Semiconductor fab: the unfinished agenda

Source– The post is based on the article “Semiconductor fab: the unfinished agenda” published in “The Hindu” on 21st June 2023.

Syllabus: GS 3 – Indian Economy – Industrial Policies

News – The article explains the issues related to the semiconductor industry in India.

What were the earlier attempts by India for semiconductor manufacturing?

The first serious attempt was made in 2007 in the form of a Special Incentive Package. But it yielded no response.

The second attempt in the form of Modified SIP in 2012 fared better. India came close to having a fab. Two consortia were approved by the Cabinet.

The government offered incentives amounting to nearly $5 billion in the form of cash and tax cuts. But finally, both failed to mobilise resources.

How has China established itself as a major player in semiconductor manufacturing?

China started late in the semiconductor fab industry. But backed by massive government financial support over the last two decades, it acquired hundreds of loss-making fabs from around the world and built its fab industry.

China’s chip production has grown rapidly. China has become one of the major producers of chips. It has a strategic stranglehold on chip-making due to its market supremacy in rare earths.

What is the response of western countries to China’s dominance in semiconductor manufacturing?

Over the last year, the U.S. and its Western allies have blocked the transfer of the latest fab-related technology to China.

The U.S. enacted the CHIPS and Science Act in 2022, with nearly $40 billion in subsidies for semiconductor manufacturing to the country. The European Union sanctioned €7.4 billion for a new fab in France.

What are issues involved in semiconductor manufacturing?

Investment in a semiconductor fab is risky. Billions of dollars need to be recovered before the technology becomes obsolete.

There is a need for substantial production volumes for economic viability that is adequate to meet global demand.

Developing an ecosystem for chip manufacturing in a greenfield location is a major challenge. Hundreds of chemicals and gases are required for chip fabrication.

The advantage of semiconductors having a small freight-to-price ratio and a zero-custom duty regime under the Information Technology Agreement, 1996, facilitates production in a single location and global sales.

People need to be trained. Abundant clean water should be available. The art of chip-making is important. Despite the best of equipment, poor quality and low yields can make fabs fail.

There are other issues, such as whether to set up a logic/processor, memory or analog fab. The most advanced set of technologies is needed to manufacture them.

A relatively easier option is Assembly, Testing, Packaging and Marking (ATMP). But ATMPs have little value in terms of actual chip-making.

Semiconductor fabrication represents the ultimate frontier of human tech advancement. As per Moore’s law, the number of transistors in a unit area doubles every 18 months. But the miniaturisation involves higher complexity and costs.

What is the way forward for the success of semiconductor manufacturing in India?

China acquired loss-making fabs and then set up its own logic fab. It provides lessons. Acquiring existing fabs has many advantages. They are reasonably priced, have stabilised technology, and a supply chain ecosystem. They have an established product line, and market.

They will enable India to build the fab ecosystem and train human resources. Much lower subsidies would be required. Funds saved could be used for advanced R&D in fab technologies.

Another strategy could be setting up ATMPs. China has over 100 ATMPs.