A push for semiconductor industry

Source– The post is based on the article “A push for semiconductor industry” published in The Hindu on 27th September 2022.

Syllabus: GS3- Indian economy

Relevance– semiconductor manufacturing

News– The article explains the size of the semiconductor industry. It also talks about the Indian government scheme to promote semiconductor manufacturing in India and the challenges associated with the scheme.

What about the semiconductor industry?

Semiconductors are the building blocks of almost every modern electronic device from smartphones to connected devices in the Internet of Things.

The chip-making process is complex and highly exact. It has multiple other steps in the supply chain that include-

• Designing software for chips and patenting them through core Intellectual Property rights.

(b) Making chip-fabrication machines and setting up factories

      (c) ATMP (assembly, testing, making and packaging).

The chip-making industry is highly-concentrated. It is controlled by the big players like Taiwan, South Korea U.S. According to a New York Times estimate, 90% of 5nm chips are mass-produced in Taiwan.

What are the changes introduced in the scheme?

According to the Electronics and IT Ministry, semiconductor demand in India would increase to $70-$80 billion by 2026.

In December 2021, India announced its $10 billion dollar production linked incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country.

It also announced fiscal support for a design-linked initiative (DLI) scheme for designing software, IP rights etc.

The new changes in the scheme seek to harmonize government incentives for all technology nodes of semiconductors. The modified scheme provides uniform 50% fiscal support for all nodes. Besides, it will provide 50% of capital expenditure for other steps of the process as well (chip design and ATMP).

What are the challenges?

Resources-Chip production is a resource-intensive and expensive process. The outlay of the scheme remains $10 billion. Just the setting up of one semiconductor factory requires an investment of anywhere between $3 and $7 billion. Little would be left to support other elements like packaging and testing facilities, and chip design centers.

Initial funding should focus on areas like design and R&D.

Water-Chip-making requires ultra-pure water. Government needs to provide it to chip making factories. It could create challenges for the government.