Indian Fabs Will Fail Without Domestic Ecosystem to Consume Chips: HCL Co-Founder Ajai Chowdhry

Today we are creating silicon fabs and packaging plants—with the Centre and state governments bearing 70-75% of the cost. These will come up in the next 3-4 years and we need them to succeed. For that, we need to give them enough business in India. There are enough fabs globally—we can’t be looking at the international market.

If an American company wants to make a chip, they will go to an American fab because it is also putting up a large number of fabs. Europe is doing the same. Who is going to come to India to buy our chips? The next 6-12 months are very critical and we should implement programmes by the government to incentivise product design, product development—both in systems and chips. A task force was set up just for this purpose about 6-12 months ago. I was part of that task force. In the reports, we clearly say put aside Rs 35,000-40,000 crore for developing the product sector.

We must design products in India, not just make them. From make in India, we should now look to design and make in India. If you own a brand and you do your own R&D [research and development], the value addition is 50-60%. But, we are at the lower end. We basically screw drive products for just 5-10% value addition.

If you take the likes of Dixon or Flextronics, they are all manufacturing in India with low value addition. The value addition will happen when we actually design products in India and start creating Indian brands.

PLI should have had a very strong orientation towards design—by year 2, you start designing, your value addition from India should be 30% in year 3 and 50% in year 5. If we had put that clause, we would have achieved much, much more than what we are achieving today. Today, all that we have done in PLI is to get scale. There’s nothing wrong with getting to scale.

Way back in 1999, the government went and signed the WTO [World Trade Organisation] agreement for electronics. In 2005, it was implemented. Zero duty came in. It destroyed the electronics industry. Brazil didn't sign, China didn't sign, but we signed. Our industry was not ready.

We should have at least bought 10-15 years and told the industry that we are going to sign the WTO agreement in 2025. Prepare yourself. They didn't do that. They just did it overnight. All the small and medium businesses in electronics died. If you went to Okhla about 25-30 years ago, it was full of small electronics companies. They had employed a lot of people and they were doing really good work in design and manufacturing. All of them died.

Our market is not available to an Indian brand. That is the sad part. The strategic autonomy part has been totally overlooked. Today, China controls us in a big way. We now need to decide which products to import from China. All those products must be designed and made in India—and we should create a virtuous cycle for it.

Every chip that comes from China has a back door. All the data will go back. When Prime Minister Narendra Modi took over, he asked all government offices to have attendance machines. All those attendance machines are Chinese. Eight months ago, intelligence agencies found that all the data had gone back to China. China today has a list and names of every government officer in the country. The same goes for CCTV. We have put Chinese CCTVs all over the country. That means the data of all roads and villages is with China. We have given away our data for nothing. We have opened up our market.

We have to zero in on 10-12 areas like space-tech, drones, electric vehicles and small nuclear plants in which we want to be world leaders. Each of these has to be at least a $200bn market in the world. Otherwise, we will not benefit from it. In 20 years, we should aim to build two to three companies in each of these categories that are among the top five in the world. If we think like that, then we need to put a lot of money into R&D.

All the R&D that is happening in the country today is done by government agencies and a lot of that does not result in any product development, although our researchers are as good as anywhere in the world.

It's that we do not evaluate them in the right way. They are evaluated on the basis of publishing papers. They do not have any orientation towards taking a product from TRL [technology readiness level] 1 to TRL 5 to TRL 7. A researcher has to take it to TRL 5 or 6, then start to work with a startup or a corporation to take the product to TRL 9 and then take it to market. That has to be the approach. Pre-commercial R&D needs to be big. And unless we do that, we will remain in this middle income trap.

iDEX’s thinking is correct, but the process is poor. They give you money to design the product, which is perfect. But they have certain conditions for startups, which are not good. I have invested in a company called Hyperstealth. They have created a coating which can be put on any product like tanks and airplanes—and the coating makes it invisible to radar systems.

This is a fantastic technology and very few companies in the world have it. The company got a Rs 8 crore order from IDEX, but was asked to give a bank guarantee of Rs 8 crore. Where will a young startup get that kind of money? The government has to give them money to make the product, give them business and then give them working capital. Our startup policy needs to change.

The government should not worry about giving money to the private sector for R&D—whether it is HCL, TCS or a start-up called Pixel. If the public sector money goes into R&D in the private sector, the results will be much, much better. If the Council of Scientific & Industrial Research (CSIR) budget is around Rs 7,000 crore, only Rs 400 crore goes into R&D—the rest goes into paying salaries.

Look at the $260bn of exports from India by the Indian software industry. Of that, $39bn are engineering and R&D exports. HCL, Wipro, Infosys, TCS and the global capability centres are designing products like chips in India and selling to global companies. That amount of $39bn is just the transfer price—the real value of those exports is $100bn.

We should leave behind socialist thinking. If Adani and Ambani have made so much money, it is because they are damn good at managing money, markets and products.

Adani was the first to think about having a large port which can discharge huge amounts of cargo—about 20-25 years back. It was long before Narendra Modi became prime minister. He has been thinking ahead. These companies are really very good. The key is that they are very good entrepreneurs. India has always created terrific entrepreneurs.

There are examples all over the world where public money has been put into private hands for R&D. Even today, Tesla gets grants from the US. You look at Huawei. It became one of the most successful telecom companies in the world. They are equal to Nokia, Ericsson and Samsung. They got to that stage because China gave phenomenal support to Huawei. They gave them R&D grants. Around 2% of China’s GDP [gross domestic product] is today dedicated to Chinese companies for R&D.

Yes, that's the right approach. And if we give the grant, they have to deliver that product. And if they deliver that product, you better give them business and help them scale and become big.

For example, Tatas bought this company called Tejas which has created a 4G/5G stack. India did the right thing—as BSNL gave all its business to Tejas because of which it reached scale. It can compete with Huawei, Ericsson and Nokia internationally.

And Tatas have one very major advantage. Through TCS, they have a sales reach in 80 to 100 countries. They can go and sell their gear because nobody trusts China today. All of Europe and the US do not want to have Chinese products in telecom. They want to rip them out and replace them. That's a tremendous opportunity for India. Similarly, we have created a few great products in the past few years like Bharat Biotech’s Covid-19 vaccine, digital public infrastructure and the Vande Bharat express trains.