Why Govt Needs To Include Indigenous Large Firms In Chip Designing Schemes Large indigenous chip design companies can achieve better economies of scale that would give an edge with respect to the cost competitiveness of chips

India has a strong presence in semiconductor design, approximately 20 per cent of the global integrated circuit (IC) design talent (estimated to range between 100,000 to 125,000) is here and India designs around 3,000-4,000 ICs each year. A significant initiative by the government of India, distinct from talent development but crucial for promoting product development, is the design-linked incentive (DLI) scheme. Currently the scheme supports startups, however, the government is mulling on to extend the scheme under the second phase of the India Semiconductor Mission (ISM) to large indigenous companies. The government is also likely to boost the fiscal outlay under the semiconductor incentive scheme 2.0 and it is expected in the next three-four months.

"Boosting the outlay for indigenous chip design will increase the benefits of schemes such as DLI to more MSMEs and startups – encouraging diversity in the ecosystem. However, MSMEs and Startups alone may not be able to drive India's IC design aspirations. Furthermore, the increased outlay could further accelerate the entry of India's legacy IT giants into IC design. We are already witnessing major IT firms enter this niche domain in India, the number could increase soon with additional support. Currently, India's design ecosystem is estimated to generate around USD 300-350 million revenues per year. This number can increase significantly with major players expanding their operations in India," said Sujay Shetty, MD, ESDM & Semiconductor, PwC India.

Moreover, given the creation of fabs in India, these design companies can rely upon home fab facilities for their design tape out and can mitigate the risk of full capacity operations of these fabs by being their customers. Thus, strengthening the linkage between design and fabrication of the Indian chip ecosystem. As this ecosystem develops, the domestic fabrication facilities will provide a built-in market for new ventures, driving demand and fueling growth.

L&T Semiconductor Technologies (LTSCT) is set to debut in the semiconductor industry with an investment of $300 million over the next three years to establish a chip designing company. "The government has been extremely proactive and flexible in its approach toward supporting the semiconductor industry, and we truly appreciate the steps taken so far. Design and product-linked schemes should be extended to Indian domestic companies, in addition to startups and MSMEs, with provisions allowing companies to register multiple IPs at once, enabling faster scaling to meet India's semiconductor needs. Furthermore, the government should consider increasing the INR 15 crore limit for domestic companies, as semiconductor designs are costly, with IPs potentially ranging from $100 million to $300 million," said Sandeep Kumar, CEO, LTSCT.

Mysore-based Kaynes Semicon received an approval from the Union Cabinet for setting up an Outsourced Semiconductor Assembly and Test (OSAT) facility in Sanand, Gujarat with a INR 3,307 crore investment. "Currently, we are focusing on assembly and would be keeping away from fabs. However, we would like to do complete backward integration and would get into design work with partners in the next one to one and a half years, if the government decides to encompass large companies under the new DLI scheme," said Raghu Panicker, CEO, Kaynes Semicon.

Large indigenous chip design companies can achieve better economies of scale that would give an edge with respect to the cost competitiveness of chips. These chip design companies possess strong R&D capabilities which can have positive spillover effects for local MSMEs and startups operating in this domain making initiatives like Chips to Startup(C2S) of Govt. of India more successful. Unlike startups, large companies have established systems in place along with trust and credibility in the market.

"They possess higher capabilities to partner with other advanced tech players and collaborate with leading research academies and institutes for faster development. These large companies can boost the advance research in design via establishing strong academia collaborations leading towards industry relevant development, like what leading players of S Korea and US are doing to strengthen their design competencies. Extended support may encourage these large Indian players to compete better globally and nurture the Indian chip ecosystem," Shetty explained.

In 2022, the Indian semiconductor market was valued at US$ 26.3 billion and is projected to expand at a CAGR of 26.3% to US$ 271.9 billion by 2032.

India's legacy strengths in IC design, supplemented with the current momentum of large global and local players bringing international global design capabilities into India, is surely laying the foundation for potential homegrown product companies in the semiconductor space. The government's recognition of the semiconductor sector's strategic importance, which was the impetus to the renewed policy framework, has been instrumental in boosting India's domestic ecosystem. Despite having a vast pool of design talent in the country, India lacks significant Indian product companies in the semiconductor industry.

"The DLI scheme, with its focus on nurturing indigenous product companies, is a promising step; however, to maximize its impact, I believe a time-bound approach should be employed. By providing targeted support for the initial 18-24 months, when companies transition from concept to prototype, we can ensure that resources are allocated efficiently. Once companies reach some stability after 18-24 months, they can leverage the private sector's venture capital funding. This approach not only encourages self-sufficiency but also allows the government to redirect resources to more promising ventures," said Jaswinder Ahuja, MD, India and corporate vice-president, international headquarters, Cadence Design Systems.

India needs homegrown semiconductor product companies to establish self-reliance in critical technologies, especially as semiconductors play a foundational role in driving the digital economy. "Having domestic semiconductor product companies ensures that India can secure its supply chain, reducing dependency on global players amidst geopolitical uncertainties. Moreover, building a strong semiconductor ecosystem within the country also aligns with the government's broader vision of becoming a global manufacturing hub. A homegrown semiconductor product company can also prioritize solutions that meet the unique challenges and opportunities of the Indian market while having the flexibility to pivot and innovate quickly in response to shifts in global demand," sad Kumar of LTSCT.

India is surely on-track to enter this space, it will take some time for homegrown product companies to emerge in India since the development of unique IPs and product innovation is still an emerging space for India. "It must also be understood that in the semiconductor industry, companies developing product competitiveness are domain specific. It means that product companies having dominance in semiconductors for laptops or IT hardware may not also dominate products for mobile phones and tablets. It would be interesting to observe which domains would be most suited for Indian product companies moving forward," added the ESDM & Semiconductor, MD of PwC India.

The other objectives of DLI include encouraging joint ventures between Indian and multinational players that can be helpful in achieving the larger objectives of DLI. While fostering domestic growth is essential, India must also recognize the value of international collaboration. By supporting both indigenous and international fabless companies, India can benefit from advanced technologies and global best practices.

"We should include international fabless companies in the DLI 2.0 scheme only if they agree to retain all Intellectual Property (IP) and revenue generated from the use of that IP in India. This support should be time-bound, providing assistance for the concept to prototype phase for 18-24 months. This balanced approach will create a vibrant and competitive ecosystem that strengthens our position in the global semiconductor supply chain," added Ahuja of Cadence Design Systems.

Multinational companies not only bring capital investment but also, advanced technologies and wide opportunities of employment. Participation of MNCs can promote knowledge transfer, specialized skill development, innovation and industry-academia collaboration, bridging the gaps in India's semiconductor value chain, thereby supporting growth of domestic companies. The leading MNC's have demonstrated strong industry academia collaborations in their native countries such as US and S. Korea, where they create industry relevant curriculum for specialized IC design capability, educate and build a skilled workforce in universities ready to be employed in their companies and boost advanced research in the right direction of growing market demand in these universities.

"While several global semiconductor players have already positioned their global capability centers and design centers in India, incentivizing their expansion in India would strengthen the IC design ecosystem. Building exclusive tech parks, extending a scheme for promoting MNC's to create design ecosystems in India can go a long way in helping India capture higher value across the semiconductor global value chain. Incentives may be strategically targeted towards those that create the maximum positive impact towards indigenization of core IP and design technology in India," explained Shetty.