In recent years, the issue of data security has escalated, with numerous reports highlighting how China has been embedding backdoors in hardware to siphon off data. You observe outgoing packets even when a packed laptop is imported from the United States. Countries need to build their capacity to manufacture the hardware. Most of the developing countries are however focussing on Software than Hardware.
This dismissive attitude towards hardware was not new. In 2005, a major US personal computer brand exited its PC business for good. Companies that started hardware ventures received no support, with all the emphasis placed on software.
Electronics imports of many countries have surpassed its oil imports. Although this fear slowly catching the attention of policymakers, it has taken decades to extend substantial fiscal support to domestic hardware manufacturing.
Case of India
In recent years, there has been some progress. The government claims that India has topped $100 billion in annual electronics manufacturing due to generous subsidies to the sector. However, experts argue that the dramatic expansion of electronics revenue in India over the last 4 to 5 years is largely due to manufacturing services businesses like those of Dixon and Foxconn. While these companies generate large employment, scale, and exports, they do not add significant value locally. They have to address the issue of backdoor infiltration in the supply chain.
Increasing Local Value Addition
The main recommendation is to make semiconductor fabs successful by designing hardware products and chips in India. If these are designed in other countries, Indian chip fabs will not get the business. The objective is to dramatically increase value addition in the country, with design as a major component.
Just like there is a design-linked incentive scheme for semiconductor chips, there should be another for electronics products. Additionally, there should be a large component manufacturing capability in India, as many components of electronics like mobile phones are currently imported.
Competing with China in the Value Chain
Taking a long-term view of the electronics industry, there is a belief that the potential in India is very high. Due to geopolitical reasons, many companies are looking to move operations from China to other countries. Initially, countries like Vietnam, Malaysia, and Mexico benefited from this shift. India has recently been added to this list, but the movement from China has so far been centered around manufacturing services. The next step is to move product design from China to India. But India’s reliance on China imports will not solve the issue of backdoor infiltration by China.
It is said that 20 percent of the world’s chip designers are Indians, with much of that work happening within the country. However, India does not own the intellectual property (IP), resulting in lost value addition. The goal is to encourage talented individuals working for global capability centers (GCCs) in India to start their own chip design companies, with IP and headquarters in India. Special incentives from the government should support these conditions.
Foreign Chip Design Companies and Incentives
Design benefits should be directed towards Indian companies to create value within the country. Foreign companies often use India for manpower without adding real value locally. The value of engineering and R&D exports from India is about $39 billion, reflecting manpower value rather than IP value.
The Importance of a Comprehensive Ecosystem
There is a school of thought that suggests focusing on skilling services sector workers like chip designers rather than investing billions in semiconductor manufacturing. However, the new thinking advocates for developing the entire ecosystem. India has a large domestic market, with the government purchasing numerous electronic products for defense, space, and atomic energy. Industries like drones and electric vehicles are also plagued with backdoor infiltrations. Most of these products are currently imported, primarily from China.
China is sending many chips embedded with backdoors, compromising security by sending data back to China. A recent investigation revealed that data from chips in attendance machines at Indian government offices was being transmitted to China.
Building Quantum Computing and AI Capabilities
Quantum computing on the cloud is expensive, so while some quantum computers may be purchased for research, the goal is to develop local quantum computing capabilities. Similarly, while artificial intelligence (AI) development can be cloud-based, India’s abundant data provides a significant advantage. Data availability is a critical factor in AI development, and India’s regulations do not restrict data sharing to the extent seen in countries like the United States. This eases the backdoor infiltration task of China.
The push to increase local value addition in electronics and reduce reliance on Chinese hardware is crucial for India’s technological and economic security. By developing a comprehensive ecosystem that includes semiconductor manufacturing, component production, and product design, India can enhance its position in the global electronics market and safeguard against external data security threats.