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Expand India’s Tech Industry to Hardware Manufacturing
Steve Sanghi
Friday, September 2, 2011
Between 1975 and 1995, I watched India miss a series of opportunities on the international scene to establish itself as an outsourcing hub. It missed the semiconductor assembly/test plants, the fabs, the computer manufacturing and the cell-phone manufacturing. India had its historical socialist bent, and viewed foreign investment with suspicion. It was not until the late 1990s, when it went through a series of government and policy changes, that India adopted a free-market system. Its economy then started to grow rapidly. However, India continued to be hampered by its traditional bureaucracy, which made it difficult to ship hardware efficiently.

India got to test its strength during the rise of the software and IT industry. Software has no bureaucratic shipment hurdles, because you can ship it over the Internet. Helped by significant policy changes from the Indian government, the special focus of a few state governments and aided by world-class educational institutes (IITs), the traditional, hard-working Indian engineers rapidly grabbed the opportunity and turned India into the software and IT outsourcing capital of the world.

While the IT industry is providing excellent opportunities to India’s educated engineers, there is still more that needs to be done to employ the very large uneducated class. This is where the hardware-manufacturing industry comes in. India must find a way to attract the next wave of semiconductor fabs and assembly/test plants, along with computer, mobile-phone and other consumer-electronics manufacturing plants.

In the last few years, India came up with a tax-incentive program to attract large semiconductor investments. But they set the minimum investment at $600 million. No one is going to risk that much money where no infrastructure exists for a successful, advanced semiconductor facility. It’s no wonder that zero companies took advantage of it.

I visited India in February 2011 and met with a number of government and industry leaders. My advice was that India needs a new tax-incentive program with no minimum investment required. Additionally, India needs to build a complete infrastructure for advanced semiconductor fab, assembly and test plants, including equipment suppliers, repair services, parts suppliers, clean materials, gasses and chemicals. All kinds of small and medium-size businesses need to spring up to establish an ecosystem that can support advanced semiconductor plants. It usually takes a large semiconductor company two years just to decide where to locate a new plant. So, India’s tax-incentive scheme should be a long-term, 10 to 15 year plan, in order to allow for the complete build out of the infrastructure. Only then will it begin to attract semiconductor plants, in competition with Taiwan, China, Singapore and Malaysia. India has a lot going for it, in terms of an English-speaking population, an educated middle class, a relatively young population, its status as the largest democracy in the world, and ethnic groups that are mostly at peace with one another. India has executed very well on a number of fronts. Its progress in the software and IT industry is remarkable. India now needs to achieve the same in the hardware-manufacturing arena, to employ its uneducated masses.

I will close with the following thought. When a gazelle wakes up in the morning, it knows that it must outrun the fastest lion in order to survive. When a lion wakes up, it knows that it must outrun or out-maneuver the slowest gazelle in order to avoid starving. So, it does not matter whether you are a lion or a gazelle; when the sun comes up, you had better be running.

India is a lion in the software industry and a gazelle in the hardware industry. It needs to be running on both fronts.

The author is President and CEO, Microchip Technology

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