India’s semiconductor ambition

(MainsGS3:Achievements of Indians in science & technology; indigenization of technology and developing new technology.)

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.

Push for semiconductors:

• 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. 
• While facilities for assembling finished products have been growing in number steadily, fabs for making chipsets and displays, which are crucial parts of the manufacturing process for many electronics, are rarer.
• Semiconductor fabs of today may still be building circuits, but they require highly reliable and high-quality supply of water, electricity, and insulation from the elements, reflecting the high degree of precision, cost and capital needed to make the sophisticated circuits.

Countering china:

• The government’s Invest India agency estimates that electronics manufacturing as a whole will be worth $300 billion by the financial year 2025–26.
• More and more nations are trying to turn away from China’s dominance in space, following geopolitical pressures to de-leverage themselves from supply chain vulnerabilities.
• It’s not just India that is wary of this dominance but the U.S. also passed the CHIPS Act last August, providing upwards of $280 billion in subsidies and investments to manufacturers opening fabs and making semiconductors in the U.S.

Required capital:

• So-called “foundry companies' ', which turn silicon into semiconductors, require investments upwards of 35% of revenues and entry costs run into billions of dollars. 
• But companies that specialise in Outsourced Semiconductor Assembly and Test (OSAT) are less expensive to set up, and generate better margins.
• The OSAT set-ups take care of the less capital-intensive parts of chipmaking, such as assembling the precise components that have already been manufactured, and running specialised tests to approve them.

Advantage of India:

• A large part of semiconductor manufacturing involves design and intellectual labour. 
• India has an advantage here, as a large portion of semiconductor design engineers globally are either Indian or Indian-origin; chipmaking firms such as Intel and NVIDIA have large facilities in India that are already flush with Indian talent working on design problems.
• This is an advantage that China is losing control over in the face of sanctions and an ageing population.
• Without a sustainable pipeline of high calibre talent, China’s goals for the semiconductor sector, especially in terms of further indigenising the industry, will be not achievable.

Strategic and economic goals:

• The opening of display and semiconductor fabs is one of the strategic and economic goals of India’s electronics manufacturing incentive programmes, and breaking new ground on ambitious plans connected to popular brands such as Apple is something that the Union government and States are equally eager to accomplish.
• Overall, the government appears to be developing the parts of the ecosystem that have promise for sustainable growth and fiscal feasibility.
• Minister of State for Electronics and Information Technology Rajeev Chandrasekhar said at the Raisina Dialogue earlier this month that the electronics value chain would have to be an international undertaking among nations with common values to be effective.

Conclusion:

• If like-minded nations each specialise in different aspects of the semiconductor and electronics manufacturing process, and work together on assembly and distribution, that still solves the geopolitical problem of Chinese dominance without simply monopolising power with a different country.