India’s Push to Become Semiconductor Chip Manufacturing Hub | UPSC Notes

Recently, the Government of India, having nearly exhausted the $10 billion subsidy under its semiconductor chip manufacturing incentive policy, is planning a second phase with a $15 billion outlay. The rapidly changing geopolitics like Sino-US trade rivalry has compelled nations like India, Singapore etc to explore new countries and players for semiconductor chip manufacturing. Countries like Vietnam, South Africa have brought necessary legislation to attract foreign companies to set up plants for chip manufacturing. India is also gearing up to take advantage of the current situation and aspires to become a global semiconductor chip manufacturing hub.

What are semiconductors? 

Semiconductors are the small-sized building blocks of almost every modern gadget or electronic device be it laptops, smartphones, smartwatches etc.. They help in giving computational power to devices.The basic component of a semiconductor chip is a sliver of silicon (Si), which is etched with billions of microscopic transistors and projected to specific minerals and gases, forming patterns that control the flow of current while executing the instructions provided. Those semiconductors which have higher nanometre value are used in automobiles, consumer appliances etc. while those with lower nanometre values are used in devices such as smartphones and laptops.

Importance of Semiconductors Chips Manufacturing for India

Semiconductors form the backbone of modern electronics. The importance of semiconductors and chip manufacturing has grown up with the advancement of Industry 4.0 . India hosts around one-fifth of the world’s semiconductor design workforce and also possesses a rapidly evolving technology landscape alongside a thriving domestic market. These factors create a perfect environment for India and semiconductor chip manufacturing companies in India for building an indigenous semiconductor ecosystem. 

Semiconductor Manufacturing Incentive Policy 2.0

Government has decided to take more proactive steps especially due to changing geopolitical situations and events like Sino-U.S trade conflict, Russia-Ukraine war etc. India is actively engaging with multiple nations like Argentina, Taiwan and with companies like Foxconn to make India a global semiconductor chip manufacturing hub. These are some of the key steps under the newly planned second phase of semiconductor chip manufacturing incentive policy:

• Renewed Focus on Chip Fabrication: India is planning to advance in the semiconductor ecosystem by focussing more on fabrication plants, more advanced display technologies. India wants to move beyond assembly and packaging facilities where countries like Malaysia are already strong. 
• Costing: In this second phase, the scheme will not support technology transfer costs. It means the companies will have to bear the expenses in collaborating for chip fabrication.
• Capital Equipment and Ecosystem Support: Under the second phase of the scheme, support will be provided for capital equipment and essential ecosystem resources like gases, chemicals, and raw materials needed at assembly and testing plants. Apart from that incentives will be provided for the fabrication of micro-LED displays

Issues with Chip Manufacturers in India

The chip-making process is a very complex process. It involves making chip-fabrication machines, setting up fabs or factories and the most difficult part is assembling, testing, marking and packaging. The fabs require a highly reliable and high-quality supply of pure freshwater, electricity, and insulation from the elements, reflecting the high degree of precision, cost and capital needed to make the sophisticated circuits.

Why India Need to Scale Up its Semiconductor Chip Manufacturing?

In the past, efforts by India to enter the global semiconductor industry have faltered due to unrealistic goals, tax terrorism and slow policy implementation. Thus, the government is trying to act swiftly this time to avoid repeating past mistakes. India can strategically move across the semiconductor chip manufacturing industry value chain to establish a perfect ecosystem. 

Major Leap into Semiconductor Manufacturing

The global semiconductor chip manufacturing industry is dominated by a few key players, notably the United States, Taiwan and South Korea. Taiwan's TSMC alone is responsible for almost 90% of the world's 5 nanometer chip production. The shortages in Global chip manufacturing mainly due to the U.S.-China tensions over fear of illegal occupation of Taiwan by People's Republic of China and supply chain disruptions from the Russia-Ukraine conflict, have prompted major economies to reinvest in domestic chip-making. 

• Market Size: The semiconductor chip manufacturing industry is valued at approximately USD 500-600 billion, integral to the global electronics market, which is valued at about USD 3 trillion. 
• India’s Position: India’s semiconductor market is currently valued at $ 23.2 billion, and is expected to reach $ 150 billion by 2029, with a compound annual growth rate (CAGR) of 27.10%. 
• Support from Government: The Government has launched various schemes and initiatives like the National Electronics Policy and the $10 billion Production Linked Incentive (PLI) scheme which have propelled India’s semiconductor manufacturing ambitions. 
• Encouraging Foreign Investment: India is trying its best to attract foreign investment from companies like Foxconn and they have shown interest in establishing a semiconductor chip manufacturing plant in India. Apart from that Tata Group is also partnering with many big players to jointly develop semiconductor chip manufacturing in India.

Way Forward

India should focus more on companies that specialize in Outsourced Semiconductor Assembly and Test (OSAT). These companies are less expensive to set up and generate better margins. A collaboration with like minded countries and their companies who are specialized in chip manufacturing will help to neutralize the threat of instability due to Sino- US trade rivalry. This will also reduce the excess dependence on China.There is a need to set priority goals i.e the initial funding should be made on specific areas like design and Research and Development (R&D), for which India already has an established talent pool.

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