Digital hardware and the quest for aatmanirbharta
If we design and create products in India, from systems to chips, we can address the shortage that has impacted industries worldover. The government is paving the way
Over the last few months, every single conversation I have had with anybody has hovered around the semiconductor chip shortage, which has impacted 169 industry segments — from automobiles to medical equipment. Passenger vehicle sales (to dealers) in India witnessed a 41% year-on-year decline in September as the semiconductor shortage hit production, leading to a drop in supplies from manufacturers to dealers.
This event has accentuated the criticality of electronics products and semiconductor chips for every industry, and every aspect of day to day life. Since electronics is a meta resource for all verticals, the demand for electronic products will rise to $400 billion by 2025 and become a key driver for the $5-trillion economy. To meet this demand, the reliance on imports is likely to increase unless timely steps are taken to boost indigenous electronics system design and manufacturing (ESDM).
Our electronics goods import bill is second only to the country’s oil import bill. According to the ministry of electronics and information technology (Meity) and Invest India data, import of electronics was recorded at ₹3,85,081 crore ($54.4 billion) in 2019-20, and ₹3,99,374 crore ($54 billion) in 2020-21 (a slight decrease in dollar terms, but an increase in rupee terms).
To ease the import burden, the government has taken some decisive steps. Since the 1990s, I have been part of many committees that are driving the new policies. The government’s Make in India programme, the National Policy on Electronics (2019), the Production Linked Incentive (PLI) scheme for the electronics sector, the SPECS scheme, the Electronics Manufacturing Clusters (EMC 2.0) scheme, and several other interventions are designed to provide incentives for localisation of electronics manufacturing, and for inviting foreign direct investment; these have driven manufacturing in India dramatically from $30 billion in fiscal year (FY) 2014 to $75 billion in FY 2019. On Wednesday, the Union Cabinet approved a ₹76,000 crore scheme to boost semiconductor and display manufacturing in the country.
However, despite the growth in manufacturing, we are lagging behind on the depth of manufacturing through design and domestic value addition. Ironically, our engineers have created many chips for global companies, but hardware product innovations have barely registered in India despite policies to encourage domestic electronics. You hardly see young entrepreneurs emerging to take on the challenge, largely because the supporting infrastructure has been non-existent. For example, no one really funds hardware startups.
In this year of momentous upheaval due to the pandemic, disruptive technologies are now helping to build back. Let’s look at the glass that’s half full, and instead of thinking of the boat (hardware design-led products and manufacturing) that we have missed, we may ask: What’s the next big thing that we can do for the economy? The answer to that certainly is Make in India, Prime Minister (PM) Narendra Modi’s call for Aatmanirbhar Bharat. But the real aatmanirbharta will come when we see action on the ground, and there is India in our electronics products and digital hardware.
Building our hardware capacities has economic implications (reducing the import bill), development implications (the great ecosystems of manufacturing and employment potential) and, importantly, security implications too. Design and manufacture in India would help to ward off threats from bad actors, from backdoor spyware sitting inside electronic hardware. These can result in serious cyber attacks of enormous implications, rocking our government offices, banks, defence set-ups, power and space, and bring these down overnight. We acted by banning Chinese apps. However, hardware leaks can be more dangerous than software. The United States (US) has taken strong action on this. We need to fortify ourselves too, and act fast to develop indigenous electronics products.
There are lessons to learn from missed opportunities. We need to understand why manufacturing digital hardware never really took off until a few years ago. In 1996, information technology agreement (ITA) 1 was signed by India to bring in a zero-duty regime for IT hardware products by 2005. This was signed without any discussions with industry. It led to the decimation of the small and medium-sized enterprises (SMEs) and destroyed innovation. A country that created IT products ground up (HCL, Wipro) moved to cheap imports, trading and services, instead of product development and manufacturing.
I was a member of former PM Atal Bihari Vajpayee’s task force for hardware set up in 1999. Under the leadership of the late Seshagiri and Jaswant Singh, we created a policy to prepare industry for 2005. The recommendations remained on paper. In 2005, we wrote a paper on bringing semiconductors (SIPS) and component-manufacturing ecosystem to India. Had this not floundered, we would have been better prepared to face the global chip shortage. The demand for electronics is on the upswing, and the shortage of processors and other such components could affect the availability and price of electronics for the next 12 to 18 months.
In 2009, another government task force chaired by me, gave several recommendations regarding the setting up of a National Electronics Mission, the Modified Special Incentive Package Scheme (MSIPS) for manufacturing, preferential market access for domestically manufactured products, creating a semiconductor fab, and for creating an electronics development fund to promote research and development (R&D) in electronics. Many of these suggestions remained on paper, some got implemented, and some were opposed by vested interests.
In 2011, I co-chaired a core advisory group for R&D in the electronic hardware sector (CAREL). We recommended that we should focus on volume products, such as tablets, surveillance cameras, low-cost Indian smartphones, set-top boxes, and so on, and create a strategy to design these through a “design challenge” and then provide these designs to various manufacturers to make in India. Sadly, there’s much ground to cover on that front.
The recent announcements by the government are comprehensive and give me the hope that now the whole ecosystem is being set up. The government is seriously looking at establishing semiconductor fabs in India, and rightly so. If we design in India and create products in India, from systems to chips, only then can we create the demand for the planned semiconductor fab. Today, all component decisions for products made in India are taken in the US, South Korea, and China as Indian brands have failed. So, the product import bill on paper will go down but the component import bill will not.
India partnering with Taiwan, with talks on a free trade pact and creating a semiconductor manufacturing hub underway, is a positive move. India must create a Taiwan city and invite entrepreneurs from there to invest in India. They are also leaders in semiconductor manufacturing and electronics, in electric vehicles.
Unless we “design in India” and “manufacture in India”, our aatmanirbharta on digital hardware will continue to elude us, and our dependence on the import of products and components will continue. We can now use our design and engineering capability to create depth in manufacturing and create a new India that we can be even more proud of.