India’s push for semiconductors

Source- The post is based on the article “India’s push for semiconductors” published in the “The Hindu” on 24th March 2023.

Syllabus: GS3- Economy

Relevance– Manufacturing sector

News– The Union Government has disbursed around ₹1,645 crore in performance linkedincentives (PLI) for electronics manufacturers so far, as part of its efforts to bring in more of the electronics supply chain to India.

Why is the government encouraging semiconductor manufacturing?

Semiconductor fabrication units, or fabs turn raw elements such as silicon into integrated circuits that are fit to be a part of practically all electronic hardware in the world.

Fabs are highly capital­ intensive undertakings, costing billions of dollars for large facilities.

They require highly reliable and high quality supply of water, electricity, and insulation from theelements, reflecting the high degree of precision.

Countries look at semiconductor manufacturing from a strategic perspective. They want to have a share in the value chain for fabs, even if costs are high.

According to a report by the Semiconductor Industry Association, China pulled ahead of Taiwan last year, in terms of share of global sales from fabs.

It’s not just India that is wary of this dominance. The U.S. passed the CHIPS Act last August. It provides subsidies and investments to manufacturers for making semiconductors in the U.S. This has been combined with restrictions on the Chinese semiconductor industry.

What is the status of semiconductor manufacturing in India?

The government’s Invest India agency estimates that electronics manufacturing as a whole will be worth $300 billion by the financial year 2025–26.

Facilities for assembling finished products have been steadily growing in number. But fabrication units for making chipsets and displays are rarer.

What is the suitability of India for manufacturing both semiconductors and finished products?

SIA, US semiconductor manufacturers said in a report with APCO Worldwide in February that India should lean on its strength in the electronics manufacturing value chain.

The companies which turn silicone into semiconductors require high investments and entry costsrun 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 facilities focus upon less capital­ intensive parts of chipmaking, such as assembling the precise components that have already been manufactured. India should focus on it.

A problem with many chip facilities is that they tend to be captive units of large companies. Some of Foxconn’s assembly facilities are dedicated to building Apple devices.

What are the advantages enjoyed by India in semiconductor manufacturing?

A large part of semiconductor manufacturing involves design and intellectual labour. India has an advantage here. A large portion of semiconductor design engineers globally are either Indian or Indian Origin.

This is an advantage as China is on backfoot due to sanctions and an ageing population.

Why should India’s semiconductor ambition be limited?

The government appears to be developing the parts of the fabs ecosystem that have promise for sustainable growth and fiscal feasibility.

Electronics value chain would have to be an international partnership among nations with common goals.

Like-minded nations should specialize in different aspects of the semiconductor and electronics manufacturing process.