Why government financial support to semiconductor industry is essential for the sector's growth

When the Indian economy was opening up in the 90s, foreign direct investment in various sectors was being invited. Food companies like PepsiCo and McDonald’s entered the Indian market along with global electronics and automobile companies from the ASEAN region, Europe and US. The country debated whether India needed computer chips or potato chips. While global and domestic companies ramped up potato chip production, India ignored the importance of manufacturing semiconductor chips. Over three decades later, India is now making serious attempts to encourage chip manufacturing in India. The Modi government launched an ambitious plan to incentivise chip companies to consider India as a manufacturing base. The production-linked incentive scheme of $10 billion was offered as a starting point. It was a symbol of the government’s commitment and its readiness of putting its skin in the game. The recent development of various companies announcing and revising their plans is par on course for a sector which is complex, resource hungry and offers returns over the long term. US company Micron has committed to investment in India. Foxconn and Vedanta had split their partnership but have indicated that they will maintain their plans to invest in the semiconductor industry. Political opposition to the plans of the government to support the industry suffers from a lack of comprehension of the sector. The critics also have little or no understanding of the role that governments across the world have played to encourage high-technology sectors in their countries. Before talking of other countries, let us consider India’s own heavy engineering and automobile sector. Until the 1980s, vehicle manufacturing was based on antiquated technologies. A government-controlled economy with a socialist mindset did not allow FDI in the automobile sector. Suzuki entered India to make the iconic Maruti cars only with the support of the government. The joint venture between Suzuki and the Government of India was done through heavy engineering PSU BHEL. The government invested significantly in the joint venture to give comfort to Suzuki. Now let’s consider Silicon Valley. How many critics of India’s semiconductor policy know that the US government was the key force behind the setting up of American tech giants? In the post-war era, most of the tech research was being done at Stanford University. The biggest buyer of the tech being created by the US government. Author and economist Marianna Mazzucato wrote in her book The Entrepreneurial State, that nearly every component of the iPhone was developed with support from the US government. The US government created a 2:1 fund matching programme through its agency the Small Business Administration (SBA) as far back as 1958. For every dollar invested by private funds in a tech company, SBA would grant two dollars. Not lend, but grant! The Internet itself was funded and created by the US government agency DARPA or Defence Advance Research Projects Agency. DARPA created the original version of the Internet. It has also funded and created the technologies for autonomous and self-driving cars. Even the GPS technology was created by DARPA. Till date, it remains the key driver of advanced technologies, many of which remain secret. India needs a bipartisan approach to supporting and developing its own technological capabilities. In the current age, technological prowess will provide the underpinning for economic and strategic security. Chips are an important element for technological security and sovereignty. Previous governments have displayed criminal neglect for this sector. Even for the Modi government delivering results will need heavy lifting not just at the central level but at the state and regional levels. Every government entity must see semiconductors as a national priority. The sector itself is changing rapidly. Consider the importance of a company like Nvidia. It was known for making chips for the gaming industry. Such chips have the prowess for high computer power required for realistic games. Now the same abilities are required in the era of generative AI. The average chip is unable to match the speed and power of computing that Nvidia is able to do. Now other chip makers are also investing in higher-grade chips. In the fast-changing world of technology, it is important that India establishes its presence. India invested in potato chips and brought market linkages to agriculture. It is time to invest in computer chips. The government and the private sector should be supported in their valiant efforts to establish this critical technology in India. The author is a geo-economic analyst and author of The Next New: Navigating the Fifth Industrial Revolution. Views expressed are personal. Read all the Latest News, Trending News, Cricket News, Bollywood News, India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.