'India should set up $10bn fund of funds to develop semiconductor design labs' | Mint

'India should set up $10bn fund of funds to develop semiconductor design labs'

Sriram Viswanathan, India Semiconductor Mission (ISM) advisory committee member.
Sriram Viswanathan, India Semiconductor Mission (ISM) advisory committee member.

Summary

ISM advisory committee member Viswanathan argued for substantial capital investment since government funding alone isn't enough to sustain the ecosystem.

New Delhi: India should set up a $10 bn ‘fund of funds’ for pureplay semiconductor design companies to funnel private investments and, in turn, boost chip manufacturing, said India Semiconductor Mission (ISM) advisory committee member Sriram Viswanathan.

Chip design or fabless companies design chips and contract the manufacturing to fabricators.

“India should set up a $10 billion fabless design initiative or incentive scheme that requires private capital to multiply that for every dollar of commitment that the Indian government makes. For fabless, $10 billion has to come from the outside, and that’s absolutely possible," he said, in an exclusive interaction with Mint.

The idea is to give a funding boost to chip-designing, for which Indian-based companies already have the skills, rather than keep waiting for chip manufacturing. India’s first chip manufacturer, US-based Micron, is expected to start operations only at the end of 2024.

ISM is the nodal body that goes through all proposals for semiconductor and allied manufacturing.

Viswanathan said that while proposals for semiconductor chip fabs or assembly plants were being evaluated by the ISM, the government should also focus equally on building a “fabless design ecosystem" as it was a lower hanging fruit matching capacities already found in Indian companies.

He pointed to a suggestion by former Niti Aayog chief executive Amitabh Kant for creating a fund similar to the Small Industries and Development Bank of India—it provides direct and indirect finances to micro, small and medium enterprises—for developing chip designing firms.

What was needed was a large corpus of capital that attracts a number of other venture capital funds, he argued, since it was not enough for the government alone to carry the load of capitalizing this ecosystem.

“For India to be able to become the next destination for semiconductors an abundant supply of patient capital, with sovereign and private capital must be their number one priority (is needed)," he said, noting that fab manufacturing and fabless design needed an equal amount of incentives from the government.

Viswanathan, founder managing partner at venture capital firm Celesta Capital, said many companies approach equity firms like Celesta for capital instead of waiting for government funding.

“Any company that India wants to attract or initiate domestically has to become a global company to do that. It has to have free flow of capital from the outside into the country and vice versa," he said, noting that rules for entities like alternative investment funds were cumbersome.

He also suggested investors coming to India be mindful of the finance ministry requirements, so approvals don’t take a long time.

India currently offers financial incentives as well as design infrastructure support across various stages of development and deployment of semiconductor designs, under the Design Linked Incentives or DLI scheme. But it is tiny compared to what the industry needs and what Viswanathan suggests. In comparison, the semiconductor fabrication financial assistance scheme has a corpus of 76,000 crore.

Viswanathan also flagged the urgent need for a large pool of trained talent for addressing the global demand for semiconductors, suggesting the IT sector model be followed for the semiconductor industry.

“Starting from high school to college, India is simply not prepared to deliver the labour force required for this industry."

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