As India seeks self-reliance in semiconductors, Karnataka takes the lead

Having made significant strides in manufacturing of smart phones, television sets, the time has come for India to become a reliable global source for semiconductor chips as well

Semiconductor self-sufficiency by all accounts should be India’s top priority. It has been more than a year since the shortage of semiconductor chips hit various sectors hard. From automobile to defence, India has been reeling under the shortage of semiconductor chips.

Prime Minister Narendra Modi had anticipated the impending global supply chain disruption in the wake of the Covid-19 pandemic much in advance. That had been the basis for Atmanirbhar Bharat campaign. Now, the Russia-Ukraine war appears protracted, with signs that it may drag on for months or even years. A large number of districts in China are facing extensive phases of Covid-19 lockdown. The two events together are likely to further intensify the global supply chain disruption of essential commodities and supplies of critical inputs, including semiconductor chips.

While the corporate sector is also searching for solutions, the government has been on an overdrive to find ways to achieve self-sufficiency for the country. It also became incumbent upon the state governments to show equal urgency with necessary steps to provide solutions to a national challenge.

Karnataka Chief Minister Basavaraj Bommai brought to his office his rich administrative experience and understanding of the state’s unique position in India’s new economic ecosystem. Indeed, Karnataka incubated and nurtured India’s information technology entrepreneurs in the 1990s. True, the Indian Institute of Science, Bangalore for years had been graduating the tech leaders who subsequently dreamt big to give India a leadership position in the IT space.

That moment appears to have arrived once more for Karnataka. The Bommai government has moved with agility to ensure that the entrepreneurs face no hassles in setting up facilities in Karnataka for engineering infrastructure to manufacture semiconductor chips for electronics, flat panel displays for computers, smartphones, televisions, solar products and others.

Karnataka had in fact unveiled its semiconductor policy long back, in 2008-09. At the policy level, it was well documented that the state has to take a lead in attracting the investment in the semiconductor space. But much did not happen afterwards, and the challenge took monstrous proportions with the outbreak of the Covid-19 pandemic.

Bommai seemed to have taken the semiconductor policy lying somewhere in the state secretariat to his main desk in his office. This looks most appropriate since within months of his taking the oath as the Chief Minister of the state, Karnataka signed a memorandum of understanding with Israel-based ISMS Analog Fab Pvt. Ltd. for setting up a $3 billion semiconductor fabrication plant in the state. The facility will come up over the next seven years.

The Basavaraj Bommai-led Karnataka government could attract the mega investment despite other states also leaving no stones unturned to attract semiconductor investment, solely because of the agility of the state administration and the past track-record as technology incubator.

Bommai has stated that it’s the ecosystem that made all the difference in bagging the big-ticket semiconductor investment. The chief minister while speaking after the signing of the MoU said that the semiconductor shortage is a big challenge, but asserted that challenges are to be converted into opportunities.

The Chief Minister has spoken that he had been working in tandem with the Centre in attracting investments in the semiconductor space. The Central government is also working in a mission mode to create the right ecosystem to attract the foreign semiconductor giants to set up plants in the country, and help India achieve Atmanirbharta in the manufacture of the critical chips.

Bommai has also stated that the state government is currently in talks with a couple of more potential investors.    

It has been estimated that the Indian domestic semiconductor market will be over $110 billion in a few years. The size may only get bigger with India going on an overdrive to make Atmanirbharta a bedrock of the defence sector, which has also become incumbent since the over-reliance on the Russian defence equipment supplies could not be sustainable when the western world is imposing crippling sanctions against Moscow. Besides, India has already embarked on a major expansion in the use of drones in agriculture and international border management.  

Prime Minister Narendra Modi has also tasked the IT Ministry to work on a mission mode to bring self-sufficiency in the critical semiconductor space. The Central government is driving its Rs 76,000 crore semiconductor mission in high gear by roping in technology veterans from the industry, the corporate houses and the state governments. The Central government has come out with a suitable package for the semiconductor ecosystem with incentives for silicon semiconductor fab, display fabs, compound semiconductors, silicon photonics, sensors fabs, besides semiconductor packaging and design.

The IT Ministry had earlier said that the government is in receipt of investment applications worth over $20 billion. The $3 billion MoU with Israel-based ISMS Analog in this context is the beginning of India’s semiconductor Atmanirbhar journey.  

While the Central government gets the semiconductor global giants to explore setting up bases in India, the state governments will have a critical role to play in executing the mission on the ground by quickly giving the necessary clearances, besides land in the industrial parks so that India truly becomes a reliable partner in the global supply chain.    

Basavaraj Bommai knows well that Karnataka faces tough competition from Andhra Pradesh, Tamil Nadu and other states in taking the large size of the semiconductor investment pie. But his agility in leading the Karnataka administration in sync with the Central mission could help the state build on its profile for being the IT bellwether of India, and its capital Bengaluru being the only Silicon Valley of the country. The talent pool among entrepreneurs and the trained human resources in the state could be the force multipliers for Karnataka.      

Electronic goods account for the second largest imports in the country after petroleum products, and PM Modi is working hard to cut down the import bills substantially by promoting ethanol-blending and renewable energy. In recent years, India has taken significant strides in ‘Make in India’ manufacturing of smart phones, television sets, and now the time has come for it to become a reliable global source for semiconductor chips as well.

Sumeet Bhasin is director, Public Policy Research Center, the principal think tank of the BJP.