Central idea

• The Indian government has given ₹1,645 crore in PLI incentives to electronics manufacturers to bring more of the supply chain to India.
• There is a growing need for semiconductors as they are used in almost all modern electronics.
• Many countries are moving away from China’s dominance in the sector due to supply chain vulnerabilities and geopolitical pressures.

Semiconductor manufacturing in India

• Invest India agency estimates electronics manufacturing to be worth $300 billion by 2025-26.
• While finished product facilities have been growing, fabs for chipsets and displays are rarer.
• Ministry of Electronics and Information Technology is set to announce the first semiconductor manufacturing fab soon.
• Semiconductor Industry Association (SIA) suggests India to leverage its strength in the electronics manufacturing value chain.
• Foundry companies require high investments while OSAT generate better margins.
• Outsourced Semiconductor Assembly and Test (OSAT) set-ups take care of less capital-intensive parts of chipmaking and run specialized tests.
• Many chip facilities tend to be captive units of large companies.

Importance of semiconductor manufacturing

• Semiconductor fabrication units turn raw elements like silicon into integrated circuits used in practically all electronic hardware.
• Fabs are highly capital-intensive undertakings costing billions of dollars for large facilities.
• Fabs require a highly reliable and high-quality supply of water, electricity, and insulation from the elements, reflecting the high degree of precision, cost, and capital needed to make sophisticated circuits.
• Countries have spotted strategic value in cornering segments of the value chain for fabs.
• China has pulled ahead of Taiwan last year in terms of global sales from fabs.
• The US passed the CHIPS Act to provide subsidies and investments to manufacturers opening fabs and making semiconductors in the US.
• US also pushed some restrictions and sanctions on the Chinese semiconductor industry.

India’s advantages in semiconductor manufacturing

• India has an advantage in semiconductor manufacturing as a large portion of semiconductor design engineers globally are either Indian or Indian-origin.
• Chipmaking firms such as Intel and NVIDIA have large facilities in India that are already flush with Indian talent working on design problems.
• China is losing control over this advantage in the face of sanctions and an ageing population.
• Experts believes that without a sustainable pipeline of high calibre talent, China’s goals for the semiconductor sector will not be achievable.

Various challenges

• Huge Investments involved: Semiconductor Fabrication facility requires many expensive devices to function. Complex tools and equipment are required to test quality and move silicon from location to location within the ultra-clean confines of the plant.
• Economy of scale:  In semiconductor fabrication, a high volume of production is required to be maintain so as to meet the increasing demand of the marketplace, at the same time, a strong financial backing as Indian market is very much uncertain about financial fluctuations.
• Requirement highly skilled labour: Semiconductor fabrication is a multiple-step sequence of photolithographic and chemical processing steps during which electronic circuits are gradually created on a wafer made of pure semiconducting material. This actually requires high skills.
• Scarcity of raw materials: From a value-chain perspective, it needs silicon, Germanium & Gallium arsenide and Silicon carbide which are not available in India and needs to be imported.
• Uncertain Indian market: A semiconductor fabrication facility in India cannot independently rely on Indian customers for their entire sales structure. They have to maintain overseas customer base to balance inflections from Indian market due to market trends, government policies etc.
• Disposal of hazardous waste: Many toxic materials are used in the fabrication process such as arsenic, antimony, and phosphorus. Hazardous impact on the environment by the industry may act as an impediment to India’s commitment to mitigate climate change.

Policy initiatives in India

• Make in India:This aims to transform India into a global hub for Electronic System Design and Manufacturing (ESDM).
• PLI scheme:In December 2021 the Centre sanctioned ₹76,000 crore under the production-linked incentive (PLI) scheme to encourage the manufacturing of various semiconductor goods within India.
• DLI scheme:It offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
• Digital RISC-V (DIR-V) program: It intends to enable the production of microprocessors in India in the upcoming days achieving industry-grade silicon and design wins by December 2023.
• India Semiconductor Mission (ISM):The vision is to build a vibrant semiconductor and display design and innovation ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design

Way forward

To ensure greater resilience in a volatile world, India needs to undertake the following measures to sustain the domestic and global semiconductor demand:

• Policy framework: As foundry setup is highly Capital intensive, it must be supported with a solid long term plan and financial backing. This backing is required from the entrepreneur & the government both.
• Fiscal sustenance: In text of Indian Government as tax holiday, subsidy, zero duty, financial investment etc. will play an important role in promoting the Fab along with the semiconductor industry in India; this will put further pressure on already large Fiscal Deficit.
• Support Infrastructure: World class, sustainable infrastructure, as required by a modern Fab be provided, with swift transportation, large quantity of pure water, uninterrupted electricity, communication, pollutant free environment etc.

Conclusion

• India’s electronic manufacturing incentive programs are geared towards breaking new ground in ambitious plans connected to popular brands such as Apple.
• The Indian government is working to create an ecosystem that will facilitate sustainable growth and fiscal feasibility in the semiconductor industry.
• The electronics value chain must be an international undertaking among like-minded nations with common values to be effective.

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