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Insights into Editorial: India’s semiconductor dream

 

Introduction:

The pandemic has brought to the fore the fragility of the global supply chain of semiconductor manufacturing.

The situation is exacerbated by the overdependence of the world on East Asia for fab manufacturing, the rising price of silicon, and the China-U.S. trade war.

No wonder, countries are scampering to safeguard their interests by introducing attractive packages to attract more chip manufacturing.

The U.S. has announced a $50 billion package to create foundries there. Intel is adding two more foundries to its Arizona campus and also developing its own foundry business to compete with chip-makers such as TSMSC and UMC.

TSMC, which controls 24% of the semiconductor supply chain, is setting up a $12 billion facility in Arizona.

Japan and Germany have got TSMC to start specialty technology fabs in their respective countries.

 

India’s incentive to manufacturing of semiconductors:

It is timely, therefore, that India has approved a $10 billion package to incentivise the manufacturing of semiconductors in the country.

The government has drawn out a list of incentives to get leading international manufacturers to set up their manufacturing unit in India either by themselves or with the help of a local partner.

Considering the current geopolitical dynamics and the fact that semiconductors are at the core of fourth industrial revolution technologies, this is a welcome first step.

 

Recently Approved Programme for Semiconductor Ecosystem:

  1. Semiconductor Fabs and Display Fabs: It will give fiscal support of up to 50% of project cost to eligible applicants to execute the projects.
    1. The Centre will work with state governments to establish high-tech clusters with requisite infrastructure in terms of land, semiconductor grade water, to set up at least two greenfield semiconductor fabrication and two display fabrication in the country.
  2. Semi-conductor Laboratory (SCL): Ministry of Electronics and Information Technology (MeitY) will take required steps for modernization and commercialization of Semi-conductor Laboratory (SCL).
  3. Compound Semiconductors: The Scheme for setting up of Compound Semiconductors facilities in India shall extend fiscal support of 30% of capital expenditure to approved units. At least 15 such units of Compound Semiconductors and Semiconductor Packaging are expected to be established under this scheme.
  4. Semiconductor Design Companies: The Design Linked Incentive (DLI) Scheme shall extend product design linked incentive of up to 50% of eligible expenditure and product deployment linked incentive of 6% – 4% on net sales for five years.
    1. Support will be provided to 100 domestic companies of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
    2. C-DAC (Centre for Development of Advanced Computing), a scientific society operating under MeitY, will serve as the nodal agency for implementation of DLI scheme.
  5. India Semiconductor Mission: In order to drive the long-term strategies for developing a sustainable semiconductors and display ecosystem, a specialized and independent “India Semiconductor Mission (ISM)” will be set up. ISM will be led by global experts in semiconductor and display industry.

 

Fab manufacturing for fabless chip design houses:

  1. Getting fab manufacturing will also build on India’s strength in design. We have the largest number of chip designers outside of the U.S. who are working on state-of-the-art systems and technologies.
  2. For example, Karnataka boasts of over 85 fabless chip design houses of various global companies.
  3. The strong expertise of our semiconductor design professionals in EDA (Electronic Design Automation) tools provides solid ground to move towards manufacturing.
  4. To create the ecosystem for fab manufacturing, it is important to lock in the demand for semiconductors produced within the country.
  5. The total demand for semiconductors stands at $24 billion. This is expected to grow to $80-90 billion by 2030.
  6. However, this demand is for different categories of semiconductors used in various electronic devices and applications.
  7. Considering that initial manufacturing would be in mature tech, it would be ideal to enter into an agreement with the consumers of such semiconductors like automotive manufacturers to ensure that whatever is produced is consumed.
  8. Better still is to get established fab companies to come on their own as they bring with them their demand base.
  9. This will give a fillip to the Indian gas, materials, and mines industry and also expand opportunities for semiconductor equipment, spares, and service industry.
  10. Fab clustering, where key semiconductor supply chains and related businesses are in one place to create backward and forward linkages, would also play a key role in creating an ecosystem for the semiconductor industry.
  11. Such a site should be chosen purely on the ability of the location to act as a force multiplier for the development of such an ecosystem.
  12. It needs to ensure high-quality infrastructure along with uninterrupted power availability with more than 99.7% uptime, connected to two different grids to ensure redundancy.
  13. Additionally, a conducive environment needs to be created for women to work night shifts along with zero labour disputes.

 

Way Forward steps:

  1. Apart from incentivising more FDI in electronics to deepen our supply chains through incentive schemes, we need to focus on encouraging Indian manufacturers and start-ups to enter and master complex R&D and manufacturing verticals.
  2. We can then ensure that valuable Intellectual Property is created and owned by Indian companies.
  3. The semiconductor industry is changing fast as new-age technologies require innovation at the design, material, and process levels.
  4. Indian engineers have contributed immensely to this area in multinational companies.
  5. We must encourage them to set up their design start-ups with handsome government grants and tax incentives.
  6. Premier research institutions such as the Indian Institute of Science should also be asked to work aggressively on R&D in chip designing and manufacturing.
  7. Further, the government must focus on emerging technologies like LiDAR and Phased Array in which incumbents do not have a disproportionate advantage and the entry barrier is low.
  8. By working aggressively in new cutting-edge technologies, India can ensure that it becomes atmanirbhar.

 

Conclusion:

As 5G mobile networks increase driving demand for data-heavy video and game streaming and with many people working from home, the need for more powerful, energy-efficient chips will only grow.

However, the success of programme in building a vibrant semiconductor industry will depend on factors other than just the amount of subsidies offered to investors.

While subsidies can certainly attract businesses into investing in an industry, they are not sufficient or even necessary to attract investments.

Investors care more about ease of doing business, which is influenced by the quality of institutions in a country.

Some economists even argue that Governments just need to provide an environment that is conducive for doing business in order to attract investments.

When a country has the right institutions, businesses will invest in any industry as long as it makes financial sense to do so.