Current Affairs

Indian Semiconductor Industry

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  • Published
    29th Sep, 2022
  • Context

    • To make India’s $10 billion chip-making initiative more attractive to investors, Cabinet approves modifications in the scheme for the development of semiconductors and display manufacturing ecosystems.
  • What are semiconductors?

    • 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.
    • A semiconductor is a material product usually comprised of silicon, which conducts electricity more than an insulator, such as glass, but less than a pure conductor, such as copper or aluminum.
    • Their conductivity and other properties can be altered with the introduction of impurities, called doping, to meet the specific needs of the electronic component in which it resides.

    Significance of Semiconductor Chips:

    • They are the basic building blocks that serve as the heart and brain of all modern electronics and information and communications technology products.
    • Demand for these critical components has outstripped supply, created a global chip shortage, and resulted in lost growth and jobs in the economy.
  • Why it is the right time to be in the semiconductor business?

    • Increased Annual Revenue: The annual revenue has been increased by 9 percent in 2020 and by 23 percent in 2021—far above the 5 percent reported in 2019. This explains the potential in the semiconductor business.
    • Profitability: Even before the pandemic, capital markets were rewarding the industry’s surging profitability. Semiconductor companies are delivering an annual average of 25 percent in total shareholder returns (TSR) from the end of 2015 to the end of 2019.
    • Work from home becoming a norm: Due to pandemic the remote work became a norm and consumers and businesses upped their technology purchases. This has accelerated the digital revolution to a large extent, resulting in an increase in demand.
    • E-Vehicles and Internet of Things (IoT): The more sophisticated the electric car, the more semiconductors it will require. The typical amount of semiconductor parts inside an electric car is increasing rapidly, thereby increasing the demand for semiconductors.
    • These semiconductor chips are the drivers for ICT (Information and Communication Technologies) development and one of the key reasons for the current flattening of the world.
    • The backbone of Industry 4.2: Semiconductors and displays are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0.
    • Global chip shortage: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. India also, should not miss the opportunity.
  • How big is the industry?

    • The global semiconductor industry is currently valued at $500-$600 billion and caters to the global electronics industry currently valued at about $3 trillion.
    • The chip-making industry is a highly-concentrated one, with the big players being Taiwan, South Korea, and the U.S. among others.
    • 90% of 5nm (nanometer) chips are mass-produced in Taiwan, by the Taiwan Semiconductor Manufacturing Company (TSMC).
  • India's Position in the Semiconductor Market

    • India depends on imports to meet its chips demand. The market is estimated to touch $100 billion by 2025 from $24 billion now. However, for the domestic manufacturing of semiconductor chips, India has recently launched several initiatives:
    • The government has allocated an amount of ?76,000 crores for supporting the development of a ‘semiconductors and display manufacturing ecosystem’.
    • Consequently, a significant number of incentives would be provided to design companies to design chips.
    • India has also launched the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) for manufacturing of electronics components and semiconductors.
    • In 2021, MeitY also launched the Design Linked Incentive (DLI) Scheme to nurture at least 20 domestic companies involved in semiconductor design and facilitate them to achieve a turnover of more than Rs.1500 Crore in the next 5 years.
    • India’s own consumption of semiconductors is expected to cross USD 80 billion by 2026 and USD 110 billion by 2030.
  • What are the changes to India’s chip-making scheme?

    • The modified scheme provides uniform 50% financial support for all nodes.
    • It will provide 50% of capital expenditure for other steps of the process as well (chip design and ATMP).
    • This will harmonise government incentives for all technology nodes of semiconductors.
    • The modified programme, will expedite investments in semiconductor and display manufacturing in India.
    • It is expected that work on setting up of the first semiconductor facility will commence soon.
    • The modified scheme also emphasized the production of the 45nm chip, which is fairly less time-consuming and economical in terms of production. The government said that these chips had high demand, driven primarily by automotive, power, and telecom applications.
  • What are the challenges?

    • High Investments Required: Just the setting up of one semiconductor fab requires an investment of anywhere between $3 and $7 billion. Semiconductors manufacturing is a technology-intensive sector involving huge capital investments, high risk, long gestation, and rapid changes in technology, which require significant and sustained investments.
    • Insufficient Financial Support: The level of financial 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.
    • Absent of Fabrication Capacities: 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 are also not as sophisticated as the latest in the world.
    • Capturing Market: At the start, India will be focusing on the ‘lagging-edge’ technology nodes, which will be catering to the automotive and appliance sector. On the contrary, Taiwan offers viable cutting-edge chip-tech worldwide. Thus, attracting global players to set up here would be beneficial as they come with their customer base.
    • Resource Intensive:
      • Requirement of ultrapure water: Chip-making 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.
      • Consistent supply of power: An uninterrupted supply of power is central to the process, with just seconds of fluctuations or spikes causing millions in losses.
    • Driving up consumer demand: The government must drive up the demand for the semiconductor else we shall end up in a situation where ventures remain successful only till taxpayers are forced to fund required subsidies.
    • Almost all the designed Intellectual Property (IP) belongs to foreign firms. At about Rs 150 crores, the cumulative revenue of purely domestic semiconductor design companies is relatively small

    Incentives for the development of semiconductors:

    • Semiconductor Fabs and Display Fabs: The Schemes for Setting up of Semiconductor Fabs and Display Fabs in India shall extend fiscal support of up to 50% of project cost on pari-passu basis.
    • Semi-conductor Laboratory (SCL): Union Cabinet has also approved that Ministry of Electronics and Information Technology will take requisite steps for modernization and commercialization of Semi-conductor Laboratory (SCL), Mohali.
    • Semiconductor Design Companies: The Design Linked Incentive (DLI) Scheme shall extend product design linked incentive of up to 50% of eligible expenditure and product deployment linked incentive of 6% - 4% on net sales for five years.
    • India Semiconductor Mission: In order to drive the long-term strategies for developing a sustainable semiconductors and display ecosystem, a specialized and independent “India Semiconductor Mission (ISM)” will be set up.
  • Conclusion

    • Semiconductor chips are the potential drivers for every possible technological advancement in present and in the coming times. India has acknowledged the fact that being entirely dependent on global supply chains for semiconductor chips is not good policy wisdom. The Cabinet’s decision to approve modification in the programme for the development of semiconductors has been welcomed by the ‘global industry experts. From now onwards India needs to drive long-term strategies for the sustainable development of the chip industry.

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