Semiconductor Industry

CONTEXT: The government opened the first window for entities to apply to the scheme in January 2022 and closed it in 45 days.

Details

• The Centre will reopen the window for applying to its Rs 76,000 crore semiconductor manufacturing plan
• Re-applying to the scheme was extended further so that the government can receive more proposals after it had sweetened the scheme last September by allowing for uniform fiscal support of 50 per cent of project cost for semiconductor fabs across technology nodes and display manufacturing.

ABOUT SEMICONDUCTOR 

• A Semiconductor can be defined as a material that has the characteristics and ability to conduct a small amount of electrical current.
  • Basic Electronic Components such as Diodes, transistors, and many photovoltaic cells contain semiconductive materials.
• The electrical conductivity of a semiconductor device can be controlled over a wide range, either permanently or dynamically.
• The basic requirement of a semiconductor is that it should not be a very good conductor of electricity, nor should it be a very bad conductor of electricity.

Significance of semiconductor industry

1. Economic Growth: The semiconductor industry plays a crucial role in driving economic growth and technological advancement. It contributes to India’s GDP, export earnings, and employment generation. By promoting the semiconductor industry, India can strengthen its position as a global technology and manufacturing hub.
2. Job Creation: The semiconductor industry has a high demand for skilled professionals in areas such as chip design, manufacturing, testing, and research and development. Developing a robust semiconductor ecosystem in India can create a substantial number of high-quality jobs, attracting talent and fostering innovation.
3. Electronics Manufacturing: The semiconductor industry is closely linked to electronics manufacturing. India’s ambitious initiatives like “Make in India” and “Atmanirbhar Bharat” aim to boost domestic electronics manufacturing. Strengthening the semiconductor industry is essential for reducing reliance on imported electronic components and fostering indigenous manufacturing capabilities.
4. Technology and Innovation: The semiconductor industry is at the forefront of technological innovation. Establishing a thriving semiconductor ecosystem in India can lead to advancements in areas such as AI, IoT, automotive electronics, and telecommunications. It can encourage indigenous research and development and support startups and entrepreneurs in developing cutting-edge technologies.
5. National Security: Semiconductor chips are critical components in various sectors, including defense, aerospace, and telecommunications. Reducing dependence on imported semiconductors can enhance India’s national security by ensuring a secure supply chain and reducing vulnerability to geopolitical risks.
6. Digital Transformation: As India moves towards digital transformation and the adoption of emerging technologies, the semiconductor industry becomes even more vital. Semiconductors are essential for enabling advancements in areas like 5G connectivity, smart cities, e-governance, and digital healthcare.
7. Global Competitiveness: The semiconductor industry is highly competitive globally. Building a strong semiconductor ecosystem in India can enhance the country’s competitiveness by nurturing domestic semiconductor companies, attracting foreign investments, and fostering collaboration with international players.
8. Enabling Other Industries: Semiconductors are fundamental components in various industries such as automotive, healthcare, telecommunications, consumer electronics, and renewable energy. Developing a robust semiconductor industry can facilitate growth and innovation across these sectors, enabling technological advancements and economic development.

KEY CHALLENGES OF SEMICONDUCTOR INDUSTRY

• Semiconductor fabrication faces increasing complexity and costs due to miniaturization.
• Investment in a fab is risky and requires substantial production volumes for economic viability.
• Domestic markets alone are often inadequate, and global sales are facilitated by the small freight-to-price ratio and zero-custom duty regime.
• Developing a chip manufacturing ecosystem is challenging, requiring chemicals, trained personnel, clean water, and expertise in chip-making.
• Choosing between logic/processor, memory, or analog fabs involves strategic considerations and cost variations.
• Assembly, Testing, Packaging, and Marking (ATMP) can be an intermediate step, but it has limited value in actual chip-making.

LEARNING FROM CHINA’S SUCCESS IN SEMI CONDUCTOR INDUSTRY

• China entered the semiconductor fab industry late but received massive government support.
• Acquiring loss-making fabs globally, China rapidly grew its chip production.
• Lower manufacturing costs and a strong electronics manufacturing industry aided China’s success.
• China’s market supremacy in rare earths gives it a strategic advantage in chip-making.

RECENT GLOBAL DEVELOPMENT IN SEMI CONDUCTOR INDUSTRY

• The U.S. enacted the CHIPS and Science Act in 2022, offering around $40 billion in subsidies to revive semiconductor manufacturing.
• The European Union sanctioned €7.4 billion for the construction of a new fab in France.

WAY AHEAD

• India’s strategy is to establish a new logic fab, learning from China’s approach.
• Acquiring existing fabs offers advantages such as reasonable pricing, stable technology, and an established market.
• This enables India to build the fab ecosystem, train human resources, and allocate funds to advanced R&D.
• Setting up ATMPs, as seen in China, can be another strategy for chip packaging.

China’s extensive use of ATMPs showcases their importance in the industry

INITIATIVES TAKEN FOR SEMICONDUCTOR MANUFACTURING IN INDIA 

• Semicon India Program (Program for Development of Semiconductors and Display Manufacturing Ecosystem in India): It aims to provide financial support to companies investing in semiconductors, display manufacturing and design ecosystem. Under it, four schemes have been introduced:
  • Scheme for setting up of Semiconductor Fabs in India.
  • Scheme for setting up of Display Fabs in India.
  • Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor Assembly, Testing, Marking and Packaging (ATMP) / OSAT facilities in India.
  • Design Linked Incentive (DLI) Scheme (Chip Design Infrastructure Support, Product Design Linked Incentive and Deployment Linked Incentive).
• India Semiconductor Mission (ISM): It has been setup as an Independent Business Division within Digital India Corporation to drive India’s long-term strategies for developing semiconductors and display manufacturing facilities and semiconductor design ecosystem.
  • It will serve as the nodal agency for efficient, coherent, and smooth implementation of the schemes.
• Attracting foreign capital by allowing 100% FDI in the electronics sector under the automatic route.
• Modified Special Incentive Package Scheme (M-SIPS): To boost semiconductor industry, in 2017-18 the incentive for schemes, such as