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 Shoring’ for 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.