About Semiconductor Industry

Context:

In a bid to make India’s $10 billion chip-making initiative more attractive to investors, the Centre, approved changes to the scheme for the development of a semiconductor and display manufacturing ecosystem.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. About Semiconductor industry
2. What are the changes to India’s chip-making scheme?
3. What are the challenges?

About Semiconductor industry

• Semiconductors are the thumbnail-sized building blocks of almost every modern electronic device from smartphones to connected devices in the Internet of Things (IoT).
• They help give computational power to devices.
• The global semiconductor industry is currently valued at $500-$600 billion.
• The basic component of a semiconductor chip is a sliver of silicon, which is etched with billions of microscopic transistors, forming patterns to control the flow of current while following different computational instructions.

Chip-making industry

• The chip-making process is complex and highly exact, having multiple other steps in the supply chain such as designing software for chips and patenting them through core Intellectual Property (IP) rights.
• It also involves making chip-fabrication machines; setting up fabs or factories; and ATMP (assembly, testing, marking and packaging).
• The chip-making industry is a highly-concentrated one, with the big players being Taiwan, South Korea and the U.S. among others.
• Therefore, the global chip shortage, U.S.-China tensions over Taiwan, and the supply chain blockages owing to the Russia-Ukraine conflict have led major economies to enter the chip-making sector with a renewed push.
  • For example, the U.S. announcement of $52.7 billion in government funding for the CHIPS and Science Act and the EU’s Chips Act that will mobilise €43 billion for public and private investments.

What are the changes to India’s chip-making scheme?

• In December 2021, India announced its roughly $10 billion dollar production-linked incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country.
• It also announced fiscal support for a design-linked initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights etc.
• 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.
• The new changes announced recently to harmonise government incentives for all technology nodes of semiconductors, according to the Minister of State for Electronics.
  • In the previous version of the scheme, the Centre was offering to fund 30% of the project cost for 45nm to 65nm chip production, 40% for 28nm to 45nm, and 50% or half of the funding for chips 28nm or below.
  • The modified scheme provides uniform 50% fiscal support for all nodes. Besides, it will provide 50% of capital expenditure for other steps of the process as well (chip design and ATMP).
  • The modified scheme also emphasised the production of the 45nm chip, which is fairly less time-consuming and economical in terms of production.

What are the challenges?

Chip production is a resource-intensive and expensive process:

• While the new scheme provides equal funding for all steps of the process, the outlay of the scheme remains $10 billion.
• Notably, just the setting up of one semiconductor fab requires an investment of anywhere between $3 and $7 billion.

Design and R&D:

• Analysts, while positive, are concerned that not much of the current scheme outlay would be left to support other elements including display fabs, packaging and testing facilities, and chip design centres.
• They also argue that the initial funding should focus on areas like design and R&D, for which India already has an established talent pool.

Gallons of ultrapure water:

• Chip-making also requires gallons of ultrapure water in a single day, which experts say, could be a task for the government to provide to factories, compounded also by the drought conditions which often prevail in large parts of the country.

Drive up consumer demand:

• Another task for the government is to drive up consumer demand in the semiconductor and linked electronics industry to not end up in a situation where these ventures remain successful only till taxpayers are forced to fund required subsidies.

-Source: The Hindu