India's Semiconductor Strategy: Start with Packaging and Testing
India should commence its semiconductor journey with packaging and testing operations before progressing to advanced chip manufacturing, according to former NITI Aayog member Arvind Virmani. In an interview with ANI, Virmani emphasized that scale, high-quality infrastructure, and a robust electronics ecosystem are critical for the sector's long-term success.
"You cannot straight away start producing all kinds of semiconductors. The appropriate thing is to start with the simplest elements of the semiconductor, which include packaging and testing," Virmani stated.
Semiconductors as Part of a Larger Electronics Ecosystem
Virmani stressed that semiconductors should be viewed within the broader electronics ecosystem. India must build scale and quality supply chains, as the entire electronic supply chain depends on semiconductors. He noted that a plant producing a thousand items would be "a hundred times less efficient" than one producing a million items.
He also highlighted the need for high-quality infrastructure, saying, "Water, air, everything must be perfect to get good semiconductors."
Manufacturing as a Growth Driver
On manufacturing, Virmani said the sector should be treated as a growth driver rather than judged solely by its share in Gross Domestic Product (GDP). "The share may not go up that much because share is not important. It's the drive which it promotes, which gives you growth," he explained.
Tax Reforms and State Government Role
Virmani identified tax administration as a major reform priority. "The need of our economy is not to keep on raising more and more revenues. It is to make the system very simple and predictable for the manufacturing sector," he said, advocating the use of artificial intelligence (AI) to simplify tax systems and compliance.
He also highlighted the role of state governments in attracting investment, stating, "The states which welcome genuinely welcome manufacturing and facilitate it do much better." He cited the importance of land, infrastructure, and connectivity.
Trade Policy and EU FTA
On trade policy, Virmani described the proposed India-European Union (EU) Free Trade Agreement (FTA) as the most important pending deal for India's manufacturing ambitions. "The EU FTA for this year and next year is the most important," he said, arguing that FTAs help create trusted supply chains in addition to boosting trade. According to him, the US and EU remain the most important markets for expanding manufacturing exports.
Critical Minerals and Pharmaceutical Sector
Addressing critical minerals, Virmani said India should secure supplies through domestic exploration and partnerships with resource-rich countries. "The best way is to have deals with countries in Latin America, countries in Africa and other areas of the world, including Central Asia," he said. He added that partnerships with countries such as Japan could help India acquire environmentally sustainable processing technologies.
In the pharmaceutical sector, Virmani supported stronger innovation incentives. "The PLI, I think, is very important for API, but what I think is still missing is the incentive for R&D," he said, while also calling for faster drug trial processes.
Sustaining Growth and Structural Reforms
On sustaining growth above 7 per cent, Virmani called for deeper structural reforms. "EODB is like a jungle, you have to keep hacking away at it," he said. He also stressed the need to improve learning outcomes and job skills, noting that "50 per cent of the children at the end of primary school cannot read."
Virmani further underscored the importance of urban public infrastructure, saying, "You are not going to be called a developed country by anybody unless your basic urban infrastructure is good."
Satellite Communications and Digital Markets
On satellite communications and digital markets, he argued that India should support national champions capable of competing with large global players. "The answer to global monopolies is not just domestic competition... but to build national champions," he said.
Iran-US Situation and Energy Costs
Commenting on the Iran-US situation, Virmani said a lasting peace agreement would benefit India by lowering energy costs. "An oil price rise is like a tax on India by the foreign producers of oil," he said. He added that greater regional stability would also strengthen connectivity projects such as Chabahar Port and improve India's access to Afghanistan and Central Asia.
