Misplaced interest: Govt equity in chip design firms is impractical

Source: The post is based on the article “Misplaced interest: Govt equity in chip design firms is impractical” published in Business standard on 18th July 2023.

Syllabus: GS 3- Indigenization of technology (Science and technology)

News: In this article author discusses the Indian government’s strategy to stimulate the domestic semiconductor industry, pointing out potential drawbacks due to its focus on manufacturing, bureaucratic processes, past private sector partnerships, and neglect of the broader economy.

About Government’s approach to Boosting the Domestic Semiconductor Industry

1. Government aims to boost the domestic semiconductor industry.
2. They will underwrite up to 50% of foundry costs.
3. They’ve offered ₹55,392 crore production-linked incentives.
4. The Design-Linked Incentive (DLI) scheme supports local companies.
5. Goal: retain intellectual property rights within the country.
6. Aim to counter brain drain to Silicon Valley.
7. Plan to take equity stakes in domestic chip design companies.

What are the major concerns in the Government’s Approach?

Overemphasis on manufacturing: The government’s strategy might be too focused on manufacturing, while the core value in the semiconductor business lies in design. Major players like Intel, Qualcomm, Nvidia, and AMD have chosen to invest in refining technology rather than in costly manufacturing processes.

Inadequate acknowledgement of industry dynamics: The semiconductor design industry thrives on speed, competitiveness, and resilience to failures. The government’s lengthy bureaucratic processes may stifle this innovative environment.

Past unsuccessful partnerships: Government’s previous collaborations with the private sector, like with Balco and Hindustan Zinc, cast doubt on its capability to stimulate the required competitive dynamism in the semiconductor industry.

Neglecting broader economic context: The approach of picking industry champions without considering the wider economy could yield minimal results. A holistic approach that stimulates market creation, similar to how Silicon Valley focused on the consumer goods market, could be more effective.

What should be done?

Streamline processes: Reduce bureaucracy to foster a fast-paced, innovative industry environment.

Improve private sector partnership: Learn from past experiences to build strong, successful collaborations.

Integrated approach: Don’t select industry champions in isolation; consider the wider economy.

Market creation: Help chip designers establish markets in India and abroad.

Enhance ease of doing business: Reduce frictions, making it easier for companies to operate.

Learn from successful models: Emulate Silicon Valley’s strategy of focusing on fast-growing consumer goods markets.