Spotlight- Strengthening semiconductor ecosystem | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Introduction

India's semiconductor industry is emerging as a pivotal sector, aligning with both global demands and domestic necessities. The increasing collaboration between the public and private sectors, coupled with government initiatives, underscores this burgeoning potential. Semiconductor chips, serving as the fundamental building blocks, form the core and intelligence of modern electronics, as well as information and communications technology devices. These chips have become indispensable components in contemporary automobiles, household appliances, and vital medical equipment like ECG machines.

Strengths of India's Semiconductor Industry

• India possesses significant strengths, particularly in the Plus 1 space, attributable to its comprehensive design and manufacturing capabilities.
• In contrast, Vietnam primarily excels in midstream activities, with local firms focusing predominantly on assembly.
• The upstream facets, encompassing design and production, are largely outsourced abroad.
• India benefits from a highly skilled and youthful engineering workforce.
• Notably, India stands out as the most digitally adept nation globally, boasting the largest Gen Z workforce, alongside a substantial domestic market.
• Geographically, India enjoys proximity to lucrative markets such as Africa, the Middle East, and Europe.

Government Initiatives

• In 2021, the Indian government introduced a $10 billion Production-Linked Incentive (PLI) scheme, aimed at stimulating semiconductor and display manufacturing within the country.
• Additional fiscal support has been allocated for a design-linked initiative (DLI) scheme, targeting global and domestic investments in design software, IP rights, etc.
• The "Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India" has been modified to offer a uniform incentive of 50% of the project cost for establishing semiconductor, display, and compound semiconductor fabrication units.
• The establishment of the India Semiconductor Mission (ISM) is underway.
• A scheme dedicated to setting up Compound Semiconductors facilities has been initiated.
• Collaborations between Vedanta and Taiwanese chipmaker Foxconn will lead to the establishment of a ₹1,54,000 crore semiconductor plant in Gujarat.

Challenges

• Despite these initiatives, significant challenges persist within the semiconductor industry.
• The current level of fiscal support, though substantial, falls short of the massive investments required to establish manufacturing capacities across various sub-sectors.
• Setting up a semiconductor fabrication facility (fab) entails exorbitant costs, often amounting to billions of dollars, even for relatively modest setups that lag behind the latest technological advancements.
• The allocated funds under the Production Linked Incentive scheme may not suffice to support other crucial elements of the semiconductor industry, such as display fabs, packaging, testing facilities, and chip design centers.
• Chip fabs impose substantial resource demands, including vast quantities of clean water and stable power supply.
• While India boasts considerable chip design talent, it has yet to develop significant chip fab capacity, with existing facilities primarily catering to specific requirements of organizations like ISRO and DRDO, and not on par with global standards.
• Given these challenges, it may be prudent for the new mission to initially focus fiscal support on other segments of the chip-making chain, particularly design, where India holds substantial talent and experience.

Way Forward

• Given the protracted timelines and swift technological advancements, India must strategically prioritize design and functionality. The fruition of endeavors in this domain typically occurs three to four years from commencement, by which time the prevailing chip scarcity is expected to dissipate, while technology would have evolved further.
• In addition to incentivizing increased foreign direct investment (FDI) in electronics to fortify our supply chains through incentive schemes, we must concentrate on fostering the participation of Indian manufacturers and startups in mastering intricate research and development (R&D) and manufacturing domains.
• The semiconductor industry is undergoing rapid transformation, driven by the exigencies of emerging technologies that demand innovation across design, material, and process fronts.
• Indian engineers have made substantial contributions in this sphere within multinational corporations. Encouraging them to establish their design startups with substantial government grants and tax incentives is imperative.
• Premier research institutions like the Indian Institute of Science should be actively engaged in intensive R&D efforts in chip design and manufacturing.
• By vigorously pursuing advancements in cutting-edge technologies, India can ensure its journey towards self-reliance (Aatmanirbhar).
• India should advocate for the establishment of a Quad Supply Chain Resilience Fund to bolster the supply chain against geopolitical and geographical vulnerabilities.

Conclusion

• The envisioned program will herald a new epoch in electronics manufacturing by offering a globally competitive incentive framework to companies involved in semiconductor, display manufacturing, and design.
• This initiative will foster greater domestic value addition in electronics manufacturing and play a pivotal role in realizing the goal of achieving a USD 1 Trillion digital economy and a USD 5 Trillion GDP by 2025.
• This endeavor will pave the way for India's ascendancy in these strategically significant domains and bolster its economic self-reliance.