While meeting India's leading LED bulb manufacturers last year, HCL co-founder Dr Ajai Chowdhry was amazed to learn that they required 80 crore driver chips annually and relied solely on a Chinese company to source this. They were willing to switch to an indigenous brand if provided an alternative at the same price and specification as what they were getting from China. 

That's when the Electronic Products Innovation Consortium (EPIC) Foundation, co-founded by Dr Chowdhry and his HCL colleague Arjun Malhotra, swung into action.  

It issued a letter of interest to Noida's Sahasra Electronics, which then worked with Bengaluru-based start-up Quick Chip to design the chip. Since India doesn't have a wafer plant, Sahasra—India's first private company to test and package NAND flash memory—is collaborating with a Taiwanese organisation where the chip is brought to India for final packaging. 

While this opens a new market for Sahasra, Dr Chowdhry, chairman of EPIC Foundation and founder of HCL tells Outlook Start-Up that it also underpins the existing opportunities for Indian companies in the semiconductor and allied sectors. 

Edited excerpts:  

India is gearing up for its first semiconductor fabrication unit, which it has been aspiring for years. What are some socio-economic and geopolitical benefits of this project? 

This is technically the second Outsourced Semiconductor Assembly and Test (OSAT) project; few know about the first one launched by Sahasra Semiconductors in Rajasthan. It got the license to start a manufacturing and packaging unit under the earlier Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and has already begun the packaging unit, which is excellent news for India.  

Micron's (the US company constructing its first semiconductor plant in Gujarat, which is expected to be ready by December 2024) investment will definitely draw other semiconductor companies to India and it is laudable that the Indian government cleared this project quickly. 

It is essential geopolitically because we now have a presence in semiconductors, though we have much catching up to do with China. Due to Micron, we will start getting better projects. 

The SPECS initiative offers a 25 per cent financial incentive to companies. Will more start-ups get into designing and manufacturing electronic products because it is simpler to set up an OSAT than a complete fab? 

Absolutely correct. More companies, especially start-ups, will come in because the investment is relatively lower, and they can get started within a year. Correspondingly, a silicon fab takes three to five years, while a compound semiconductor fab takes around two years. 

Therefore, you will see more of the packaging units gain ground. However, we need all these three units for a holistic ecosystem in India.  

While India is creating these fab units, how much of it will be channelled towards domestic consumption, and what export opportunities does it afford for start-ups? 

One can't label these companies as start-ups, as the investment in the semiconductor business is massive. So, a start-up will be limited to doing design. For instance, Sahasra has been in electronics for many years and already has several global customers. They will manufacture memory, a great place to start in India since the clientele already exists. In the case of other chips, the market must be created.  

The government bears 50 per cent of the project cost per its new India Semiconductor Mission (ISM). What are the criteria for companies to apply for this scheme, and how can they utilise the investment from SPECS? 

Interestingly, certain state governments like Gujarat, Karnataka and Odisha are giving an additional 20 per cent for ISM. If a company wants to set up a $5 billion plant in India, the government pays 70 per cent of that project cost.  

This is why the administration is cautiously making decisions, considering the vast amount it will invest. Many companies have bid for ISM, but only three were shortlisted. 

The first criterion for a bidder to qualify for ISM is having the technology. Secondly, they should have a management team that can run this business. Thirdly, they need a clear customer acquisition roadmap and business plan. If the government invests a majority in the project, but it lacks a robust business plan, it will not be cleared.  

The fourth criterion is that the company should have deep pockets because this business has a long gestation period, spanning ten years before it can be profitable.  

Fortunately, global advisors with tremendous expertise in semiconductor manufacturing are involved in ISM. They work directly with the government in evaluating proposals.  

What is your take on comparing the efforts by the American government and the Indian one to get semiconductor manufacturing in their respective countries? Do you think India is coming up short? 

Post-COVID, when there was a severe shortage of semiconductors, America realised it was far behind China and heavily reliant on them, too. They have created significant plans to bring back semiconductor manufacturing into the US, which ranges from $50 billion to $150 billion.  

Comparing this investment with the Indian government's decision to invest $10 billion is incorrect because the American administration is offering a 30 per cent incentive, while India is offering 70 per cent. This makes our offer more competitive and lucrative for manufacturers.  

Many countries, including Europe, Japan and Korea, are also getting into the fray. So, India might get a limited number of proposals. But because of Micron's investment in the country, I think these will be good proposals. 

Two decades ago, Intel demanded almost $2 billion to set up a plant in India, but the government was unwilling as it was focused on promoting localisation. Today, while it is rolling out the red carpet with industrial policies, including Production Linked Incentive (PLI), what entry barriers exist?  

The earlier government's decisions were not really correct; had they grabbed that opportunity with Intel's OSAT plant, we would have been far ahead of China. We had lost another similar opportunity two decades before this, too, when Philips wanted to move its plant to India, but we just didn't blink.

Fortunately, the current government understands that semiconductors are a huge requirement for a large country like ours. However, specific issues exist where EPIC Foundation strongly communicates with the stakeholders.  

One must have robust domestic demand to create a significant capability for semiconductor manufacturing. The current domestic demand is for 28 nanometers and above. However, India lacks large product manufacturing companies, so who will buy these semiconductors?  

At EPIC Foundation, we are telling the government that we should make India a hardware nation in addition to ISM. Fortunately, the administration has set up a task force for this, which will soon meet and provide directions for creating a hardware product nation. This will make companies and products for which there will be a demand for semiconductors. 

What role will start-ups have in this space, and what challenges will they encounter? 

The most important area for start-ups is to start making products in India and the government should introduce a product design incentive scheme to encourage them. See how the Innovations for Defence Excellence (IDEX) program has helped start-ups in the defence sector where the government and start-up invest equally; the latter makes a workable and tested product, and then they get business from the administration.  

We must create a similar cycle for semiconductors. China was ahead in electronics manufacturing, progressed into design, and became the world's manufacturing hub. That is the right direction to take.  

India does only low-end manufacturing and not value-added electronics manufacturing. So, when countries planned a China+1 strategy post-pandemic, Vietnam seized it and created a terrific ecosystem for electronics manufacturing. However, its biggest challenge is that it lacks a large domestic market or India's design and engineering capability.  

Hence, if India positions itself as a product manufacturing nation in the electronics business, we can occupy 20 per cent to 30 per cent of China's capability. The timing is perfect right now because of the trust deficit due to geopolitical reasons. Many global companies are discussing friend-shoring and looking at India as an alternative to China.  

How can the country achieve this? 

India must urgently create a product design capability by working with many start-ups and education institutions. Today's biggest challenge is having undergraduate programs tailored towards making electronic products, including institutions like IIT.  

Similarly, students are taught what Very Large-Scale Integration (VLSI) is but not how to make VLSI products. We have made some headway with the All India Council for Technical Education (AICTE), which has created new BTech programs for VLSI design. While there is slow momentum, we need to move quickly to have a talent pool of people who can design products in India, given the massive opportunity. 

The Minister of State for Skill Development and Entrepreneurship of India, Rajeev Chandrasekhar, recently stated that the DLI scheme received over 28 proposals, including from start-ups. But do the start-ups stand a chance when the bigger players are present, especially given their dependence on external investors for capital? 

America created many industries through the Defense Advanced Research Projects Agency (DARPA), where they backed start-ups and gave them challenges, much like IDEX has. That demand aggregation is how the US became a defence powerhouse; they told the start-up to create this product based on their stringent specifications, and if it was successful, they gave it business.   

We have seen a similar thing occur with the COVID-19 vaccines when the government aggregated demand from all states and then placed orders with a few private companies. This is a departure from its practice of working with PSUs, but this risk made these private pharma companies scale up and become global. 

This kind of decision-making is also needed for success in semiconductors by encouraging start-ups. They have a huge role to play if India wants to become a hardware product nation, and we must clear the path for them. Incentivise them and if they succeed, give them business so they can scale up. 

How does the EPIC Foundation act as a bridge between government agencies and industry players in this space? 

Our approach is akin to what the Indian Software Product Industry Round Table (ISPIRIT) took for software products, where they helped create the digital infrastructure for the country's shift from software services to software products within 12 years. EPIC Foundation works with state governments and educational institutions as an enabler, encouraging them to collaborate with start-ups and design companies.  

We recommend that the central and state governments choose 15 to 20 large institutes in the country with good electronics capability and then create start-ups and design villages here. Here, the professors can give start-ups technical advice on how to make products. Additionally, we lend some of our consultants to these institutions, who educate professors on product development.  

We are also helping create a 'Right to Repair' policy through the Ministry of Consumer Affairs to reduce e-waste. E.g. by December 2024, all electronic products will work on USB-C. Moreover, we encourage designing electronic products with a longer lifetime.  

Has the electronics business become a use-and-throw one? 

Yes. That is because products are not designed to last. Today, many state governments are buying tablets for education, but after a couple of years, these can't be fixed or upgraded.  

That thinking needs to change, which is where the 'Right to Repair' will come in. EPIC funded the reference design to show the Indian industry that it is possible to design repairable and upgradable products.  

Companies must provide their circuit diagram and components to anybody who can repair them in the country. This will open many jobs for repairers and increase a product's lifetime.  

In addition to value creation, an alternative credit infrastructure is needed to provide these companies with access to finance. How is EPIC Foundation helping in this regard?  

We have given a white paper to the government on how to create a product nation and it has set up a task force of ten people to work on our recommendations; I am one of them. We will help the government create a policy covering all these elements, including the demand aggregation model and access to finance. We have recommended creating a Fund of Funds where VCs can invest in hardware start-ups.  

Even with ongoing efforts to create a talent pool for electronic product designing, it will take time before these tech professionals are ready. At the same time, India has a lot of technocrats who often migrate to other countries. How is EPIC Foundation helping the government create a viable structure to retain these tech professionals in India? 

Most of India's leading software companies, be it HCL, Wipro or Infosys, were originally hardware ones. The IT industry evolved because talent existed in large companies, which later set up their global capacity centres (GCCs) that designed products.  

As noted by NASSCOM, India's IT R&D exports—including VLSI products, electronic products and embedded systems—are around $39 billion, which is hidden inside the $200 billion of software exports. Incidentally, this is not the actual value of those products but is its transfer price. The actual price will be nothing less than $100 billion.  

For instance, India designs VLSI chips for the world but not for domestic use. So, the capability and talent exist in GCCs and companies like Wipro, Infosys, TCS or HCL. If we incentivise start-ups, many people with explicit knowledge of product design will join them.  

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