‘We expect strong policy support by year-end'

Dr Pradip K. Dutta , Chairman of Indian Semiconductor Association (ISA), strongly feels that India has strategic reasons to develop its domestic electronics manufacturing system. This has to be done to reduce the electronic components import bill. The ISA has completed two studies with the Department of IT and Frost and Sullivan, discussing these problems and offering solutions. As Chairman of the ISA, that has 150 members representing domestic and multi-national companies, Dr Dutta, who is Corporate Vice-President and MD, Synopsys India, paints a positive picture and says there is a distinct shift in the mindset of Governments and policy-makers in favour of the industry. He spoke to Business Line on the challenges, prospects and outlook for the electronics manufacturing industry in the next few years . Excerpts from the interview:

The fab industry has not taken off in the country despite so many assurances. What is your view on the policy environment that governs the semiconductor industry?

I can assure you that there is a distinct shift in the views of Governments, Ministers and leaders in favour of the semiconductor industry. We can expect strong policy support by the year-end. Electronics as a national mission will drive the industry.

We can also hope for a chip policy and an electronics development fund to support entrepreneurs. Industry players are also confident of having preferential access in the case of government procurement of made-in India components. This will go a long way in building the ecosystem for a vibrant semiconductor industry.

Where does the industry stand now in terms of R&D and production?

India provides companies with a favourable environment to set up R&D facilities. Many multinational companies, such as GE, have established research centres in the country.

Leading companies in the semiconductor industry have also established captive R&D centres.

The number of patents filed from India by MNCs such as Texas Instruments, ST Microelectronics, Intel and Broadcom Corporation in the last five years runs into several hundreds.

According to a recent study done by the ISA and the Department of IT on semiconductor design, embedded software and services, the R&D talent pool of MNCs in India has seen rapid growth in the past decade.

The number of MNC employees working at their respective R&D centres in India has increased from 16,000 in 2000 to 1.80 lakh in 2009, growing at a compounded annual growth rate of 30.9 per cent. This number is expected to grow at a CAGR of 10 per cent to reach 3.19 lakh in 2015.

Why has the industry failed to develop rapidly?

One of the main challenges is the lack of a semiconductor manufacturing ecosystem. The non-existence of a foundry leads to less experience in foundry interactions and a longer time-to-market which have inhibited the growth of the design industry to a certain extent. Unless this gap is plugged, the ecosystem cannot mature and develop at a rapid pace.

The lack of the presence of local original equipment manufacturers to cater to the immense demand generated locally has also hindered the rapid growth of the Indian ecosystem.

The other important problem the industry faces is the lack of talent. Companies have cited instances of lack of experienced talent with knowledge of all the aspects of design flow. Although India has good capabilities in digital technologies, it faces a dire shortage of talent capable of handling analog technologies.

Shortage of quality manpower leads to attrition. Given that the current supply of the semiconductor design workforce in India is quite small, attrition caused by competitive pressures for talent and people moving on for higher studies can adversely impact the design ecosystem. There is also a lack of talent for product conceptualisation and product management for the emerging markets. Systems management for captives still continues to be driven by headquarters, so talents for this area need to be nurtured.

How do we stand when compared with our neighbours in this regard?

Countries such as China, Taiwan and others in the South-East Asian region have had a complete and mature ecosystem built over the past 30 years, with the presence of OEMs, strong government support, infrastructure and, hence, these countries are often preferred over India.

Both the captives and non-captives face the challenge of rapidly increasing cost structures and pressure on billing rates, leading to a loss of competitive advantage as opposed other low-cost Asian or eastern European countries.

Which are the promising areas?

Telecommunications, information technology, OA, defence and automotive sectors hold the key to India's economic ascent in this decade.

What are your expectations from the Government in terms of policy support? And what needs to be done to make the ecosystem robust?

The ISA is keen to enable the electronics system design and manufacturing sector in the country and is working with all stakeholders, including the government; it proposes several steps to enable the ecosystem.

We recommend the establishment of a National Electronics Mission that can act as a nodal agency for the electronics industry within the Department of Information Technology, and have a direct interface with the Prime Minister's Office.

We need to promote existing clusters and create islands of excellence by encouraging planning for clusters such as Sriperumbudur and Noida. We should encourage products specifically designed for India.

Creation of an R&D fund to incentivise research would also go a long way in developing the ecosystem.

A separate fund may also be created to provide interest-linked subsidies, promote value-added manufacturing and create products for India. A stable tax structure needs to be put in place to encourage long-term investment by companies.

The Government should also focus on skill development, and regulations around over-time and contracts need to be flexible.

Lower customs and import duties on the raw materials needed for electronics manufacturing will make trading a more attractive business proposition.

The additional State-level taxes, non-uniform duties, and inverted duty structure, all weigh against indigenous manufacturing.

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