRI champion to India, with deep experience in semiconductor technology. This is how Taiwan created its industry—by bringing Morris Chang.
Finally, if we take the right steps, we can be the next electronics hub for the world. It all depends on our aspiration.
The author is Founder, HCL
Views are personal