Mapping India’s chip design ecosystem
Context
According to media sources, the Indian government is debating a proposal to choose an ownership share in domestic chip design firms as part of the second phase of the design-linked incentive (DLI) scheme for the semiconductor industry.
What are the current Industry dynamics for Semi conductor chips?
- Capital Intensity: The semiconductor industry as a whole demands a sizable capital investment for both manufacturing and design. Costly expenses are involved in setting up fabrication facilities, expanding manufacturing capacity, and carrying out research.
- Long Gestation Period: Because chip design and fabrication units require lengthy gestation periods before the first product is released to the market, returns on investment do not occur immediately.
- Complexity of Chip Design: Chip design costs more to develop than standard software. Research and development are becoming more difficult as chipsets get smaller and functional requirements alter.
- interruptions in the supply chain: The semiconductor business is susceptible to interruptions in the supply chain, which might erode investor confidence.
What are the advantages of introducing industry in India?
- Skilled Talent Pool: Indian semiconductor design engineers account for 20% of the global workforce, making them a highly skilled resource pool.
- IP Ownership: India has a sizable talent pool, but it only holds a small percentage of the intellectual property (IP) of chip designs.
- DLI Initiative: The Design-Linked Incentive (DLI) program, which was launched in December 2021, intends to help local semiconductor companies and indigenize technologies.
- Growing businesses: Over 30 semiconductor design businesses have been founded in India as a result of the DLI program and the larger SemiconIndia future design initiative.
What are the challenges that the industry can face?
- Inefficiency of Government Venture Capital: Investing in chip design businesses as a venture capital firm could be useless and inefficient. Due to increased valuations and access to a worldwide ecosystem of clients and investors, companies might favour foreign acquisitions.
- Lack of Venture Capitalists: Indian semiconductor businesses’ ability to expand is hampered by the lack of venture capitalists in the country’s private sector.
- Limited income of Design Companies: In comparison to the industry’s potential, the total yearly income of domestic semiconductor design companies is pitiful. Investors and venture capitalists are put off by lengthy gestation periods.
- Global Competition: The semiconductor industry is fiercely competitive on a global scale, and India is up against stiff opposition in its efforts to become a centre for the production of semiconductors and chips.
What is the government’s role as Regulatory authority in Semiconductor Chip Industry?
- Support for Regulations: The government’s equity involvement may offer regulatory assistance to chip design firms, supporting a stable environment for their expansion.
- Aligning Interests: The government guarantees that design firms’ interests are aligned with the success of projects by holding an equity investment, resulting in shared risk and benefit.
- Preventing Foreign Ownership: Equity injection can stop enterprises from selling a majority stake to larger international players, retaining the business and its advantages in India.
- Small and medium-sized businesses in the area would benefit from an equity infusion since it would allow them to take part in the semiconductor ecosystem.
In conclusion, it is critical for creating a robust and competitive ecosystem for the Indian government to concentrate on assisting the indigenous semiconductor industry, particularly chip design. Even if there are difficulties, the government’s equity interest proposal aims to resolve some of these problems and encourage the expansion of homegrown chip design firms, making India a global hub for the semiconductor and chip manufacturing industry.
