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Sansad TV: Spotlight- Strengthening semiconductor ecosystem

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Introduction:

India’s semiconductor industry is actually a sunrise industry looking at global and Indian requirements public private partnership in terms of investment and government initiatives are on the increase. Semiconductor chips are the basic building blocks that serve as the heart and brain of all modern electronics and information and communications technology products. These chips are now an integral part of contemporary automobiles, household gadgets and essential medical devices such as ECG machines.

Strengths of semiconductor industry of India

  • India’s biggest advantage in the Plus 1 space is its end-to-end design and manufacturing capabilities.
  • Vietnam is known for strong midstream activities, and local companies focus mainly on assembly.
  • Upstream activities, involving design and production, are mostly done overseas.
  • India has a highly talented young engineering force.
  • Not only is India considered to be the most digitally dexterous country in the world due to the largest Gen Z workforce, we have a huge domestic market.
  • And we are closer to Africa, the Middle East and European markets.

Indian Government steps:

  • 2021: 10 billion dollar production-linked incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country.
  • Fiscal support for a design-linked initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights etc.
  • Modifications in “Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India:The Union Cabinet has approved a uniform incentive of 50% of the project cost for setting up semiconductor, display and compound semiconductor fabrication units.
  • India Semiconductor Mission (ISM)”will be set up
  • Scheme for setting up of Compound Semiconductors facilities
  • Vedanta and Taiwanese chipmaker Foxconn will set up a ₹1,54,000 crore semiconductor plant in Gujarat.

Challenges:

  • For one, the level of fiscal support currently envisioned is minuscule when one considers the scale of investments typically required to set up manufacturing capacities in the various sub sectors of the semiconductor industry.
  • A semiconductor fabrication facility, or fab, can cost multiples of a billion dollars to set up even on a relatively small scale and lagging by a generation or two behind the latest in technology.
  • Even granting that India’s Production Linked Incentive scheme intends to give only 50% of the cost of setting up at least two greenfield semiconductor fabs by way of fiscal support, not much of the current scheme outlay of approximately $10 billion is likely to be left to support other elements including display fabs, packaging and testing facilities, and chip design centres.
  • Chip fabs are also very thirsty units requiring millions of litres of clean water and extremely stable power supply.
  • India has a decent chip design talent but it never built up chip fab capacity. The ISRO and the DRDO have their respective fab foundries but they are primarily for their own requirements and also not as sophisticated as the latest in the world.
  • It may be best if the new mission focuses fiscal support, for now, on other parts of the chip-making chain including design, where surely India already has considerable talent and experience.

Way Forward

  • Given the long gestation periods and rapid technology changes, India must out-strategize on design and functionality as the end product will be out only after three-four years from the moment work begins, by which point the prevailing chip shortage would have been resolved, while technology would have advanced further.
  • Apart from incentivising more FDI in electronics to deepen our supply chains through incentive schemes, we need to focus on encouraging Indian manufacturers and start-ups to enter and master complex R&D and manufacturing verticals.
  • The semiconductor industry is changing fast as new-age technologies require innovation at the design, material, and process levels.
  • Indian engineers have contributed immensely to this area in multinational companies. We must encourage them to set up their design start-ups with handsome government grants and tax incentives.
  • Premier research institutions such as the Indian Institute of Science should also be asked to work aggressively on R&D in chip designing and manufacturing.
  • By working aggressively in new cutting-edge technologies, India can ensure that it becomes Aatmanirbhar.
  • India needs to push for a Quad Supply Chain Resilience Fund to immunise the supply chain from geopolitical and geographic risks

Conclusion

  • The program will usher in a new era in electronics manufacturing by providing a globally competitive incentive package to companies in semiconductors and display manufacturing as well as design.
  • The program will promote higher domestic value addition in electronics manufacturingand will contribute significantly to achieving a USD 1 Trillion digital economy and a USD 5 Trillion GDP by 2025.
  • This shall pave the way for India’s technological leadership in these areas of strategic importance and economic self-reliance.

 

SANSAD TV 15-3-24