Context
Setting up a semiconductor manufacturing facility in India requires more than just vision. The government’s Semiconductor Mission for 2022 is praiseworthy, but there are still questions regarding the building of a fab. It is significant because of the expanding market and the strategic need to lessen dependence on semiconductor imports, which renders India vulnerable to coercion.
Relevance:
GS Paper 3; Semiconductor Industries
Mains Question
Describe the difficulties encountered when establishing a semiconductor manufacturing plant (fab) in India and talk about the solutions that can be drawn from China’s semiconductor sector. (150 words)
Semiconductor chips: what are they?
- Semiconductors are substances with conductivity that is between that of conductors and insulators. They could be compounds like gallium, arsenide, or cadmium selenide or pure elements like silicon or germanium.
- Semiconductor chips are essential components that act as the brain and heart of all contemporary electronics and information and communications technology goods.These chips are now a standard component of modern cars, household appliances, and crucial medical equipment like ECG machines.
Previous Attempts:
- In 2007, a Special Incentive Package (SIP) was launched in an effort to start a fab in India, but this effort was unsuccessful.
- The Modified SIP, a further effort that was made in 2012, showed more potential. India came very near to realising a fab after considerable outreach attempts with key fab businesses worldwide.
- The Cabinet approved two consortia, one led by Jaiprakash Associates in collaboration with IBM and TowerJazz, and the other by Hindustan Semiconductor Manufacturing Corporation in partnership with ST Microelectronics. These two fabs required a combined investment of $10 billion, with the government providing nearly $5 billion in incentives. Land was granted when the decision was made on the fab locations. Both consortia, however, ultimately failed because they were unable to gather the required funding.
Challenges in Chip Warfare:
- The manufacture of semiconductors is at the bleeding edge of modern technology. The number of transistors doubles every 18 months, as per Moore’s Law, although miniaturisation has increased complexity and expense. As a result, the number of players in the industry has decreased.
- China, despite its late entry into the semiconductor fabrication industry, has seen substantial success thanks to the acquisition of multiple loss-making fabs across the globe and significant investment in the industry.
- China has become a significant chip producer thanks to decreasing manufacturing costs, a booming electronics manufacturing sector, and a strategic hold on the rare earths needed for chip production.
- Aware of the potential repercussions, the US and its allies have put restrictions on technology transfer to China in place. The CHIPS and Science Act, passed by the US, provided significant subsidies, and the European Union approved funding for a new fab in France. As a result, India now faces fierce rivalry from these nations in the ongoing chip war.
The following are the main factors to take into account while establishing a fab:
- Investing in a semiconductor fab is inherently risky since vast sums of money must be made back before the technology becomes outdated. Relying simply on the home market is insufficient for a fab’s success because economic sustainability often requires significant output volumes to satisfy global demand.
- Additionally, it is advantageous to manufacture chips in a single site for international sales due to the low freight-to-price ratio and zero-custom duty regime under the Information Technology Agreement. These reasons provide an explanation for why businesses are cautious to build greenfield fabs.
- Building a chip manufacturing ecosystem in a new site is extremely difficult. It needs a wide range of chemicals, gases, staff training, and access to plenty of clean water. Additionally, the art of chip manufacturing is essential since low yields and subpar quality can result in fab failures.
Logical, memory, and analogue fabrication choices
- Selecting the right kind of fab to build is another crucial factor. Advanced technologies are needed for logic/processor fabs, which create chips with the highest strategic value and profitability.
- Analogue fabs can be less advanced but greater in size, whereas memory fabs concentrate on advanced feature nodes. Analogue fabs are more widely available and less expensive than logic fabs.Establishing Assembly, Testing, Packaging, and Marking (ATMP) facilities to build the fab ecosystem before establishing a full-fledged fab is an alternative strategy. However, ATMPs are not very useful for making chips.
Drawing Lessons from China:
- India’s current plan is focused on establishing a new logic fabrication facility. But China’s achievement in acquiring existing fabs teaches us important lessons. This approach enables India to develop the fab ecosystem, train skilled resources, and allocate saved funds for advanced R&D in fab technologies.
- Acquiring established fabs offers benefits such as reasonable pricing, stabilised technology, an existing supply chain ecosystem, established product lines, and an established market.Another plausible approach would involve setting up ATMPs, as Tessolve, which the Tatas now own, has shown by successfully packaging chips with a 7 nm feature size. Over 100 ATMPs exist in China, demonstrating their significance in the fab journey.
The Steps taken by Indian Government
- A 10 billion dollar production-linked incentive (PLI) programme will be implemented by the Indian government in 2021 to promote the nation’s semiconductor and display industry.
- Financial assistance for a design-linked initiative (DLI) programme to promote domestic and international investment in design software, intellectual property rights, etc.
- The Union Cabinet has authorised a uniform incentive of 50% of the project cost for building up semiconductor, display, and compound semiconductor manufacturing units. This is part of the “Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India.”
ISM (India Semiconductor Mission)
- Compound Semiconductors Facilities Establishment Plan
- A semiconductor manufacturing facility worth 1,54,000 crores will be built in Gujarat by Vedanta and Taiwanese chipmaker Foxconn.
Conclusion:
There are several obstacles and unknowns in India’s pursuit of a semiconductor fab. India can gain important insights from China’s prosperous semiconductor sector by analysing the causes of prior failures and taking other strategies into account. India can build a strong fab ecosystem and participate in the global chip wars by acquiring existing fabs, creating ATMPs, and funding advanced R&D. Despite being behind China on this path, India must move quickly if it hopes to succeed in the semiconductor sector in the future.
