India’s Push for Semiconductors

Context:

EAM S Jaishankar embarked on a tour to South Korea and Japan this week. The actual outcomes of the meetings in South Korea and Japan will be revealed in the coming months, as India positions itself to play a significant role in the semiconductor supply chain network. Given India’s strained relations with China, and with little prospect of improvement in the near future, India is turning to its traditional allies Japan and South Korea, with support from the US and EU, to secure a substantial share of the semiconductor manufacturing sector.

Relevance:

GS-2- Government Policies & Interventions

GS-3-

• Growth and Development
• Indigenization of Technology
• Industrial Policy
• Scientific Innovations and Discoveries

Mains Question:

With reference to the Indian External Affairs Minister’s recent visit to South Korea and Japan, discuss the relevance of these countries in the growth of India’s semiconductor industry. What is the global landscape of semiconductor manufacturing and how beneficial have government schemes been in this regard? (15 Marks, 250 Words).

About the Semiconductor Industry:

• Semiconductors, characterized by a conductivity level between conductors and insulators, encompass pure elements like silicon and germanium, as well as compounds such as gallium arsenide and cadmium selenide.
• Serving as the fundamental building blocks, these materials form the core of all contemporary electronics and information and communications technology devices.
• From automobiles and household gadgets to critical medical equipment like ECG machines, semiconductor chips have become integral components.
• In terms of significance, semiconductors play a crucial role in various sectors, including aerospace, automobiles, communications, clean energy, information technology, and medical devices.
• The soaring demand for these vital components has exceeded the available supply, leading to a global chip shortage and causing setbacks in economic growth and employment.
• Semiconductors and displays serve as the bedrock of modern electronics, propelling the next phase of digital transformation under Industry 4.0.
• However, as of 2022, the Indian semiconductor industry stands at USD 27 billion, with over 90% being imported, resulting in significant external dependence for Indian chip consumers.
• Major exporters of semiconductors to India include China, Taiwan, the USA, Japan, among others.
• Looking ahead, the Indian semiconductor market is projected to reach USD 55 billion by 2026, with domestic consumption expected to surpass USD 80 billion by the same year and reach USD 110 billion by 2030.
• This growth trajectory highlights the increasing importance of India in the global semiconductor landscape.

Current Global Landscape:

• Currently, the global semiconductor manufacturing landscape is dominated by Taiwan, South Korea, and China, with the US and Japan holding a minority share.
• The COVID-19 pandemic and China’s subsequent actions, including the weaponization of semiconductors (critical components in everything from toasters to high-end space rockets), have compelled countries worldwide to secure their supply chains and diversify.
• In the global race for technological supremacy, the US and China are vying for dominance, with chips (tiny integrated circuit boards requiring intricate multilayered design and manufacturing) serving as the foundational building blocks powering virtually every machine in today’s world.
• The US has already restricted the export of high-tech chips that could contribute to cutting-edge military technology, hindering China’s aspirations for total technological dominance.

Recent Developments by India on the Semiconductor Front:

India Semiconductor Mission –

Established as the primary agency responsible for the efficient and seamless implementation of schemes related to the Semiconductors and Display ecosystem, this mission is designed to steer long-term strategies for the sustainable development of the semiconductor and display ecosystem. The leadership of the Mission will comprise global experts from the semiconductor and display industry.

Semiconductor Design Companies –

• Support will be extended to 100 domestic semiconductor design companies focusing on Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), etc.
• The scheme aims to foster the growth of at least 20 such companies, with a target turnover exceeding Rs. 1500 crore within the next five years.

Semiconductor Fabs and Display Fabs –

• The Scheme for Setting up Semiconductor Fabs and Display Fabs in India will provide fiscal support of up to 50% of the project cost.
• The Central Government, in collaboration with State Governments, aims to approve applications for establishing a minimum of two greenfield semiconductor fabs and two display fabs in the country.

Fiscal Support –

• The Central Government has introduced incentives covering every aspect of the supply chain, including electronic components, sub-assemblies, and finished goods.
• A commitment of Rs. 2,30,000 crore (USD 30 billion) has been made to position India as a global hub for electronics manufacturing, with semiconductors serving as the foundational building block.

Production Linked Incentive (PLI) scheme for semiconductor –

• In September 2022, the Union Cabinet approved modifications to the Rs 76,000-crore semiconductor Production Linked Incentive (PLI) scheme.
• All semiconductor fab plants will now receive fiscal support of 50%, irrespective of node size, which refers to the smallest feature reliably manufactured on a semiconductor wafer using a particular fabrication process.
• The previous incentives were based on node size, with higher-end nodes receiving a 30% incentive.

Chips to Startup (C2S) programme –

The government has introduced the Chips to Startup (C2S) programme, aiming to train 85,000 engineers (Bachelors, Masters, and Research levels combined) qualified in Electronic System Design and Manufacturing (ESDM) disciplines over five years.

Vibrant Gujarat Summit:

• During the Vibrant Gujarat summit in January 2024, the state Chief Minister indicated that numerous South Korean and Japanese semiconductor firms are actively considering investments in Gujarat.
• The race to secure semiconductor manufacturing reflects the current geopolitical landscape, viewed through the lens of these minuscule chips.

Conclusion:

The Indian Prime Minister and the current government, anticipating a return to power in the middle of this year, are eager to swiftly establish large, employment-generating technology factories for the future. The recent visits of the External Affairs Minister to South Korea and Japan underscore the necessity of India’s ambitious journey for the next decade.