Today, China with its assertive attitude is virtually frightening away investors. If India fails to grab this opening, there will be no alternative for investors but to go back to China
Three headlines grabbed my attention. The Times of India stated: “Semiconductor shortage: Cabinet approves Rs 76,000 crore incentive plan to woo manufacturers”. South China Morning Post stated: “Is India the new China for start-up investors?”. Bloomberg Quint headline read: “India’s Next Software Boom: A New Tryst With Destiny”.
While each headline tells you its story, when they are put together a larger picture looms in the air. We need to thank China and Xi Jinping who have given us a golden opportunity to attain a degree of strategic autonomy which I never thought would come our way so fast and with such great form and clarity. For better understanding, let me summarise what each report says and then I will analyse them.
The Times of India explains that the Cabinet has approved a Rs 76,000 crore plan to create a semiconductor manufacturing base in India. It is incentivised through the production linked incentive (PLI) scheme to establish a complete ecosystem for semiconductors in the country. It includes design, fabrication, packaging and testing. Twenty semiconductor units are to be established over the next two years through joint ventures. The plan is the product of a yearlong preparation and effort by the government. Presumably, some Taiwanese or South Korean entities will set up shop here.
Why is the government going in for this? Simple. India imports semiconductors whose current value is $24 billion. This will increase fourfold to $100 billion by 2025. In any case, even currently, there is a dire shortage of semiconductors resulting in massive production delays across all industries. We cannot get out of this mess unless we are self-sufficient. Currently, most of the semiconductors come from Taiwan, China or South Korea. The high-end ones are from Taiwan. If China annexes Taiwan by force or otherwise in the near future, it will have India and the world by its short hair. See it from any angle — Indian, Taiwanese or international — this move makes immense sense.
The South China Morning Post report reveals critical issues. First, Xi Jinping’s common prosperity-driven corporate crackdown is turning people away from China. In my opinion, this is going to be force multiplied by the extensive lockdowns, travel bans and factory shutdowns which are getting to be more frequent due to the Chinese ‘zero Covid’ policy. Omicron is going to only complicate the issue. Both these factors have a long-term impact. People want an alternative to China. In scale and potential, the alternative is only India.
Second, investors and venture capitalists have started hedging bets. Start-up unicorns (valued at over $1 billion) are blooming in India at approximately four per month in 2021 as against seven in 2020 and six in 2019. The number of start-up unicorns in India is next only to the US and China. Third, there is surplus investable cash due to Covid-related economic stimuli worldwide.
Fourth, India represents a huge under-tapped market. The potential for the digital economy to grow is huge in retail, food, education, pharmacy and other service sectors. The concentration at present is really in these sectors. Fifth, the government has already dampened Chinese investment as a safety net. Hence most investment is out of China’s manipulative control. Sixth, the IPO market is booming. Indian companies have already raised a record $15 billion in 2021.
The third story by Bloomberg Quint predicts a software boom and underlines it with two short points. First, in financial terms the value of India’s software export this year will be greater than Saudi Arabia’s oil export. Second, employment in the Indian software industry will double from the current 5 million to 10 million within 10 years. Factors that will fuel this boom include Covid-induced digital economy and e-commerce models, work from home culture, low trust in China with networks and systems, increased reliability and decreased costs in fibre optics-based communications and most importantly low-cost Indian software talent reservoir.
The fourth story is significant and is developing slowly but steadily out of the media gaze. IIT Madras has started developing the Shakti family of processors for various applications. The base processors are ready and higher-end processors are in sight. The E, C and I Class processors can operate up to the 1.5-2.5 Ghz range. They cater for various applications and are good for smart cards, IoT devices, motor controls, robotic platforms, smart city applications, general purpose computing and high-end embedded systems. They are also good for simple networks.
The higher-end multicore processors are in an advanced stage of design and development. These can be used for most purposes where security is a prerequisite. If this programme is leveraged, even in a stand-alone mode, it can cater for most of our networking and system requirements of Digital India. For military and security applications this is gold.
Clearly, India is on runway readiness to take off in semiconductors, processors and start-ups with an ongoing software boom. We will take off only if we can stitch it together with good communications. That capacity in communications is available through our extensive telecom networks. Overall we are on the verge to take-off into strategic autonomy.
Imagine a Digital India with secure networks and indigenous hardware powered by a vibrant start-up system anchored by a huge software talent. This opportunity is in sight and someone in the government should see it. The first thing is to stitch it all together through an overarching network/organisation/ body that ensures all this happens. That is squarely in the realm of the prime minister or someone who is capable of seeing the big picture and putting it through. There are however provisions – surmountable but significant. That is what needs focus.
The basic requirement is for the government to provide clarity and necessary push to the overall plan as also to individual segments/components of the plan and projects. For instance, for most requirements/processes/networks which are of routine nature and especially those which go into the hinterland, the need is not cutting edge requirements of hardware and software but reliable and robust systems that can deliver the service in a secure mode.
China or any other country should not be able to interfere with them through cyber activities. To achieve that semiconductors, processors and other hardware, of even a generation old, are good enough. The need is to have communications security at scale. This can be ensured by synergising all these indigenous capacities which are sprouting inorganically.
The idea is not to regulate and control the developing ecology in a bureaucratic manner but channelise and leverage them to meet national requirements. The government should simply mandate that in all networks and systems which are vulnerable to cyber activity, indigenous hardware and software must be used. All new systems and those which are under replacement/upgrade must adhere to this mandate. The mandate must be timed with the tape out of semiconductors and processors. In a matter of a decade, India will be on a different plane altogether.
Having stated this, the government must focus on start-ups in a different manner. If the start-ups are allowed to expand on their own, they will tend to grow largely in commercial sectors like education, food and other services. Hence special start-up parks need to be established where disruptive technologies can come up. These would relate to AI, Cyber Tech, 3D printing, robotics, unmanned systems, additive technologies, quantum computing, new materials, renewable energy and so on.
The start-ups need to be given an environment where they can be incubated intellectually, financially and organisationally and then released into the system to meet our strategic applications in defence, space, medical and other critical sectors. Venture capitalism needs a destination address to zoom on to. Hence start-up parks will be of great value. IITs and IIMs need to be roped into this effort in a big way.
The state governments also have an important role to play in this regard. They can provide the overarching infrastructure and facilities for start-ups as well as semiconductor hubs. Most importantly the government needs to re-think its incentive models for start-ups so that scaling up is enabled in India. It should not happen that a successful start-up incubated in India starts scaling up in Singapore to circumvent our tax laws. That will be a dead loss.
India should also invite reputed technology majors and international players to come and invest in India if they want a market share here. If after a deadline, only hardware and software designed and developed in India is allowed in domestic systems, foreign companies will be motivated to set up shop here as part of strategic partnerships. Otherwise, they will merrily continue to exploit us. Simultaneously, the government must look at an export regime. Both these put together will also give a fillip to the ongoing semiconductor software updraft which has been outlined earlier. This will enable technology infusion and also lead to high-end exports. Be rest assured, the Middle East and South East Asian nations will flock to India if they have a choice. Presently that choice is limited.
Despite all this, it will be difficult to convince high volume commercial retail systems to run on hardware that is of a generation older. Hence this expansion programme will have to be sheet anchored by military, security and government systems where cyber security and safety has a higher value than speed. Military networks and weapons systems with embedded processors will also provide the base numbers which are required to sustain the drive. Most significantly, our defence needs the power of disruptive technologies.
It is only start-ups that can deliver disruptive technologies to the armed forces. Hence there should be a great focus on modernising the armed forces when undertaking this large scale project. Without the consistent and unwavering demand of the armed forces the process will derail. On the flip side, semiconductor manufacturing, software development and the power of start-ups need to be invested into by the armed forces. Presently, the armed forces are on a weak footing there. This will be a good base for civil-military fusion to commence in this field. The dual use potential of electronics and computers must be leveraged together in this regard.
Half a century ago, the choice was between India and China to be made into the factory of the world. The world chose China then. Today, China with its assertive attitude is virtually frightening away investors. There is an anti-China sentiment in the atmosphere and an alternative is needed. However, we need to be careful to ensure that we do not become second China but be selective in the way we progress.
The opportunity to attain strategic autonomy through the digital route has presented itself and we should leverage it to our advantage. However, in my opinion, this window will be there for a couple of years and we should make good use of it. If India fails to grab this opening, there will be no alternative for investors but to go back to China. That is something which we cannot allow. Can we?
The author is a former DG Artillery. He is highly decorated and qualified with vast operational experience. He contributed significantly to the modernisation and indigenisation of Artillery. He is now a Professor in the Aerospace Department of IIT Madras and is involved in applied research for defence technology. The views expressed are personal.