Politics taking a toll on India’s semiconductor progress: Karnataka IT minister

This has slowed the pace at which semiconductor ventures are growing in India, expanding the timeline for a domestic semiconductor ecosystem “from two to three years to at least a decade," he added.

Speaking on the sidelines of the curtain raiser of the Bengaluru Tech Summit in New Delhi, Kharge said that the state “does not have a level playing field" when it comes to semiconductor projects in India so far.

“This is despite being the talent capital for chip designing in India, with 70% of the entire chip designing talent being in the state. We contribute over 10% of the national manufacturing economy’s output, and all the research and development (R&D) of tech industries happens in Karnataka. We have a natural ecosystem that has been fostered, but the level playing field is not there. This not only hurts our state but the entire nation—because you’re reinventing the wheel there," Kharge said, highlighting that chip projects have so far not gone Karnataka’s way.

Gujarat leads the way

In November 2022, Mint reported that Karnataka was likely to welcome India’s first semiconductor facility by March 2023—with a then-proposed $3-billion joint venture between UAE-based fund manager Next Orbit Ventures and Israel’s Tower Semiconductor seemingly close to being approved by the union government’s India Semiconductor Mission (ISM). This, however, did not play out. Instead, US memory chipmaker Micron’s facility in Sanand, Gujarat, became the first semiconductor testing and packaging factory to be approved by the ISM.

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India has so far approved a chip fab Dholera, Gujarat, which will be built through an $11-billion joint venture between Tata Electronics Pvt Ltd and Taiwan’s Powerchip Semiconductor Manufacturing Company (PSMC). Last year Murugappa Group subsidiary CG Power signed a joint-venture agreement with Japan’s Renesas Electronics to set up an outsourced semiconductor assembly and testing (OSAT) facility in Sanand, Gujarat.

Soon after, Kaynes Technology subsidiary Kaynes Semicon also received approval to build an OSAT factory in Sanand. The fifth project approved by the ISM is Tata Semiconductor’s OSAT in Jagiroad, Assam.

‘Why reinvent the wheel?’

Kharge said it could be more difficult to build an ecosystem for producing semiconductors in Gujarat than tap the ecosystem already available in Bengaluru. “The country is serious about being a manufacturing hub for electronics and semiconductors, and we offer a natural habitat. I’m not saying that other states do not deserve project approvals, but why would you disrupt an existing habitat instead of fostering it? There could have been a cascading effect of ecosystem development, but that is not happening," the minister said.

He added that it would be difficult for the state to continue attracting semiconductor projects without the union government’s support. Karkataka, he said, has 28 project proposals at hand “but much of it will depend on the Centre".

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As for the broader electronics industry, Kharge said the fact that electronics makers were attracting talent to Karnataka from other states, typically from northern India, was not an anomaly. “We have more talent capacity in our electronics and technology ecosystem. You will not see talent migration from our state to the northern states. It’s not a concern that industries being set up in the state are hiring from outside. We’re building India’s overall ecosystem," he said.

To further diversify its offerings, he said, the state is working on establishing a ‘hub and spoke’ system to recreate the Bengaluru model in other cities and towns. It is also working with academic institutions on developing the skills needed for manufacturing electronics and semiconductors. “We have other cities such as Hubli and Mysuru where we are offering land on lease for small facilities to global capability centres (GCCs) and asking them to implement facilities on a trial basis to see how they work out. For instance, a company that wants to set up a 1,000-seater facility can first set-up a 50-seater operation in a city outside Bengaluru and see how this scales up," he said.

‘Give us our fair share of GST’

Touching on the devolution of taxes from the union to the state government, Kharge said since the state was attracting more talent and generating more employment from investments than other states, it was right to ask for a higher share of taxes from the union government.

"We are the ones creating employment, and that is why we have been demanding from the central government to give us our fair share of taxes, our fair share of devolution of finances, so that we are able to create better infrastructure, more employment, and better services for the country," he said.

Also read: Tata Electronics plans to build two more fabs in Dholera

Kharge was referring to the devolution of funds under the Goods and Services Tax (GST) regime, in which the union government distributes the net proceeds of taxes based on the recommendations of the Finance Commission. Currently, states are supposed to get 41% of the GST collected. But some states, such as Karnataka and Kerala, have said they receive less than their fair share of tax revenue when compared to the tax they collect.