India’s Push For Semiconductors

Context:

The Union Government has disbursed around ₹1,645 crore in performance-linked incentives (PLI) for electronics manufacturers so far, as part of its efforts to bring in more of the electronics supply chain to India.

• The push for semiconductors, or integrated circuits, is far more pressing now, as these chips are found in practically every modern electrical appliance and personal electronics devices.

Relevance:

GS III: Science and Technology

Dimensions of the Article:

1. Why is the government encouraging semiconductor manufacturing?
2. India’s Semiconductor Manufacturing Industry
3. Can India produce both semiconductors and finished products?
4. Advantages and Limitations of India’s Semiconductor Ambition

Why is the government encouraging semiconductor manufacturing?

National Security:

• Semiconductors are critical components of modern electronic devices, including those used in defence systems.
• The dependency on foreign countries for the supply of semiconductors is seen as a potential national security risk.
• By encouraging semiconductor manufacturing within the country, governments aim to reduce their dependence on other countries for such critical components.

Economic Growth:

• Semiconductor manufacturing is a capital-intensive industry that creates jobs and contributes to economic growth.
• Countries see semiconductor manufacturing as a strategic industry that can help to boost the economy and create high-value jobs.

Technological Advancement:

• Semiconductor manufacturing is at the heart of technological advancement.
• By encouraging the development of semiconductor manufacturing, governments hope to spur innovation and keep pace with technological developments.

Competitive Advantage:

• Countries see semiconductor manufacturing as a way to gain a competitive advantage in the global market.
• By producing semiconductors domestically, countries can reduce their reliance on imports and potentially become leaders in the semiconductor industry.

India’s Semiconductor Manufacturing Industry

• Invest India agency estimates that the electronics manufacturing industry in India will be worth $300 billion by the financial year 2025–26.
• While facilities for assembling finished products are growing in number, fabs for making chipsets and displays are rare in India.
• Minister of Electronics and Information Technology announced that the first semiconductor manufacturing fab will be announced in the coming weeks.

Can India produce both semiconductors and finished products?

• According to a report by the Semiconductor Industry Association (SIA), India should focus on its strength in the electronics manufacturing value chain.
• Foundry companies, which turn raw materials into semiconductors, require significant investments, but companies specializing in Outsourced Semiconductor Assembly and Test (OSAT) are less expensive to set up and generate better margins.
• OSAT setups take care of less capital-intensive parts of chipmaking, such as assembling and testing already manufactured components.
• Traditional chip facilities tend to be captive units of large companies, but India is attracting assembly facilities from companies like Foxconn, although some of its most valuable facilities are dedicated to building Apple devices that account for a small fraction of handsets sold in India.

Advantages and Limitations of India’s Semiconductor Ambition

Advantages:

• India has a large pool of semiconductor design engineers who are either Indian or of Indian origin, giving the country an edge in the design and intellectual labor aspect of semiconductor manufacturing.
• Companies such as Intel and NVIDIA have significant facilities in India with a large talent pool working on design problems.

Limitations:

• The cost of setting up foundry companies, which turn silicon into semiconductors, is high, requiring investments upwards of 35% of revenues, and entry costs running into billions of dollars.
• While facilities for assembling finished products have been growing, fabs for making chipsets and displays, which are crucial parts of the manufacturing process for many electronics, are rare.
• India may face challenges in achieving its semiconductor ambitions due to the need for a sustainable pipeline of high calibre talent, which is critical to the success of the sector.

Conclusion:

• India’s electronics manufacturing incentive programmes are focused on opening display and semiconductor fabs, which is a strategic and economic goal for the country.
• India has the potential to develop the parts of the semiconductor manufacturing ecosystem that have promise for sustainable growth and fiscal feasibility.
• To be effective, the electronics value chain needs to be an international undertaking among nations with common values, with each nation specializing in different aspects of the semiconductor and electronics manufacturing process and working together on distribution.
• India should not delude itself into thinking that it will be the “king of the hill” in semiconductor manufacturing, but rather work together with like-minded nations to address the geopolitical problem of Chinese dominance without simply transferring power to a different country.

-Source: The Hindu