Post Union Budget 2023-24, in an exclusive video interaction with K, Krishna Moorthy - CEO & President, and Anurag Awasthi - Vice President, Policy, Government Corporate Relations at India Electronics and Semiconductor Association (IESA) we came to know about how the global and the Indian ESDM and semiconductor industry is moving forward. The experts also added that the corporate tax, which has been reduced to 25 percent, is as per with any advanced countries. Now, electronics manufacturing, which started even before PLI and other schemes, have been provided ample subsidies by the government so that their capital cost comes down by 75 percent. In India, the MSMEs are not able to scale-up because the challenge is finding the right product mix and top-notch technology. Find out in this candid interaction, how the industry bodies are offering confidence to EMS companies abroad so that they can make direct investments and also start manufacturing PCBs, resistors, capacitors etc. Also, the upcoming chips which will be a game-changer in the world, how the global semiconductor industry has been undertaking efforts to boost production and in the coming five years where will India lead the ESDM and semiconductor race globally.
Q. With the onset of COVID-19 pandemic, the EMS and the semiconductor companies went through a lot of difficult phases. The demand for chips increased, but their production slumped. According to you, what are the current obstacles that require a solution to increase production?
Krishna Moorthy- As far as the semiconductor industry supply chain is concerned, the situation has significantly improved. I would rather say that 70-80 percent of the parts are now back to pre-COVID situation, which is probably 4-8 weeks and particularly memories and all that are off the shelves. The second aspect is that the processor core for the servers and some critical components for the high-end vehicles that require high-end custom made chips are not still free flow yet. There are late deliveries of around 16-20 weeks but then I can say 75 percent is back to normal and the rest 20-25 percent is easing. The high rate of inflation and recession in the western countries have reduced the demand for luxury items.
Anurag- During pre-COVID and post covid, there was a little gap in the availability of chips, but now most studies are saying that the timeline has been shortened. But, the situation will not be at a pre-pandemic level instantly. There was also a downturn in the economy of chips, the demand has shrunken very badly because there is a global recession. However, the demand and supply of chips will always remain. It is not a tailor-made situation every time.
Q. Over the past few months, some research reports of semiconductors are a bit confusing as few are saying there is a growth and some are saying it’s a collapse. There is only a 1.1 percent growth most reports are saying. Do you agree or disagree? Where is the global and the Indian growth in this sector currently stands?
Krishna Moorthy- The semiconductor growth year on year basis if you look at is projected or predicted at 450 billion dollars, which would reach 500 billion dollar by 2025-26. The first part of the post-COVID era, we had seen a trajectory which was aligned with those numbers. Then we suddenly saw the stagnation started happening. As said earlier, one of the longest lead time is memories, which goes into phones and other electronic devices. There is a reduction in the system level demand and that is being reflected in the semiconductor growth and is not maintaining the positive slope, either it is coming down or remaining flat. There is a compression of the demand that has happened. If the demand curve was flat, it has definitely compressed to a narrow range.
The Indian consumption story has not changed much. The luxury Audi and BMW cars that are getting sold or the number of 85-inch TVs that are being sold, was never in high-demand. If they were to grow or compress a few percent that’s not going to change the demand of the big band of components that are required. The demand growth is still very sturdy because our economy's inflation pressures have overcome or bestowed the growth. Our demand is what we have projected to grow from 27 billion dollars of semiconductors in 2021-22 to 75 billion dollars in 2025-26, which could be 70 billion dollars, but certainly not 40 billion dollars.
Anurag- What I feel is that when you just started coming out of the pandemic, 1.1 percent is a good growth. The lifecycle of a pandemic is five years and if you are looking at 1.1 percent is still a growth rate. India’s story is looking at the four basic contours of a square. It’s the market, the other is the volumes, the third is the societal elevation, and then you look at how digital connectivity has increased. In the end, you need to realize that we are the second largest users of interest and third largest ecosystem of start-ups. So, if you consider all these things, Indian story is very insulated from what is going to happen in the future. Our metrics are very different from what the western world has today.
Q. Semiconductor packaging is a very important segment that is gaining a lot of traction globally. But, there are certain hindrances in this segment. How would you justify its importance and the requirements to build the segment?
Krishna Moorthy- Amongst the different sub segments of semiconductor manufacturing, the lowest hanging fruit is the packaging. Obviously, warehousing and distribution is also an equal component here. If you look at the manufacturing stream, there is wafer manufacturing, and then you have assembly, test, and advanced packaging and then it goes to the warehouse for distribution. Then, when it comes to wafer manufacturing, it’s not only silicon but compound semiconductors as well. This is very expensive and high-capital intensive and that is why many countries have not gone to the bandwagon of semiconductor manufacturing. Today, the kind of logistics mechanisms falling in India over a decade, you can see that many of the building blocks, the packaging industry to become viable in India are coming together and you know the number of international airports have massively increased and highways have improved. So, getting a wafer from a fab in Korea or Taiwan to one of the ports in India has become very easy. If India can assemble at 30 percent lower cost and without disrupting that supply mechanism of turnaround time of 12 hours to 24 hours is holding the waters. This is the underlying factor making the ATMP attractive. The inventory is nothing but cost.
Anurag- I am very hopeful that before the end of this financial year India will announce a couple of warehouse packaging. Another aspect is that a number of global companies such as Intel are working on advanced packaging technology in India. They are working on the most complex product end to end with ownership of full package development creating the testing facility, qualification facility, characterization, and also customer support are happening out of India. So, the level of skill required to support ATMP is already there. This is not the case with wafer fab yet. On February 18th, we are going to have the first packaging workshop before the industrial academia with all the top institutes joining in Delhi.
Q. IESA has been undertaking a lot of key initiatives in the semiconductor ecosystem. Would you like to highlight any recent case studies and also some of your upcoming initiatives.
Krishna Moorthy- So, last year, we published two reports; the semiconductor market study report as well as how Indian companies can take part in semiconductor manufacturing. Some of the minerals and gasses are available in India, which is around 30-40 percent. The point is how do you make them semiconductor grade and make them a global player. Every state in the country now wants to get into electronics and semiconductor manufacturing. We have prepared the state readiness report and the gap analysis. IESA has been running a semiconductor accelerator system called SAFAL for the last three to five years and for electronic companies we are running electropreneur park both in Delhi and Bhubaneswar mostly for the electronics system companies. We are looking to expand this start-up accelerator in all the states in India.
Anurag- If you look at the current budget, the government has done a fabulous job by getting a lot of policy sectors aligned like the custom duty, tax, GST etc. They just need a little bit of synchronization in this. More impetus has to be given to the component manufacturing in India because in that case the nation will become more ‘Atmanirbhar’. We are now engaging with seven states and will be guiding them in various forms and means including consultancy. We are soon releasing the policy compendium report, which talks obviously about the National Semiconductor Policy. Most of the states in India do not have a semiconductor policy, they have only ESDM policy. In addition to that, we are majorly engaged with two to three countries. We want to harness their power to understand what they are looking at and how we can be a part of their system. IESA will play a pivotal role in the conduct of Semicon 2023 and we are publishing a large number of papers on green processes.
Q. While speaking to a couple of home-grown MSMEs, they opine that this is not ‘Make-in-India’ as it is 100 percent FDI, opportunities are only given to foreign firms. Do you agree with this statement? Also, talking about skills, engineers are going towards software and ignoring hardware. In this regard, how do you bridge the gap?
Krishna Moorthy- You see from 10th standard, an aspiring engineer now only thinks of having a software degree and wants to work in companies like Google, Microsoft and other global giants. Students coming into mainstream electronics hardware or anything related to electrical is becoming a challenge. Basically, they are not aware of what is available. So, how do we make a career in electronics system design, electronics or semiconductor manufacturing attractive is to make people understand. One of the activities IESA is now doing is called Canvas Connect. One of our EC members is initiating this program by approaching 1000 of universities in India who run electronics and communication courses and we are even planning to take that in class 10 to 12th standard. But, first we have to tell these students and make them understand that do not take an escape route to software courses and make a career in core electronics. Then, another problem is the quality of teaching on this core subject on electronics, which is not good in tier 2 and tier 3 cities. Then, we are also working on a program where we can get top of the line faculties from across the globe to run regular refresher courses for the faculties in tier 2 and tier 3 colleges.
Anurag- Skill is the core of ‘Atmanirbhar Bharat’. When students pass out from a technical institute the industry is not ready for them. The technical institute squarely blames the school. The latter says that the syllabus is rigid and this is where the software lust is there for thirty years. This is only going to be solved by the national education policy. Hardly there are any engineering institutes in India who offer a single course in hardware. Technology costs and is not for free. Either you start incubating technology, which will take decades to do or alternatively you can catch hold of someone who can do the transfer and then you adapt it and do it as per your advantages.
Q. What are the latest technology innovations you are looking forward to in the semiconductor industry and what are the kinds of upcoming chips, which you think will be a game-changer?
Krishna Moorthy and Anurag- A lot of AI customized chips will come out in the market soon. Another game changer in the coming two to three years is supercomputers, which need a significant amount of computing power. It will be completely ‘Built-in-India’ and ‘Made-in- India’. The recent thing that excited me is the BharOS operating system. This is where your population becomes your advantage. If every Indian starts using BharOS like exactly what China did. They took the GSM standard, modified it a bit, and told the world that it’s China standard. Innovation has to come. For instance, in the EV segment, India is the largest producer and consumer of two-wheeler EVs. We must have standards and certification criteria especially when products are coming from other countries like China.