India as a Semiconductor Hub

Context: The Prime Minister has affirmed that India would emerge as a global hub of semiconductor and chip-making industry, as he made a strong pitch to global investors, while inaugurating the ‘Semicon India 2023’ conclave in Gujarat.

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• The Indian government is actively working to attract global players in the semiconductor industry to set up their plants and supply chain networks in the country by offering policy reforms, tax incentives, and other favourable conditions for companies interested in establishing factories in India.
• Advanced Micro Devices (AMD), a U.S. chipmaker, announced plans to invest around $400 million in India over the next five years and build its largest design center in Bengaluru, a major tech hub in India.
• India has shown significant progress in the electronic manufacturing sector, with substantial growth from $30 billion to over $100 billion.
• The country has also witnessed rising electronic manufacturing exports and the establishment of more than 200 mobile manufacturing units.

About Semiconductors

• Semiconductors are the thumbnail-sized building blocks of almost every modern electronic device from smartphones to connected devices in the Internet of Things (IoT).
• It contains millions of transistors packed onto a few millimeters of silicon (the semiconductor).
• Semiconductors allow electronics to function and operate, as well as make computations. That makes them vital for modern electronics.
• Semiconductors are highly complex products to design and manufacture. They require high level of investment in both R&D and capital expenditure.
• India’s potential: India’s consumption of semiconductors is expected to cross $80 billion by 2026 and is expected to reach $110 billion by 2030.
• The global semiconductor industry: The global semiconductor industry is currently valued at $500-$600 billion and caters to the global electronics industry currently valued at about $3 trillion.
  • Taiwan, accounts for 92% of the world’s most advanced semiconductor manufacturing capacity, while the Netherlands is the only country that produces chip-making machines and South Korea is one of the largest chip manufacturers.

Need for Semiconductor Manufacturing in India

• Reducing imports: Taiwan, Singapore, Hong Kong, Thailand, and Vietnam are the only countries from which India imports all of its chips.
• AtmaNirbharta: India’s semiconductor industry would benefit domestic businesses by reducing their reliance on imports and by generating income from exports to other nations.
• Drivers of ICT Development: India has to grow its ICT (Information and Communications Technology) industry in order to take advantage of the fourth industrial revolution. Semiconductors are crucial to this process.
• National Security: They are employed in vital infrastructures that affect national security, including transmission of power and communications.
• Strategic Autonomy: By reducing India’s reliance on other nations for essential technology, domestic semiconductor manufacture can increase the country’s strategic independence and lessen its susceptibility to supply chain disruptions.
• Development of the semiconductor and display ecosystem will have a multiplier effect on several economic sectors as it becomes more deeply integrated into the global value chain.
  • The modern information age runs on semiconductor chips. They make it possible for electrical devices to compute and control operations that make our lives simpler.

Challenges in Semiconductor Manufacturing in India

• Complex value chain: The chip design component is highly dependent on Research and Development (R&D) and Intellectual Property (IP) protection, and hence extremely expensive.
• Requires Huge investment: Semiconductor manufacturing is a complex, capital and technology intensive process.
• Lack of cutting-edge technology: India focuses on “lagging-edge” technology nodes in the start to supply to the automotive and appliance sector.
• Raw materials: Semiconductor fabrication requires specific raw materials such as silicon, germanium, gallium arsenide, as well as chemicals and gases, that need to be imported.
• Lack of uninterrupted power and water supply: Manufacturing a single chip requires hundreds of gallons of pure water, which is both difficult and unsustainable for India.
• Global Competition: United States of America also passed the CHIPS Act last August, providing subsidies of around $280 billion for manufacturing chips in the country. It has also imposed additional restrictions and sanctions on the Chinese semiconductor industry.
• Other Issues: Lack of long-term stable policies, constant price pressure from other global players, ever-changing innovations and rapid changes in technology etc.

Can India become a Semiconductor Manufacturing hub?

• Currently all of the world’s most advanced semiconductor manufacturing capacity—in nodes below 10 nanometers—is currently concentrated in just two countries South Korea (8%) and Taiwan (92%).
• Skilled Labour: It requires highly skilled labour as the production of semiconductors as the fabrication process is intricate, involves 400- 1400 complex steps and requires highly specialized inputs like commodity chemicals, specialty chemicals as well as many different types of processing and testing equipment and tools, across a number of stages. For the process, the company requires highly skilled labour.
  • The production of semiconductor chips has to be done in clean areas as contaminated air particles could alter the properties of the materials that form the electronic circuits.
• Huge capital investment: Manufacturing of semiconductor chips require huge investments. Also, since the designs of chip change quite rapidly, these companies always have to invest in acquiring newer technologies to produce the chips.
  • For instance, the market leader in the industry, TSMC has announced that it will invest $100 billion in its fabrication plants over the next three years.

Government Action to Boost Semiconductor Manufacturing in India

• India has identified electronics manufacturing as a key sector to boost its growth in the coming years by producing goods not just for the domestic market, but also for exporting to the world.
• Production-Linked Incentives to Attract Electronics Manufacturers
  • The government of India approved a $10 billion incentive plan.
  • The product linked incentive plan aims to attract chip and display industries to the country, with the goal of making India a major hub for electronics manufacturing.
  • The plan is also aimed at reducing reliance on supplies from China, with which India has tense relations.
  • It provides uniform fiscal support of 50 per cent of project cost for semiconductor fabs across technology nodes and display manufacturing.
• Semicon India Programme: To foster the growth of the semiconductor and display manufacturing ecosystem in the country.
  • It aims to provide financial support to companies investing in semiconductors, display manufacturing and design ecosystem.
• India Semiconductor Mission (ISM): It has been setup as an Independent Business Division within Digital India Corporation to drive long-term strategies for semiconductor design ecosystem in the country
• Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): It provides a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including electronic components and semiconductors.
• Modified Special Incentive Package Scheme (M-SIPS): M-SIPS provides financial incentives for setting up new semiconductor manufacturing units in the country. Under the scheme, companies can get a subsidy of up to 25% of their capital expenditure.
• SEWFAP: Semiconductor Wafer FAB Acquisition Program (SEWFAP) provides financial assistance to Indian companies for acquiring semiconductor fabrication facilities (fabs) outside India.

Way Forward

• Robust Policy: Foundry establishment requires a significant investment in capital, it must be backed by a sound long-term strategy and adequate funding. Both the government and the entrepreneur must provide this support.
• Fiscal support: Tax holidays, subsidies, zero-duty policies, financial investments, etc., will be crucial in boosting the Fab and the semiconductor sector in India.
• Infrastructure Support: A modern Fab needs to have access to world-class, sustainable infrastructure that includes things like quick transit, a lot of clean water, consistent electricity, communication, a clean environment, etc.

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