India is preparing to showcase its semiconductor prowess and chip design innovation at the upcoming ‘Semicon India 2023’. The event, to be inaugurated by Indian Prime Minister Narendra Modi, is set to launch several initiatives & semiconductor investment opportunities. It is a part of the Indian government’s proactive approach to try establishing the country as a semiconductor manufacturing hub. So far, the government has introduced numerous policies to promote domestic industry growth. Among these, the Design Linked Incentive (DLI) scheme aims to foster India’s proficiency in semiconductor design. However, the recent proposal to acquire equity stakes in domestic semiconductor chip design companies has sparked debate among experts. This article explores the potential implications of government intervention in chip design and its impact on India’s semiconductor ambitions.
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Government’s Venture Capital Approach
The government’s plan to acquire equity stakes in semiconductor chip design companies aims to nurture a robust fabless ecosystem in the country and prevent significant share sell-offs to foreign entities. While this move may provide short-term benefits, industry experts raise concerns about its long-term effectiveness. Critics argue that the government’s role as a venture capital firm for chip design companies may not guarantee world-class intellectual property creation. Companies often prefer foreign buyers for higher valuations and access to a global customer and investor network, limiting the success of the government’s venture.
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Accessibility to Capital: A Major Hurdle
One of the primary challenges domestic semiconductor chip design companies face is the lack of access to capital. Unlike the software industry with quicker turnaround times, semiconductor firms have longer gestation periods for return on investments. This makes it difficult for them to attract potential private investors and venture capitalists. If the government owns a significant stake in these companies, it may discourage private investments further, hindering growth. Additionally, government ownership may lead to increased interference in the companies’ operations and decision-making processes, negatively impacting innovation and global competitiveness.
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Unintended Consequences of Government Ownership
Government ownership of semiconductor chip design companies may also expose them to political pressures, potentially influencing business decisions and overall competitiveness. The government’s track record with underperforming Indian Public Sector Undertakings (PSUs) raises questions about its ability to bring value to domestic semiconductor firms. Moreover, excessive government interference could impede the companies’ ability to stay agile and adapt to evolving market demands.
Recommendations for India’s Semiconductor Ambitions
While the Indian government’s intentions to support domestic chip design companies are commendable, experts suggest alternative strategies to foster growth and competitiveness. Removing funding barriers by facilitating more Foreign Direct Investment (FDI) and establishing long-term foreign-domestic private sector linkages can integrate India’s semiconductor design market with the global industry. By encouraging private investments, the government can allow companies to thrive independently, avoiding potential hindrances from excessive government ownership.
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India’s Semiconductors: A Promising Future
Despite the challenges, India’s semiconductor ambitions continue to show promise. The approval of five players under the DLI scheme and the signing of an MoU between Micron Technology and the Gujarat government to set up an ATMP facility indicate progress. Additionally, the pursuit of partnerships with reputed players like TSMC and the TMH Group by Foxconn reflects a determination to build chips in India.
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Our Say
As ‘Semicon India 2023’ approaches, the government’s role in chip design remains a topic of debate. While nurturing the domestic semiconductor industry, the approach of acquiring equity stakes in chip design companies comes with potential pitfalls. Instead, focusing on removing funding barriers and encouraging private investments could be the key to achieving India’s semiconductor ambitions. With the right strategies and industry collaboration, India can become a significant player in the global semiconductor landscape.
