Though India's semiconductor production facilities are still nascent compared to many other Asian giants, India’s role in the global semiconductor industry has undergone a quiet yet significant transformation.

Traditionally known for its prowess in design rather than manufacturing, India has gradually carved out a position for itself in the semiconductor intellectual property (IP) domain, driven by strategic initiatives and the emergence of innovative domestic companies.

This shift is distinguishing between semiconductor fabrication and chip design—two distinct yet intertwined aspects of the semiconductor ecosystem.

While semiconductor fabs, similar to high-tech chemical plants, remain scarce in India, the country has made notable paces in chip design and IP creation.

India’s progress in this arena is evidenced by the success of fabless semiconductor companies, which focus on designing chips while outsourcing their manufacturing to global foundries. Companies like Silizium Circuits in Kochi and Netrasemi in Trivandrum exemplify this new wave of innovation.

These startups are not just designing chips—they’re developing unique IPs that could position India as a leader in the semiconductor space. Although the actual fabrication of these chips occurs abroad, the intellectual capital remains firmly rooted in India.

A significant driver behind this evolution is the Design Linked Incentive (DLI) scheme, which encourages domestic companies to engage in product design and innovation.

The scheme has spurred the growth of fabless semiconductor firms and supported the development of groundbreaking products in fields like MedTech, where companies have created devices such as neonatal blankets with embedded sensors and digital stethoscopes with ECG functionality.

Key Challenges Faced By Industry

India's semiconductor design sector is robust, housing nearly 20 per cent of the world’s semiconductor design engineers who produce around 3,000 chip designs annually.

The country excels in areas like networking, microprocessors, analog chip design, and memory subsystems, with a thriving ecosystem of MNCs, design centers, service houses, and local companies. However, much of this talent serves multinational corporations, leaving limited visibility for indigenous work.

Despite the presence of 5-10 small Indian fabless startups with products in production and 20-25 others in development, most startups focus on design testing and verification for larger firms. Acknowledging this, the Indian government has introduced supportive policies to address these challenges (ICEA report, 2024). 

However, India faces significant hurdles in semiconductor chip design, including the high costs of semiconductor chip design, driven by expensive Electronic Design Automation (EDA) tools and lengthy fab processes (12-18 months) making this industry dominated by major MNCs in India, leaving limited space for Indian companies and startups.

The semiconductor industry is highly R&D intensive therefore stringent IP protection is crucial for this industry to grow. In India, the Semiconductor Integrated Circuits Layout-Design (SICLD) Act, was introduced in 2000 to protect the design of integrated circuits.

Despite India’s growing presence in semiconductor design, the act has seen limited use. Intellectual property experts criticise the act, describing it as fundamentally flawed—comparable to attempting to patent a process rather than the final product. The practical challenges and questionable return on investment have deterred many companies from utilising this protection mechanism.

Qualcomm, Samsung, Huawei, and other chip giants prefer patent protection over SICLD for their semiconductor products in India because patents offer broader, more valuable, and globally consistent protection. Patents also provide stronger enforcement mechanisms, longer protection durations, and greater strategic flexibility for licensing and business operations.

The past annual IP reports published by the Office of the Controller General of Patents, Designs, Trademarks, and Geographical Indications, the government of India revealed that the major share of foreign patent applicants includes chip giants like Qualcomm, Samsung, and Huawei.

In 2022-2023, Qualcomm, Samsung, and Huawei were the top three foreign patent applicants in India holding 3482, 979, and 936 patent applications respectively at the India Patent Office .

It shows that thousands of patent applications come from the Indian affiliates of these companies to the Indian Patent Office. This means that despite India's huge talent pool that has already contributed to chip-making in Indian territory, India still does not hold many semiconductor IP assets.

Further, the role of Global Development Centres (GDCs) operated by multinational tech giants in India should not be overlooked.

These centres, run by companies like Intel, Qualcomm, and Texas Instruments, are not merely support hubs. They are integral to the global product development process. Indian engineers at these GDCs are heavily involved in R&D, contributing to cutting-edge innovation. 

However, patent filings by companies like Intel and Cisco are rare because they typically file patents at their headquarters in the US., even though much of the work is carried out at their Indian affiliates. 

An Indian Cellular and Electronics Association report published in April 2024 pointed out that while the ‘brainpower’ of Indians is used, it is the ‘money power’ of MNCs that has led to most chip designs being designed in India (to a certain extent) and its IP resting out of India.

Designing and developing chips is a costly endeavor with IP creation expenses ranging from US$ 2 million to US$ 20 million. With limited venture capital available for deep-tech hardware startups, these companies often depend on grants, angel investors, and a handful of early-stage investors willing to take risks on unproven technologies.

This dichotomy reflects both the challenges and opportunities for India’s semiconductor industry. On the one hand, India’s contribution to global IP is growing, driven by domestic innovation and the experience gained at GDCs. On the other hand, foreign companies' retention of IP rights underscores the need for a stronger domestic framework for IP creation and protection.

Access to major fabs is a critical challenge for Indian Semiconductor Design Companies. With rapidly advancing semiconductor technology, close collaboration between design centres and fabs is crucial to minimise testing and validation time and expedite market entry.

Fabs, however, cannot sustain outdated nodes for low-volume production, forcing design firms to avoid uneconomical scenarios. 

Positive Side Of The MNCs' Dominance

There is another side to having global chip giants in the Indian market. Engineers from companies such as Intel, Texas Instruments, and Qualcomm often gain invaluable experience and knowledge while working on global products.

Many of these engineers eventually leave to start their own companies, using the expertise they've acquired. This trend has led to the emergence of successful ventures like FermionIC Design, Silizium Circuits Private Limited, Netrasemi, and Cientra, all founded by former employees of these tech giants.

Indian companies can learn valuable lessons from Taiwan Semiconductor Manufacturing Company's (TSMC) success in the semiconductor industry.

Indian companies should prioritise collaboration and joint ventures, leveraging global partnerships to accelerate technology adoption, similar to how Taiwan collaborated with Radio Corporation of America (RCA) to advance its semiconductor capabilities.

Investing heavily in R&D is crucial, as demonstrated by TSMC's consistent increase in R&D expenditure with growth rates increasing from 6.40 per cent in 2019 to 11.80 per cent in 2021. This commitment has allowed the company to stay ahead of the competition by developing cutting-edge chip manufacturing processes.

Furthermore, Indian companies should focus on expanding their production capacities to meet the growing global demand for semiconductor chips, following TSMC’s example of continuous capacity expansion with significant growth rates of 45.6 per cent in 2019 and 34.7 per cent in 2021.

Lastly, Indian firms should double down on their strengths, such as raw silicon wafer manufacturing, testing, packaging, and leveraging India's software talent pool to develop essential tools like electronic design automation (EDA) for chip design, to establish themselves as significant players in the global semiconductor industry.

The Way Forward

Looking ahead, experts advocate a multi-pronged approach to strengthen India’s position in the global electronics and IP landscape. This includes building true manufacturing capabilities, reducing structural barriers to domestic production, and continuing to support innovation through initiatives like the DLI scheme.

Besides, nurturing a talent pipeline by encouraging entrepreneurship among engineers who have gained experience at GDCs is crucial. 

One way to effectively promote local semiconductor IP could be providing tax incentives for finished products that utilise local IP, rather than solely incentivising the IP creation itself.

Without this approach, India's efforts may result in IP with low commercial value.

Although the Central Government has encouraged IP creation and many academic institutions and states are reimbursing IP costs, commercialisation rate of local IP creation is low.

Creating a specialised skilled workforce from top to bottom is another area. For that purpose, offering relevant industry-oriented course modules from certificate to degree programmes can be a stepping stone. For example, a recent initiative is taken by the Indian Institute of Science, Bengaluru to train 2,100 tribal students in semiconductor technology over the next three years.

India is also contemplating the creation of an IP pool for semiconductor startups, drawing inspiration from East Asia's successful semiconductor ecosystem.

India’s journey from being a semiconductor design hub to potentially becoming an IP powerhouse is well underway. However, sustained government and private sector efforts will be essential to realise this vision in its entirety.

 

(The author is an India Technology Policy Fellow at Pacific Forum, USA, working at the intersection of Economics of Innovation, IPRs, and International Trade. Views are personal)