A great opportunity in chips, telecom, and much more

India is taking on Chippagedon (the global chip shortage crisis) and is striving to bring semiconductor and display fab manufacturing to the country. Other PLI schemes look to accelerate domestic manufacturing of telecom and networking products. The supply chain and the logistics sector will play a vital role in meeting raw material demands for Indian manufacturers. All this will go a long way in making us self-reliant in a big way.

‘Make in India’ is an initiative by the Government of India, launched in September 2014, to make and encourage companies to develop, manufacture and assemble products made in India and incentivize dedicated investments into manufacturing.

Promises of BRICS Nations (Brazil, Russia, India, China, and South Africa) had more or less subsided. India was tagged as one of the so-called ‘Fragile Five’. Global investors debated whether the world’s largest democracy was a risk or an opportunity.

Department for Promotion of Industry and Internal Trade (DPIIT) initiated the Make in India process with the participation of Union Ministers, Secretaries to Government of India, State Governments, industry leaders, and various knowledge partners.

Various sectors have since been opened up for FDI, such as defense manufacturing, railways, space, single-brand retail, etc. Regulatory policies were relaxed to facilitate more investments for ease of doing business. Across various regions of the country, six industrial corridors are being developed. Industrial cities will also come up along these corridors.

Make in India is perhaps, opening the investment doors for India. Indian Prime Minister Narendra Modi announced a `20 lakh crore economic package under the Atmanirbhar Bharat Abhiyaan, to aid the country out of the Coronavirus crisis, by making India self-reliant.

Today, many sectors have joined the program. These include automobile and components, aviation, biotechnology, chemicals, construction, electrical machinery, electronics systems, food processing, IT and BPM, leather, media and entertainment, mining, oil and gas, pharmaceuticals, ports, shipping, railways, renewable energy, roads and highways, space, textiles, thermal power, tourism, etc.

Who can help with investing in India? Invest India is said to be the first port of call for all potential investors. It is the official investment promotion and facilitation agency of the Government of India, mandated to facilitate investments in India. Among the selected 190 countries, India ranked 63rd in Doing Business 2020: World Bank Report.

In the production-linked incentive (PLI) scheme, incentives are offered to manufacturers of Indian products when incremental sales are made. Six new schemes were approved after ten were notified by the government in November last year and the first three were approved in March.

The scheme shall extend an incentive of 4% to 6% on incremental sales (over base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five years subsequent to the base year as defined.

PLI schemes were announced for the following:

• Prescription medications: Department of Pharmaceuticals
• Technology or electronic products: Ministry of Information & Electronics Technology
• Networking and telecom products: Department of Telecommunications
• Food products: Ministry of Food Processing Industries
• ACS and LED (white goods): Department for Promotion of Industry and Internal Trade
• Energy-efficient solar PV modules: Ministry of New and Renewable Energy
• Auto components and automobiles: Department of Heavy Industry
• ACC (advance chemistry cell) battery: Department of Heavy Industry
• Specialty steel: Ministry of Steel
• MMF segment and technical textiles: Textile Products: Ministry of Textiles
• Drug Intermediates (DIs)/key starting materials (KSM) and active pharmaceutical ingredients (APIs): Department of Pharmaceuticals
• Electronics manufacturing on a large scale: Ministry of Electronics and Information Technology
• Medicinal devices manufacturing: Department of Pharmaceuticals

Progress of the PLI schemes

Elaborating on the progress of the PLI scheme and challenges ahead, Aravind Melligeri, Chairman and CEO, Aequs, said India is likely to see an approximate revenue addition of Rs 30-35 lakh crore over the next 3-4 years of PLI schemes announced for various sectors. The scheme is expected to encourage foreign investment in the country and boost production.

While India has a lot of potentials to become a leading manufacturer in several sectors, a lot more needs to be done, particularly where PLI is considered. The scheme needs to be extended to sectors like toy manufacturing, which have the potential to create disproportionately large employment, particularly, at the bottom of the pyramid, where the jobs are needed.

While this has been on the agenda for some time, a decision is still awaited from the government on extending PLI to the sector. Apart from this, more investments are required to address aspects like research, development, capacity building, and producing high-end machine tools domestically.

Dr. Venkat Mattela, Founder and CEO of Ceremorphic, noted that with the global chip shortage and geopolitical difficulties in Taiwan, India is the youngest kid on the block to have jumped into the semiconductor manufacturing business. With `the 76,000-crore incentive package, India has taken a giant step toward bringing semiconductor and display fab manufacturing to the country. Alongside the goals of creating 100 million manufacturing jobs by 2022, boosting the sector’s contribution to GDP to 25% by 2025, and ensuring an annual growth rate of 12-14%, the ‘Make-in-India’ scheme by the government as an endeavor is well-thought-out and a move in the right direction.

India is likely to see an approximate revenue addition of Rs 30-35 lakh crore over the next 3-4 years of PLI schemes announced for various sectors. The scheme is expected to encourage foreign investment in the country and boost production.

— Aravind Melligeri, Chairman and CEO, Aequs

With over half of the labor force still reliant on agriculture, manufacturing growth is the only way to offer large-scale, respectable job prospects for a young labor force entering the market. There is no doubt about the fact that the government is committed to steadfast this growth and getting India onto the world map of semiconductors.

Amit Marwah, Head of Marketing and Corporate Affairs, Nokia India, said: “As we understand it, the key objective of the ‘Make in India’ initiative, announced in September 2014, is to encourage domestic manufacturing in the country and establish India as the global manufacturing hub. The Government has taken several measures to facilitate this – through infrastructure build-up, business-friendly policies, economic packages, and reforms among others. The Union budget of 2022-23 has further promoted domestic manufacturing.”

As one of the first global telecom companies to start manufacturing in India, Nokia is part of this scheme and is able to contribute to the vision of Atmanirbhar Bharat. Nokia is fully aligned with the ‘Make in India’ mission and has invested over `4,200 crores in driving value creation. The Chennai factory, established in 2008, was one of the first manufacturing units set up by a global technology leader in the country. Over the years, it has manufactured products for several generations of technologies including 2G, 3G, 4G, and now 5G.

How can the PLI scheme improve India’s manufacturing capacity? He noted that the PLI scheme incentivizes incremental investments by the local and global manufacturers to further boost local manufacturing. The scheme covers telecom, and 12 other sectors and promises to transform the manufacturing sector and play a crucial role in scaling up India’smanufacturing exports.

In the telecom sector alone, with a total outlay of `12,195 crores over five years, 31 companies, including Nokia, are approved under the PLI scheme to accelerate the domestic manufacturing of telecom and networking products. Eligible telecom products under the scheme include transmission equipment, 4G/5G, next-gen and wireless equipment access, customer premises equipment, Internet of Things (IoT) access devices, and other equipment like switches and routers.

Rajnish Gupta, VP & Head for India and Sub-Continent business, Zebra Technologies Asia Pacific, felt that with several schemes like opening FDI to various sectors, including railways, insurance, defense, and medical devices, the government is taking bold steps to transform India into a global manufacturing hub. Also, with the aim of creating five industrial corridors that will spread across the length and breadth of the country, the government plans to boost the supply-chain ecosystem for various industries.

The PLI scheme has really scaled up the investment ambitions across industries to manufacture in the country. To this effect, the telecom equipment makers have already manufactured products worth `6,200 crores with an investment of close to `247 crore since the launch PLI scheme.

India is the youngest kid on the block to have jumped into the semiconductor manufacturing business. With `the 76,000-crore incentive package, India has taken a giant step toward bringing semiconductor and display fab manufacturing to the country.

— Dr. Venkat Mattela, Founder and CEO, Ceremorphic

However, to successfully pursue the Make in India vision, the supply chain and logistics sector will play a vital role in meeting raw material demands for the Indian manufacturers. The covid-19 pandemic has exposed the fragility of the traditional lifecycle of a supply chain, followed by sporadic lockdowns and labor shortages.

There is an increased need for real-time visibility, and the ability to track and trace assets, and inventory in the supply chain to enable business decisions to be made swiftly and decisively. Organizations need to deploy the right technological solutions to gain valuable business insights and intelligence, lower costs, improve productivity, reduce waste, and improve customer experience.

Hemant Mallapur, Co-Founder and EVP of Engineering, Saankhya Labs, added that it is heartening to see the Indian government so intent on making this a success. Schemes for PLI and DLI are the first steps for manufacturing and design, respectively. State governments are, for the first time, vying with each other to get semiconductor wafer fabs to be set up in their regions with incentive packages and infrastructure support. All of these have received global and domestic attention.

Wafer manufacturing being a big business has seen keen interest from big industry houses. Saankhya Labs reported hearing at least three serious proposals. There are reports that OSAT, i.e., chip packaging and test factories is being planned, a sub-sector with lower investments, that presents excellent opportunities. Fabless design and electronics product OEMs are the other parts of the ecosystem that are seeing heightened interest from entrepreneurs.

Contributions galore

Naturally, with companies starting to show performances, some results are definitely heartening. Aravind Melligeri, Aequs, said their manufacturing ecosystems in the hinterland of India have created employment opportunities for thousands of people and improved infrastructure and communities in North Karnataka.

Make in India is the mantra Aequs has followed for well over a decade since it started the Belagavi Aerospace Cluster, and India’s first notified precision engineering SEZ. Via the ecosystem, Aequs has put India on the global aerospace map by contract manufacturing sophisticated components for global OEMs, like Airbus and Boeing.

Continuing with its pioneering ecosystems model, Aequs has now expanded operations to Koppal and Hubballi to set up the Koppal Toy Cluster and the Hubballi Consumer Durable Goods Cluster, respectively.

Encompassing the entire manufacturing value chain, these ecosystems or clusters, facilitate high volume production at competitive prices with extreme ease of doing business for manufacturers who decide to set up their units in them.

Talking about the success of PLI schemes, Marwah at Nokia said that telecom equipment makers have produced more than `6,200 crores worth of products with an investment of around `247 crore since the launch of the PLI scheme. Nokia is among the major stakeholders of the scheme and has already achieved its year 1 targets. Currently, products manufactured at the Chennai factory include 4G/LTE radio, 5G NR (new radio), and 5G massive MiMo products, half of which are exported to global markets. It is now aiming to expand the manufacturing lineup by adding new products in IP optics and fixed networks to further leverage the benefits of the PLI scheme.

As we understand it, the key objective of the ‘Make in India’ initiative, announced in September 2014, is to encourage domestic manufacturing in the country and establish India as the global manufacturing hub.

— Amit Marwah, Head of Marketing and Corporate Affairs, Nokia India

Marwah added that while the PLI scheme offers a huge opportunity to establish India as a global manufacturing hub, there are certain areas of concern that can impact the effectiveness of the scheme and need attention – be it infrastructure, cost of the component, import duties, export approval, product certification, access to market, or R&D investment. Once all of these issues are addressed, it will increase the utility and effectiveness of the scheme manifold.

Mallapur of Saankhya Labs elaborated on their role. Saankhya Labs is a fabless semiconductor and telecom equipment company. As a fabless company, it designs its own chipsets but gets them to contract manufactured from wafer fabs, and package and test houses (all outside India currently). It then sells these chips under the Saankhya brand to product OEM companies. If the semiconductor manufacturing technology becomes available in India, it could be a customer for wafer manufacturers and OSAT companies.

“Our business model also replicates as a telecom OEM company. We design our electronic system products using Saankhya’s and other semiconductor vendor’s chips, and we get them to contract manufactured mostly in India.”

Elaborating on the fabless model of designing semiconductors, he said that chip products, first define specifications based on target market applications such as telecom, Satcom, etc., and the functions it needs to perform in the system product.

“We invest significant R&D to design a chip. Starting with coding in a hardware description language called Verilog, and performing extensive simulations to verify that the design when manufactured will perform to its specifications in the electronic system. This chip design then goes through a process called design implementation using sophisticated EDA software tools, and finally, into the “mask set” database that represents the billions of transistors on the chip and their connecting wires in the form of polygons etched onto the silicon. We then hand over this mask set database to our wafer manufacturing fab which first manufactures a physical “mask set” which they use repeatedly much like a mold to chemically “print” (etch) the transistors into a silicon wafer. The mask set allows for manufacturing chips in large quantities of millions or tens/hundred of millions.”

Each wafer is further cut into dice (plural, singular -- die), packaged to expose only the pins (that are meant to connect the chip to other components on a PCB). Each packaged chip is tested to ensure that each piece does not have any manufacturing defects. These are then ready to be shipped to customers.

Apart from the above process, there is a significant effort in embedded software development, product marketing, sales, and technical support, to help OEM customers develop their system products using Saankhya Labs’ chip. Once customers’ products go through their testing, they place orders for chips in large volumes, which are fulfilled by the outsourced manufacturing process.

with the aim of creating five industrial corridors that will spread across the length and breadth of the country, the government plans to boost the supply-chain ecosystem for various industries.

— Rajnish Gupta, VP & Head for India and Sub-Continent business, Zebra Technologies Asia Pacific

Dr. Venkat Mattela, Founder and CEO of Ceremorphic, added that the PLI strategy for the semiconductor industry is quite promising. The government is trying to create an integrated ecosystem for the chip manufacturing business, and attract semiconductor investments into the country.

Ceremorphic is doing its bit and assisting in the development of India’s promising semiconductor ecosystem, by way of two aspects: talent and infrastructure. In the current environment, talent is never an issue. However, the infrastructure and the past proven experience are key to achieving any meaningful outcome at scale. In both those areas, the ecosystem is developing. It is optimistic that many big accomplishments will be seen in this sector shortly.

Ceremorphic is building technology that will be employed in high-performance computing for decades to come. It will assess the opportunity, moving forward, with development and manufacturing. Currently, it is concentrating on building a unique solution to answer the primary difficulties of a high-performance market.

However, the most difficult aspect of this plan is creating jobs. It is great to see that SMEs are also being urged to take initiative in some sectors where the investment and turnover targets are not very high. Ceremorphic will continue to collaborate closely with state and federal governments to identify mutually beneficial initiatives.

Addressing local and global markets

It offers build-to-print assembly and design-to-print solutions for commercial and space programs.

Now that the government has brought in an enabler, what can the industry do further? Marwah at Nokia said the Government is considering several financial, physical, and nonphysical incentives, beyond PLI, to accelerate the local networking and telecom equipment manufacturing. In the recent budget, the Government announced plans to allocate around INR4000 crore under the PLI scheme to boost 5G design-led manufacturing. Extending these incentives to multinational telecom vendors / OEMs with strong manufacturing and R&D facilities in India, along with a reduction in import duty on telecom components will help make the manufacturing cost-competitive.

Here are some of the measures Nokia believes can help to strengthen the overall manufacturing ecosystem and establish India as an attractive manufacturing destination:

• provide targeted incentives for cutting-edge technology components like multi-layer, complex-material PCBs, etc.
• incentivize global component distributors to set up aggregation facilities in India to make the components available at a low cost.
• provide greater access to global manufacturers/ OEMs.
• reduce import duties on silicon components where there is minimal local production at present.
• simplify export controls such as DGFT SCOMET, to make export approval faster and easier for large volume exporters through a separate dedicated channel.
• increase ease-of-business in telecom product certification and approvals which delay time-to-market eg. TEC MTCTE scheme.

Aequs has advanced into the consumer durable goods manufacturing sector currently making cookware and other products for global brands. It is set to expand manufacturing capacity for contract manufacturing of products across categories at the Hubballi Consumer Durable Goods Cluster (HDC) for both domestic and export markets.  

According to Rajnish Gupta, Zebra Technologies, RFID has become the best-in-class inventory management tool for manufacturers. It is the go-to solution for manufacturers along with other location technologies that track material handling equipment. With RFID readers and scanners, manufacturers can drive process improvement, and eliminate wasted motion, excess time, and errors in the supply chain lifecycle.

Zebra’s RFID technology helps manufacturers remove uncertainty about the status of each item and offers greater transparency in the supply chain ecosystem. RFID also makes it easier to confirm the right component is being integrated into the right product, creating serialized as-built records that can be used to quickly locate and pull non-conforming inventory. Additionally, Zebra’s track-and-trace solutions help to locate, identify and evaluate every asset in real-time from anywhere. It also helps to optimize asset utilization, maximize efficiency and ensure regulatory compliance.

Dr. Venkat Mattela, said Ceremorphic is now a mature supercomputing technology company with 150-person management and technical staff that is seasoned and well-competent. The TSMC 5nm node, is designing a supercomputing processor with remarkable reliability and energy efficiency. With the current status of the company, including its technological portfolio, product design strategy, and client sample for the following year (2023), the company has the resources to effectively develop a product. The cost of developing such a chip would be in the hundreds of millions of dollars. The company wants to work with the right people at the right time to partner with.

Ceremorphic has a development center in Hyderabad, India, and is also based out of Silicon Valley, USA. The product is being created in the United States and India and will be offered all over the world. R&D and product development are heavily influenced by India’s development. The India center is involved in creation of architecture, algorithms, semiconductor design, and software tools.

Ceremorphic’s current technology portfolio and design of QS1 will address the issues of reliability and energy efficiency, paving the way for an architecture capable of achieving exascale performance, while maintaining a reasonable power budget. Ceremorphic’s method will make high-performance computing systems more inexpensive, allowing AI and ML applications to become more widespread.

India’s potential is huge! The global semiconductor market is worth $500 billion today and will cross $1 trillion by 2030, growing at a 10% CAGR. The Indian market as an end-consumer today is around $25 billion.

— Hemant Mallapur, Co-Founder and EVP Engineering, Saankhya Labs

Future for startups

Dr. Venkat Mattela, Ceremorphic, felt that companies should reconsider their business approach to focus on larger clientele that can afford to pay a high prices for their start-ups’ services. Entrepreneurs are adjusting company models, pausing growth to focus on core activities, and making the best of the situation by employing people with more reasonable pay packages. Expenses, naturally, are reduced. We now need to focus on key business strengths rather than experiments, decrease the marketing efforts, and maximize customer experience as happy customers will stick around even in hard times.

The goal is to recognise that downturns and upturns are a natural aspect of business, and strong enterprises can thrive on a shoestring budget. To gain the trust of employees, customers, and potential investors, it is critical to be upfront about financials.

Saankha Lab’s Mallapur noted that by the very nature of the semiconductor business, startups can only happen in fabless space. Semiconductor manufacturing requires $1-10B of investment and is not a startup game. Funding is critical for fabless companies and it’s not been available in a significant amount anyway to Indian startups.

A single chip in production requires a $3-30 million investment depending on complexity. Schemes like DLI will help in small ways in developing early prototypes. These can then be used to raise a serious amount of risk capital to take chips into production. Such capital is unavoidable if India has to achieve its full potential in the fabless space.

India’s potential in semiconductors

The Indian government recently approved a `76,000-crore scheme to boost semiconductor and display manufacturing in the country. How much potential does India have to be a manufacturing hub for semiconductors? According to Hemant Mallapur, Saankhya Labs, India’s potential is huge! The global semiconductor market is worth $500 billion today and will cross $1 trillion by 2030, growing at a 10% CAGR. The Indian market as an end-consumer today is around $25 billion. If Indian companies execute well, a share of 5-10% over a decade would mean close to a $50-100 billion opportunity.

He is very optimistic about the semiconductor industry. While the fabless startup ecosystem has been rising in a small way till now, for the first time that big industry houses and government has recognized the economic importance of what a tremendous opportunity the semiconductor industry opens up for the country. There will be challenges of course and decades of work, as it is not an easy business to succeed in and competition from other incumbent countries is formidable. If we put our best as a country into this field, it can change our fortunes as an economy.

With the global supply chain hindrance, and Make in India still taking off, how should one manage semiconductors shortage, raw material shortage, and hardware shortage?

Mallapur noted that the current supply chain issues cannot be solved by setting up domestic semiconductor manufacturing, which has a gestation period of 3-5 years to gain sufficient scale. Longer-term risks of similar shortages can be addressed by domestic manufacturing.

Very long lead times of 30-50 weeks for chip/raw material procurement are a real issue today. This used to be 4-8 weeks in normal times. OEM companies need better forecasting of their production volumes, which will help them plan and place orders sufficiently ahead of time from suppliers to meet production plans. There are other methods, such as designing systems with replaceable alternative chips, and modules that can alleviate, but not eliminate, the supply chain risks.

Dr. Mattela, Ceremorphic, added that when chip shortages forced the shutdown of automotive production lines in 2021, the semiconductor industry was brought to light globally, for the first time. Semiconductor shortage was caused by plenty of issues. Besides long-standing industry difficulties, including limited capacity at semiconductor fabs, Covid-19 presented unique obstacles as well.

For example, as vehicle sales dropped in early 2020, automakers reduced their chip orders. The semiconductor industry has already relocated to other production lines to fulfill the demand for other applications when demand recovered quicker than expected in the second half of 2020. Now, to mitigate the impact of global supply-chain disruptions, the government is increasing its investment in semiconductors.

In addition to boosting manufacturing capacity, semiconductor companies could take several initiatives to maintain growth and meet consumer demand. They could pursue more mergers and acquisitions and collaborations to get that competitive advantage in profitable markets and grow their client base. Semiconductor firms may also expand their investments in cutting-edge technologies that will aid in the development of cutting-edge chips for driverless vehicles, the internet of things, artificial intelligence, and other high-growth areas. During these unpredictable times, more adaptive strategies are crucial.

Overall, the Make in India program has started showing some results. The way forward can only get better. As they say, there are promises to make and keep, and miles to go!

By Pradeep Chakraborty & Aanchal Ghatak

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