Representational image of employees at the assembly line of a mobile phone manufacturing plant
| Photo Credit: Reuters

Semiconductor design initiatives have to be encouraged with improved domestic fundraising opportunities and incentives for using domestically registered intellectual property (IP), the India Cellular & Electronics Association (ICEA) said in a report released Thursday. As China’s semiconductor industry faces hesitant investors due to geopolitical tensions, the report says, India must seize the strategic opportunity that semiconductors present. 

Referring to arguments by economists like Raghuram Rajan that the semiconductor push may not present optimal opportunities economically (or in terms of jobs), Pankaj Mohindroo, the ICEA’s chairman, pushed back strongly, calling such arguments “self-destructive for India”. “Capacity building for high tech and semiconductors is important,” Mr. Mohindroo said.

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“Though we have 20% of the world’s semicon engineers, none of the IPs are with India,” A.M. Devendranath, the CEO of research firm Feedback Advisory pointed out. Engineers instead work for global firms from India, which register the IP in the U.S. or elsewhere. Mr. Mohindroo suggested that incentives should be provided to use domestically registered IP in key sectors, such as in expanding telecom networks.

The report highlights the strengths of other countries who have had some success in the semiconductor supply chain: China has “over-invested” in low-tech chips, crashing global prices and investment appetite for researching them, while opening up initiatives that make access to funding easy with early exits for investors; Malaysia has focused sharply on outsourced semiconductor assembly and test (OSAT) units, an area where it is number four, after Taiwan, China and the US. 

S. Krishnan, the Secretary of the Ministry of Electronics and Information Technology, said in a foreword to the report that the government’s efforts “aligns perfectly” with the ICEA report’s suggestions already. “While India has made appreciable strides in electronics manufacturing, the semiconductor industry demands targeted policy actions,” Mr. Krishnan said. 

A key suggestion that the report makes is to follow China’s example of subsidising photomasks (also known as mask sets), equipment similar to photocopying plates that allow light to selectively shine on silicon wafers with precision. Photomasks are an expensive but critical component in chip fabrication. China subsidises 80% of photomask costs for semiconductor firms; a similar incentive should be provided for in the design-linked incentive scheme run by the IT Ministry, the ICEA suggested. 

“There is work ongoing with a number of economies, including the U.K., on intellectual property (IP) rights and modernisation in an effort to improve Indian protocols,” Union Minister of Commerce and Industry Piyush Goyal has said.

Responding to questions from a gathering of Indian-origin chartered accountants (CAs) from the U.K. Chapter of the Institute of Chartered Accountants of India (ICAI) at the conclusion of his London visit on Wednesday evening, the Minister – a qualified CA – covered a range of topics including IP rights and corporation tax to environmental, social and corporate governance (ESG).

He said the process to harmonise with international standards is high on the government’s agenda because integrating with world thinking on standards and IP is important for the fast-paced growth of the Indian economy.

“With the UK we are working on IP rights or IP modernisation. Our effort is to improve the Indian protocols around intellectual property rights and areas associated with it, but I feel it will have to be a little more gradual process,” said Goyal.

“Similarly, we are working very actively on quality standards in India. The BIS (Bureau of Indian Standards) for non-food products and FSSAI (Food Safety and Standards Authority of India) on food products are trying to develop standards. Wherever it’s possible, we are trying to harmonise also with international standards. But it’s not possible in everything…we are roughly at about 90 per cent of our standards harmonised with what is generally accepted standards,” he said.

“But I can assure you we are conscious that if we have to develop our economy at a fast pace, we’ll also have to integrate ourselves with the world thinking on standards, on intellectual property. Though it may be a process, we are moving very rapidly and hoping to become a preferred destination for other countries. So, it’s very high on our agenda,” he added.

The minister forecast that over the next three or four years, Indian standards will be seen as world class and accepted across the world.

While he veered away from any direct reference to the ongoing India-UK free trade agreement (FTA) while “negotiations are on”, the minister mentioned that the issue of transfer pricing was among the matters that had emerged as part of efforts to find wider solutions in the trade talks.

“There is no written rule or unwritten rule that any one geography or one set of people are honest and the other set is dishonest… so transfer pricing will remain an issue by issue, case by case subject and there can’t be a one size fits all,” he said.

Asked about the corporate tax levels in India, the minister was clear that India’s rates were at a comparable level having been reduced significantly in the last nine years.

“We have been successful through G20 in getting the world to bring in a minimum corporate tax of 15 per cent,” he noted.

Goyal, who was in the UK on a three-day visit which coincided with the 11th round of FTA negotiations with the UK, met his British counterpart Kemi Badenoch to build momentum behind the process. The Commerce Ministry issued a statement following the meeting to say that “considerable progress was achieved during their frank and open discussions on various difficult issues”.