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Semiconductor Manufacturing in India

  • Context (LM): India is considering ₹10,000 crore revised scheme for local chip manufacturing.

What is a Semiconductor?

  • It is a material, composed of Silicon, Germanium etc., that fits between a conductor (full conductivity) and an insulator (no conductivity), designed to manage and control the flow of current in electronic devices and equipment.
  • Global major producers: Taiwan, South Korea, Japan, USA, and China.
  • Semiconductors Market in India: $25 billion; projected to reach $80 billion by 2028.

Significance of domestic manufacturing of semiconductors

  • Technological Sovereignty: For e.g. concentrating chip production in a few countries can lead to a ‘Malaccan Dilemma’ kind of crisis for India.
  • Key to net zero carbon emissions target: Semiconductor chips are key components in green technologies like EVs, solar panels, turbines, LEDs, etc.
  • Insulation from Global Supply Chain Shocks: The concentration of chip manufacturing in a few countries makes India vulnerable to global shocks like the US-China trade war, the COVID-19 pandemic, etc.
  • Positive spillover effect in the health sector (AI/ML Tools performing complex surgeries), Space sector (Satellite, Launch Vehicles, Deep space probes), etc.
  • National security: by reducing dependence on imported semiconductors, safeguarding critical infrastructure, defense systems, and sensitive data from vulnerabilities.
  • Essential component for advanced technologies like AI, Quantum computing, Blockchain applications, 5G, IoT, Self-driven vehicles, Drones, etc.
  • Stable forex reserves: It will help India boost export earnings by tapping the global market and save huge Forex, thus narrowing the trade deficit.
  • Malacca Dilemma represents the potential factors that could hinder China’s economic development through choking oil imports through the strait of Malacca.

Challenges in making India a Semiconductor hub

  • Highly capital-intensive: The manufacturer has to maintain a large volume production facility to support volume orders, which will result in very high investment in the beginning.
  • High maintenance and infra dependency: Requirement of high-quality supply of pure water, uninterrupted electricity, etc.
  • Lack of highly skilled labor and technology
  • Scarcity of raw materials: From a value-chain perspective, its production needs silicon, Germanium and Gallium arsenide, and Silicon carbide which are not available in India and needs to be imported.
  • Adverse effect on environment: Use of toxic materials in the fabrication process such as arsenic, antimony, and phosphorous, along with high global warming potential fluorinated compounds.

Way Forward

  • Making available sustainable logistics and infrastructure required for a modern Fabrication plant, with swift transportation, uninterrupted electricity, etc.
  • Industry and academia collaboration: Promotion of a start-up culture among faculty and students in higher educational institutes through initial capital and mentoring. For eg. Semiconductor Startup Incubation and Acceleration Program (SSIAP) at IIT Hyderabad.
  • ‘Friend Shoringfor a secure supply of inputs (For eg. QUAD, South Korea, Taiwan, etc).
  • Strategic framework covering the entire chip-making value chain i.e. design centers, testing facilities, packaging, etc. Legislative backing to policy on lines of USA and EU Chips Act.
  • Other Measures: Facilitative tax & IPR regime, Industrial clusters, funding across the value chain, etc.

GoI Initiatives for semiconductor manufacturing

  • Production Linked Incentive scheme (PLI)
  • Chips to Startup (C2S) Programme to train high-quality engineers.
  • Modified Special Incentive Package Scheme (M-SIPS) for Semiconductors.
  • Digital RISC-V (DIR-V) program for the production of microprocessors.
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