Home / Opinion / Views /  RIL and HCL chipping in will raise India’s semiconductor game

The entry of two of India’s savviest technology entrepreneurs into India’s nascent semiconductor manufacturing programme is the best endorsement yet that India’s mammoth $10 billion incentive scheme aimed at breaking the stranglehold of Chinese and Taiwanese chip manufacturers is on the right track.

The two are India’s second largest conglomerate, Mukesh Ambani’s Reliance Industries, and Indian tech pioneer Shiv Nadar’s HCL Group (HCL tech has clarified that the investment pertains to HCL group and not the listed entity).

The duo is set to pick up stakes adding up to between 26 and 51 per cent in the International Semiconductors Consortium (ISMC), one of the three applicants to have received the government’s approval to set up a chip fabrication plant under the government’s production-linked incentive (PLI) scheme for semiconductor manufacture in India.

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Earlier this year, ISMC, a joint venture between the Abu Dhabi-based Next Orbit Ventures and Israel's Tower Semiconductor, had signed a 22,900 crore agreement with the Karnataka government to set up a chip-manufacturing plant on 150 acres of land in Mysuru's Kochanahalli Industrial Area.

Another venture being planned is the Singapore-based IGSS Ventures, which has plans to set up a $3.5 billion wafer plant in Tamil Nadu. But so far, the betting was on the JV between mining and energy giant Vedanta and Taiwan’s Foxconn, one of the world’s largest electronics contract manufacturers, who have announced plans to set up a 1,54,000 crore semiconductor plant in Gujarat, mainly due to the deep pockets and the solid experience the two partners bring to the venture.

The entry of Ambani and Nadar, however, changes the equation – not just for ISMC, but for India’s semiconductor manufacturing ambitions. Ambani is no stranger to giga-scale execution. Reliance runs the world’s largest integrated petrochemicals refining facility at Jamnagar and Reliance Jio has rapidly scaled to become India’s biggest telecom services provider. Nadar’s HCL Group brings diversified technology sector experience – the group’s businesses range from software services to hardware – as well as a profound understanding of the challenges of running a business in India.

As joint owners of what may be a majority stake in the new venture, the two will add not only financial and execution muscle, but design know-how and end-user connect. The development also de-risks India’s semiconductor manufacturing bid overall.

It’s not as if we haven’t tried earlier. But red tape, and lack of a clear policy vision and support, killed the earlier ventures. Back in the 1960s, American electronics manufacturer Fairchild Semiconductor had wanted to set up a fabrication unit in India but was defeated by the ingrained suspicion of foreign investment and the private sector in the bureaucracy. Later Bharat Electronics Ltd. (BEL) started manufacturing silicon transistors but lacked the technology to progress to integrated circuits and collapsed.

BEL again ventured to make silicon wafers in the 1980s in collaboration with Metkem, a venture by Mettur Chemicals (now part of the Sanmar Group) and a team of scientists from the Indian Institute of Science, Bangalore. However, that too went under, since the government failed to follow up on its assurance of subsidised power.

In 1984, the Centre floated a wholly-owned PSU – Semiconductor Complex Limited – to manufacture silicon wafers, the base for building chips and integrated circuits. By 1987, SCL was only a generation behind the latest 800 nanometre (nm) technology and had already achieved it in the lab. But a mysterious fire destroyed SCL in 1989 and it never recovered. Today, India is around 12 generations behind the cutting edge of semiconductor technology.

Once again putting all eggs in the Vedanta-Foxconn basket would have exposed India to the kind of risks it faced in the 1980s. Any kind of execution failure would have derailed the country’s plans, being underwritten by taxpayer money. But the entry of newer and seasoned players into the business reduces the risks of delays due to execution failure considerably.

It is also an endorsement of India’s PLI policy for semiconductor fabrication. The government has clearly learnt from the past, having quickly modified the initial policy, which offered the highest subsidy of 50 per cent for the manufacture of advanced chips of 28 nm or below, and graded lower subsidy for 28-45 nm and 45-65 nm chips. However, by revising the policy to a uniform 50 per cent regardless of wafer size, the revised policy also encourages the manufacture of the 45 nm wafers, most widely used for the chips used in the automobile and electronics sectors.

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