Thursday, August 11, 2022

Semiconductor Manufacturing In India – A Strategic Requirement

By Gp Capt Anupam Banerjee VSM (r.)

Without semiconductors, our lives would seemingly come to a standstill; as our lifelines including mobiles, laptops and cars would not work. All major spheres of applications have the need for semiconductor products. The semiconductor industry has witnessed exponential growth in the past decades based on technology scaling, enhanced performance and low cost of manufacturing due to volume production. However, it also threw up quite a few challenges. The most recent was highlighted during the recent pandemic as to how the shortage of semiconductors can throw many sectors of industry into a tailspin. 

The demand of the automotive market fell sharply with the onset of the pandemic, and companies started cancelling their upstream orders. On the other hand, industries pertaining to electronics products, riding on higher demand fuelled by most of the world shifting to the virtual workspace, started increasing their orders and stockpiling. This resulted in a near crisis with stretched capacities of production lines. When automotive demand was restored, the cascading effect resulted in acute semiconductor shortages and production disruption. 

During this period, India found its position extremely vulnerable – as it imports 100% of its semiconductor needs with a large part of its supply coming from China. Its demand is expected to increase manifold in the next few years with the advent of 5G. The growth is expected to be about 8.2% of India’s GDP, and would reach a 

USD 400 billion level by 2025 – as the usage continues to grow across critical industries such as defence, automotive, consumer electronics and healthcare.  To add to our woes, the geopolitics closer to home continues to turn more confrontational by the day. Thus, it has become imperative for India to secure various supply chains of strategic products including semiconductors. 

Semiconductor manufacturing is an integral part of the value chain of various Indian products. Many of them like mobile phones, electronics and components, automotive, pharmaceuticals, advanced chemistry cell batteries etc. are projected to grow fast with the implementation of the Production Linked Incentive (PLI) scheme. The growth has huge potential to fuel very high demands for semiconductors. 

Import alone cannot meet those demands and we need to take a deeper look at the upstream value chain, i.e. semiconductor manufacturing that consists of chip design, fabrication, assembly and testing. As of today, few integrated device manufacturers do all three, globally. A modularised value chain also exists with specialists involved in chip design only, and foundries such as Taiwan Semiconductor Manufacturing Company Ltd (TSMC) that partake in chip fabrication (wafer processing). Package, assembly and testing are labour-intensive processes that are often outsourced to low-cost destinations. 

Considering the enormity of the challenge, one needs to question not if they can be manufactured in India; but how quickly can sustainable production lines be set up in India.  Although some previous attempts have not yielded desired results; with new financial incentives in place, things might take a different direction now. Chip manufacturing is a strategic necessity; and the Indian government and manufacturers should be insulated from international sanctions and various supply chain constraints.  Importantly chips form an integral part of the Defence and Aerospace Industry, thus making it all the more critical.

The Indian government is up to speed on the matter and has taken necessary steps in the last few years to encourage semiconductor manufacturing in India, and become ‘Atmanirbhar’. India has immense potential, along with major challenges to overcome; in its journey to becoming a major player in the global semiconductor chip-manufacturing ecosystem.

The Ministry of Electronics and Information Technology (MeitY) announced a major boost in policy initiatives on 15 December 2021, in which broad incentives have been approved for the development of semiconductors and display manufacturing ecosystem in India.

The Scheme for Setting Up of Semiconductor Fabs and Display Fabs in India shall extend fiscal support of up to 50% of the project cost to applicants who are found eligible, and have the technology as well as the capacity to execute such highly capital intensive and resource intensive projects. The Government of India will work closely with the State Governments to establish High-Tech Clusters with requisite infrastructure in terms of land, semiconductor grade water, high quality power, logistics and research ecosystem to approve applications for setting up at least two greenfield Semiconductor Fabs and two Display Fabs in the country.

The Union Cabinet has approved that MeitY will take requisite steps for the modernisation and commercialisation of Semi-Conductor Laboratory (SCL). MeitY will also explore the possibility for the Joint Venture of SCL with a commercial fab partner, to modernize the brownfield fab facility.

The Scheme for Setting up of Compound Semiconductors/Silicon Photonics/Sensors (including MEMS) Fabs and Semiconductor ATMP/OSAT facilities in India shall extend fiscal support of 30% of the capital expenditure to approved units. At least 15 such units of Compound Semiconductors and Semiconductor Packaging are expected to be established with Government support under this scheme. The Design Linked Incentive (DLI) Scheme shall extend product design linked incentive of up to 50% of the eligible expenditure, and product deployment linked incentive of 6% – 4% on net sales for five years. Support will be provided to 100 domestic companies of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design, and facilitating the growth of not less than 20 such companies – which can achieve a turnover of more than Rs 1500 crore in the next five years.

In order to drive the long-term strategies for developing a sustainable ‘semiconductors and display’ ecosystem, a specialised and independent “India Semiconductor Mission (ISM)” will be set up. Global experts in the semiconductor and display industry will lead the India Semiconductor Mission. It will act as the nodal agency for efficient and smooth implementation of the schemes on Semiconductors and Display Ecosystem.

The communication also stated that with the approval of the programme for development of semiconductors and display manufacturing ecosystem in India – with an outlay of INR 76,000 crore, the Government of India has announced incentives for every part of the supply chain; including electronic components, sub-assemblies, and finished goods. 

Incentive support to the tune of INR. 55,392 crore have been approved under PLI for Large Scale Electronics Manufacturing, PLI for IT Hardware, SPECS Scheme and Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme. In addition, PLI incentives to the quantum of INR.98,000 crore are approved for allied sectors – comprising of ACC battery, auto components, telecom & networking products, solar PV modules and white goods. In toto, the Government of India has committed support amounting to almost INR 2,30,000 crore – in order to position India as a global hub for electronics manufacturing, with semiconductors as the foundational building block.

The Government remains confident that the development of the semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy, resulting in deeper integration with the global value chain. The programme is expected to promote higher domestic value addition in electronics manufacturing, and aims to contribute significantly to achieve the USD One Trillion Digital Economy, that will be a part of the USD Five Trillion GDP by 2025.

With encouraging policies of the government along with increasing domestic demand for electronic products and growing number of entrepreneurs in the area of fabless semiconductor companies supported by the availability of a large pool of local design talent; the road to India’s success as a semiconductor chip-manufacturing hub in the global supply chain looks like a distinct possibility.

Further, recent media reports suggest that India & Taiwan are currently in talks about a free-trade agreement looking to set up a semiconductor hub in India, which makes the scenario even more promising.

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