05 Feb

Semiconductor Manufacturing in India

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Content

• About Semiconductors
• Significance of Semiconductor industry for India
• Semiconductor at Global level
• India’s Role
• Challenges faced in India
• Semiconductor manufacturing policies in India

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About Semiconductors: 

• Semiconductors are materials which have a conductivity between conductors and insulators. Semiconductors can be pure elements, such as silicon or germanium, or compounds such as gallium arsenide or cadmium selenide.
• A semiconductor chip is a network of semiconductors, also called integrated circuits or microchips.
• End-use industries dependent on semiconductors include mobile devices, telecom equipment, industrial machinery, computing devices, automobiles etc.

Significance of semiconductor industry for India

• Economic and Industrial growth:
  • According to the Electronics and IT Ministry, semiconductor demand in India would increase to $70- $80 billion by 2026 with the growing demand for digital devices and electronic products (mobiles & laptops etc).
  • This will create numerous employment opportunities for the Indian youth.
  • Further, India would be required to import fewer semiconductor chips which would decrease the import bill.
  • Production of semiconductors in surplus of domestic requirement will enable the country to meet export demand as well.
• National security: Semiconductors are essential components in many critical industries, including defence, telecommunications, power transmission etc that have implications for national security.
  • Chips made locally will be designated as ‘trusted sources’ and can be used in products ranging from CCTV cameras to 5G equipment.
• Geopolitical benefits: Self-sufficiency will decrease reliance on chinese chip imports especially during hard times like the recent Galwan Valley border clash.
  • The program will attract large global chip makers to make India their production base,
    fulfilling the government’s vision for Atmanirbhar Bharat.
• Supply chain resilience: The COVID-19 pandemic highlighted the vulnerabilities of global supply chains, including those in the semiconductor industry.
  • The pandemic and the subsequent lockdowns impacted the supply of chips to India.
    Automobile manufacturers like Mahindra & Mahindra and Tata group were compelled to reduce their production due to the shortage.
• Technological Leadership: Semiconductors are the building blocks of today’s technology.
  Semiconductor chips are widely used in (a) Computers and laptops; (b) Phones, mobile devices and other electronic gadgets; (c) Automobiles; (d) Aviation; (e) Medical devices especially diagnostics;
  (f) Military equipment among others. These semiconductor chips are the drivers for ICT (Information and Communication Technologies).

Semiconductor at Global level:

• The semiconductor chip-making process is complex and requires high precision and technological expertise. Manufacturing processes have multiple steps in the supply chain such as designing software for chips and patenting them through core Intellectual Property (IP) rights.
• The global semiconductor industry is currently valued at $500-$600 billion.
• Major Producer: Presently, Taiwan is the world leader in manufacturing microchips with producing over 60% of the world’s semiconductors and over 90% of the most advanced ones.
• Globally, the entire value chain has seeped in the interdependence between a handful of countries like the USA, Taiwan, Japan, China, and some European nations.
• However, this value chain has witnessed two key disruptions in the last few years.:
  • US-China conflict: Presently, USA and China are engaged in trade and technology conflict.
  • The USA passed the CHIPS and Science Act, providing subsidies for manufacturing chips in the country, formed the “Chip 4 Alliance” and imposed additional restrictions on the Chinese semiconductor industry.
  • In a similar manner, China put curbs on the exports of germanium and gallium, two niche metals used in the manufacturing of semiconductors.
• COVID-19 Pandemic: Lockdowns disrupted the functioning of these semiconductor manufacturing units and its forward & backward linked supply chains. This created a demand-supply mismatch and resulted in long-pending orders with end-use industries.

India’s Role:

• India has positioned itself as a player in the critical semiconductor technology field providing an opportunity for companies to diversify their bases from China.
• Market Size: Reports project India’s semiconductor market to value about $64 billion by 2026, showing three-times growth from 2019. According to the India Electronics and Semiconductor Association (IESA), semiconductor consumption in India is growing at a rate of 15.1%.
• Chip Design: India has become the hub for semiconductor design with nearly 2,000 chips being designed per year.
• R&D in the industry: Research and development (R&D) in this industry, which includes electronic products and embedded systems, generated about US$2.5 billion in revenue.
• However, 100% of our chips, memory, and display are imported into the country, 37% coming from China. Chips import bill is estimated to touch $100 billion by 2025 from $24 billion now.
• India can be a major beneficiary of Taiwan’s New Southbound Policy, focusing on shifting its trade and investments from China to Southeast Asia and South Asia.

Challenges faced in India:

• High Cost of establishment: Fabs are highly capital-intensive undertakings, costing billions of dollars for large facilities. As per a government estimate, it would cost roughly $5-$7 billion to set up a chip fabrication unit in India.
• Infrastructural requirements: There are often challenges in meeting the infrastructural
  requirements of a cluster of semiconductor manufacturing fabs such as continuous supply of water, uninterrupted electricity etc.
• Long gestation: A state-of-the-art fab can take up to five years before going into full production but requires full financing and continuous supply of labour during the gestation period.
• Delays in setting up facilities: Three entities that had applied to build the chips are all facing hurdles in setting up their plants – potentially delaying their manufacturing bases.
• Shortage of skilled workforce: There are hardly any semiconductor engineers trained in the knowledge of device physics and process technology.
• Need for the ecosystem: Beyond locating and building structures, fabs require a variety of high purity gases and wafers to fabricate the chips. Presently, India has to import many of these raw materials from external sources.

Semiconductor manufacturing policies in India:

• National Policy on Electronics 2019: It envisions positioning India as a global hub for Electronics System Design and Manufacturing (ESDM) sector.
  • It aims to encourage the development of core components, including chipsets.
• Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): The government will provide a financial incentive of 25% on capital expenditure for a list of products that constitute the supply chain of electronic products.
  • This includes products such as electronic components, semiconductors, and specialized sub-assemblies.
• India launched its India Semiconductor Mission (ISM) in 2021 and Production Linked Incentive (PLI) scheme for the semiconductor industry.
• About Modified Semicon India Programme:
  • Ministry: Ministry of Electronics and Information Technology.
  • Objective: It aims to provide attractive incentive support to companies/consortia that are engaged in Silicon Semiconductor Fabs, Display Fabs, Compound Semiconductors,
    Semiconductor Design (Design Linked Incentive Scheme for nurturing 100 domestic companies of semiconductor design) etc.
  • Tenure: Support under the scheme will be provided for six years.
  • Nodal Agency: India Semiconductor Mission, within Digital India Corporation, MeitY is the designated nodal agency for implementing the programme.
• In 2022, India signed India-US Initiative on Critical and Emerging Technologies (iCET) deal which enables India to access technologies associated with manufacturing of high-end semiconductors and chipsets.

Way Forward:

• Ecosystem Development: Develop a strong ecosystem for the semiconductor industry to include supply chain management besides design and manufacturing facilities.
• Skill Development: India, with its demographic dividend, must focus on training the highly skilled labour required for the semiconductor industry.
• Increased focus on R&D: Increase spending on research and development and develops an
  innovation culture.
• Incentivising Industry: There is a need for incentivising industry to collaborate with academia to provide training and internship opportunities to students and invest in R&D to develop new technologies.
• Partnership: Strengthen partnerships with countries such as the USA, Taiwan and Japan for supply chain efficiency and availability of necessary raw materials and technologies.
• Attracting foreign companies: India needs to enable a conducive environment for attracting foreign companies to set up their manufacturing bases in India