From Chip Taker to Chip Maker

Semiconductors have massive significance for development of commercial technologies. However, they are also indispensable when it comes to developing critical and emerging technology deployed by the military. The recent use of the strategy of “civil-military fusion” by the Chinese People’s Liberation Army (PLA) has brought to the fore the need to consider synergizing India’s aim of achieving self-reliance in the defence sector together with its recently announced semiconductor policies. In short, the civil-military fusion is a strategy that is predicated on the usage of private sector technology for military sector and vice-versa, wherein defense-related technology is spun-off for the commercial market.

Therefore, on October 11, Carnegie India, together with 3rdiTech held a closed-door discussion aimed at exploring the synergies between the Indian government’s aim of achieving self-reliance or aatmanirbharta in the defence sector, and India’s recently announced semiconductor policies.

The closed-door discussion was divided into two sessions. The first session focused on why India should focus on chips that are increasingly necessary for achieving combat precision, efficiency, and deterrence in war fighting. It also looked at the current procurement procedures adopted by the military, possible obstacles to reforming these procedures, and what more can be done to enhance the semiconductor ecosystem in India. The second session saw participation by a delegation from the Semiconductor Industry Association (SIA) of the United States. The discussion here touched upon the larger issue of what more could be done to enhance investment by global semiconductor firms into India’s budding semiconductor sector.

The closed-door discussion was moderated by Vinayak Dalmia.

CLOSED-DOOR DISCUSSION HIGHLIGHTS

Reflections on the need for civil-military fusion: Participants opined that future battlefields will be increasingly dominated by technology. When it comes to a battle between those with economic power versus those possessing superior technological capabilities, the latter will likely prevail. However, it was acknowledged that India has a short window of opportunity in India to build a thriving semiconductor ecosystem, given how supply chains are increasingly moving out of China.

Use of futuristic technologies: Futuristic technologies are not going to have validated requirements from the user, and the user has to be innovative. This is because the user possibly does not know its requirements. If they do know their “futuristic” requirement, then they will possibly get what is already there in the market and accordingly, innovation will not happen. Therefore, when selecting their requirement, the military also has to look at “current” technologies in the market.

Challenges in buying off-the-shelf weapons systems: There was an acknowledgement that a segment where India could do better is in securing sub-components for weapons systems. During procurement, the significance of the sub-component specifications tends to overwhelm the overall product design issue. This is where procurement may get stuck. Also, there are other issues with buying off-the-shelf components. These are: (i) export control issues where the country exporting the component may restrict the component’s export, (ii) being off-the-shelf, the component may not be the best in class since it did not come integrated with the weapon itself.

Structural issues need to go in tandem with the semiconductor policy:The second session saw a discussion over what more could be done to capitalize on supply chains moving out of China. There was a consensus that until recently, China capitalized on a lack of convergence between American businesses and India’s policy environment. Essentially, the “ease of doing business” in India, while having made rapid strides over the last few years, has scope for further improvement. In addition, trade policy and infrastructure issues also have to be calibrated before India’s semiconductor policy may have the impact it desires. However, there is an opening for India since semiconductor companies are at a global inflection point. Their industry is under intense pressure to rebalance their supply chain. Accordingly, several countries are making a play to siphon off whatever is being rebalanced out of China. To start off with, it was suggested that there are plenty of companies from U.S. interested in manufacturing “mature” nodes in India. But this will require smaller fabrication facilities. While this may be not the most glamorous segment of the semiconductor fabrication value chain, it will eventually build the ecosystem. This will include chip design firms and ATMP firms. Once this ecosystem has developed beyond a certain threshold, this may lead to more advanced manufacturing moving in to India.

This event summary was prepared with the help of Dhruv Taware and Adyasha A. Das, research interns at Carnegie India.