India’s chip-making gambit: Ambitious plans or breakthrough strategy?

Source: The post is based on an article “India’s chip-making gambit: Ambitious plans or breakthrough strategy?” published in The Business Standard on 27th August 2022.

Syllabus: GS 3 – Government policies for various industries

Relevance: advantages and concerns associated with the chip-making industry

News: This article discusses the benefits and concerns associated with the decision of India, to enter the chip-making industry.

What are chips and their uses?

Chips, or integrated circuits imprinted on silicon wafers, are at the heart of every kind of manufacturing industry from automobiles to telecom gear, and from defense equipment to solar panels.

They will become even more important in a world of artificial intelligence and electric cars, which need many more chips than petrol-driven cars.

Where does the world stand in chip-making?

The US has offered incentives of $52 billion, and it leads in logic chip design.

The European Union is topping up an earlier offer of $30 billion.

China reportedly subsidizes its chip manufacturing to the extent of $15 billion annually.

Samsung plans to invest $200 billion in new chip factories.

What is the situation of India in chip making?

It has offered an unprecedented $10 billion as capital subsidy to the chip manufacturing industry.

India’s chip-making decision is a part of providing an incentive-based push into electronic manufacturing.

It has already been successful in manufacturing the mobile handset.

Chip manufacturers proposing to locate in India might look at mid-range chips (28 nm) used by the automobile industry and some smartphones.

India has strengths in chip designing and also has the advantage of being the labor-intensive country in making the chips.

It could do well in downstream product assembly, as it has done with mobile handsets.

India is looking for a full spectrum approach rather than a specialized approach. The full spectrum approach will replace imports of both chips and downstream products.

What are the concerns associated with the chip industry?

First, it requires a huge amount of cash for advanced research and super-expensive production facilities.

Second, even though India goes for a full spectrum approach, it will be dependent on upstream imports for materials and production equipment.

Third, Taiwan supplies chips more than half of the world’s supply, and it would be a matter of concern if Taiwan is attacked by China.

Fourth, Russia and Ukraine are the leading suppliers of neon gas and palladium which is required in the chip-making industry and the conflict between these two will be a matter of concern.