India has taken some initial steps, but a lot more remains to be done to develop the ecosystem

Union electronics and information technology minister Ashwini Vaishnaw is optimistic that India will become the largest semiconductor manufacturing destination in the world in the next five years, with the cheapest production costs globally. The minister’s confidence perhaps stems from the `76,000-crore Semicon India programme to incentivise semiconductor and display manufacturing in India. The reality, however, is more nuanced. In February 2022, just two months after India’s move, the EU said it was mobilising €43 billion in incentives to augment its chip industry. And in August 2022, the US, the world leader in chip manufacturing, announced a subsidy plan of around $52-billion. South Korea, which accounts for close to 40% of the global capacity for the most advanced chips, has unveiled its “K-Semiconductor Belt” strategy, aimed at building the world’s largest semiconductor supply chain by 2030, offering large investment tax credits for semiconductor R&D.

The reason for the semiconductor rush is understandable. Semiconductor is a high-stakes game, both in terms of money—global sales have more than quadrupled over the last two decades and are projected to touch $602 billion by 2024—and also in terms of control over critical electronics components that drive the global economy. Semiconductors therefore are seminal for technology-led development, and the China shadow on Taiwan, a major chips-producing nation, has underscored the importance of supply-chain resilience and bolstering the industry’s immunity to geopolitical shocks for each nation invested in tech-led growth in the coming decades.

The lure of subsidies in their ‘home’ countries has cajoled leading chip firms to commit monies there. For example, Apple said on Tuesday it has entered into a multi-billion-dollar deal with Broadcom Inc to use chips made in the US. Micron plans to invest $40 billion in memory-chip manufacturing while Qualcomm and GlobalFoundries have announced a new partnership that includes $4.2 billion to manufacture chips. And for the US, it is not just domestic firms that are attracted to its incentive programme. The world’s leading chip-maker, Taiwan Semiconductor Manufacturing Company (TSMC), will be opening its second plant there that will go into production by 2026—it had announced its first US plant before the CHIPS Act was signed into law in 2022.

In contrast, India’s pace leaves a lot to desired. Close to one-and-half years after it received three applications in the first round of applications for its semiconductor-fab programme—and after tweaking it to offer a flat 50% incentive—India is yet to see even one of these approved. With the competition heating up, such a slow pace could throw a spanner in the works. Building the right ecosystem, apart from adequate funding, will also need developing the talent required and securing the value-chain for semiconductor manufacture, including the chemicals required. The global semi-conductor industry is facing a talent gap, with an estimated 10,000 positions vacant in the US alone. India needs around 1.5 million skilled semiconductor workers by 2027, as per one estimate, but the government estimates a pipeline of just 85,000. With anywhere between 400-1,400 steps of varying complexity involved in the manufacture, a shortage of talent can be a major hurdle.

There are other challenges, too. Within raw materials, India will need a variety of high-purity gases and wafers to fabricate the chips. Getting the input supply chain in place for the right raw materials is no easy task. Initially, India would have to import these, but with time, it could focus on bringing some of these supplies in-house. According to Vaishnaw, around 250 special chemicals are needed to make semiconductors—the pace of setting up the pipelines for these must increase manifold for the top-manufacturer dream to be realised.

https://www.financialexpress.com/opinion/semiconductor-dream/3099413/