The latest updates on the Indian economy are very encouraging. The S&P Global upgraded India from ‘stable’ to ‘positive’ status. This reflects the confidence of the entire world in India’s reform initiatives. Many growth trajectories predict that the Indian economy would consistently grow at a stable rate of 6.8%. Budgeted capex expenditure has increased to INR 11.5 trillion currently. This is almost five times the budgeted capex for 2014-15. The growth in both private consumption (3.5% year-over-year) and private investments (10.6% year-over-year) are all-time highs, due to the burgeoning middle class. With these credentials, India is well on its way to becoming the world’s third-largest economy from its current position as the fifth. Public policy reforms, technological innovations, and entrepreneurship are the drivers in this regard. The question is no longer ‘whether’ but ‘when’ India would realize its goal of being the third largest economy in the world.
One key industry that can contribute to this goal is the semiconductor industry. Focus on the semiconductor industry is the logical next step once the Indian IT and IT-enabled service sector has registered a 7% growth rate, which is more than our economic growth rate. This must be seen as remarkable considering the impact of the pandemic and amid global supply chain disruptions. India’s position vis-à-vis the semiconductor space reminds one of Charles Dickens’ statement, “It was the best of times, it was the worst of times…” It is the best of times as internally we are growing unparalleled. The Indian government has taken the right step by hosting the Indian Semiconductor Mission (ISM) and would like to do everything to make India a hub of the semiconductor industry. The ever-growing Indian demand for cell phones, electronic consumer goods, EV cars, IoT devices, solar panels, etc., if supported with Indian-grown semiconductors, can really boost the economy. Global leadership also wants to support India as an alternate supplier/producer of semiconductors to balance geopolitical dynamics. There cannot be a better time for us to strategize for developing the semiconductor industry than now.
It is the worst of times, as perhaps the growth story needs to be analysed microscopically with respect to the semiconductor industry. It being a highly intellectual property (IP) intensive industry (and has a credit of generating nearly 41% of US GDP), the growth would be determined by India’s ability to effectively enforce IP as well as commercial contracts. Indian efforts were recently heralded when it jumped 71 positions to attain the 63rd rank in the ‘ease of doing business index’ by the World Bank. To draw a comparison, we held 134th position in 2014. This only demonstrated our resolve to move strategically and further improve the position. However, inter alia, our contract enforcement parameters did not fare well. We were globally ranked 186th in 2014, and we stood at the 163rd rank in 2020. Even this marginal improvement was due to the efforts of the legislature by decriminalizing 3,400 minor technical or procedural defaults, taking out 39,000 compliances from lawbooks, providing tax rebates to startups and innovative enterprises, bringing out bankruptcy reforms, etc. When it comes to enforcement of the laws, we are still found wanting. Particularly concerning is the enforcement of contracts and IP enforcement, which are highly sensitive areas for the semiconductor space and require immediate attention. USTR, which works to protect American innovation and creativity across the global market, in its Special Report-301 placed India on the watchlist per its IP enforcement standards. This should be taken seriously to make some systemic improvements. This will help us realize semiconductor prosperity as well as global confidence. It is not just the US observations. Even from our protection point of view, we need to gear up our policies and strategies.
The Indian government has committed to investing INR 2,30,000 crore for developing the semiconductor industry. Big players like Tata, Vedanta, L&T, AMD, Micron, etc., have already made significant investments in this space. The growing focus of India in the industry has led to a burgeoning number of semiconductor startups in the country, who are working relentlessly to realize the Indian dream of semiconductor prosperity with their agility and innovative zeal. There are more than 300 startups in India in this space. However, only 94 of these startups have managed to secure some funding. Only 38 among them have attracted Series A funding. This low turnout is due to a lack of IP enforcement infrastructure. Even the public money invested into the space can only be protected and grown if there is a reinforced IP and contract enforcement. Startups cannot afford to build their own manufacturing facilities, even if their research succeeds, as it requires astronomical investments. Therefore, they hope to be rewarded by realizing their IP rights, which again draws our focus back to the IP enforcement mechanism. Without strong IP enforcement mechanism, investments in research become prohibitively expensive, since the fruits of labour (research success) can easily be replicated by those who have not made such investments. Since the replicators do not have to recover the high R&D costs, their prices can be more competitive, thereby reducing the profitability, and consequently, the incentives to invest in original research. And without active investments in innovation and research, India can at best become a low-cost manufacturing hub rather than a leader in this space. Thus, without strong IP enforcement, achieving Indian semiconductor prosperity would remain a distant dream.
