SEMICONDUCTORS MANUFACTURING – ECONOMY
News: China-plus-one strategy puts India at a vantage position: Rajeev Chandrasekhar
What's in the news?
● India has a great scope to emerge as a sizable player in electronics and semiconductor products manufacturing as part of China-plus-one diversification strategy, said Union Minister of State for Electronics and Information Technology Rajeev Chandrasekhar.
Key takeaways:
● Elaborating on the opportunities for India currently, he said electronics and semiconductor products today was a $1.5 trillion industry with China solely accounting for almost 75% of it and having enjoyed a monopoly in the sector for over two decades now.
● However, the pandemic has brought tectonic changes in the global electronics and semiconductor industry and they triggered huge chip shortages and a shift in GVCs.
● Global economies are no longer dependent only on China and a China-plus-one diversification plan is clearly underway.
Prospects of India:
● India's electronics and semiconductor products manufacturing sector has witnessed a quantum growth in the last almost a decade.
● For instance, in 2014 some 92% of the mobile devices sold in the country were imported while in 2022 some 97% of mobile devices were manufactured in the country.
● Also, in 2014, the country’s electronics ecosystem that comprises manufacturing, designing, innovation and production pegged $10 billion, and in 2022 it grew to $75 billion and expected to cross $300 billion by 2025-26.
● Electronics and semiconductor sector captured 66% of the FDI that came to India in the last three years
Semiconductor Industry:
● Semiconductors are the thumbnail-sized building blocks of almost every modern electronic device from smartphones to connected devices in the Internet of Things (IoT).
● They help give computational power to devices. The global semiconductor industry is currently valued at $500-$600 billion and caters to the global electronics industry currently valued at about $3 trillion.
● According to the Electronics and IT Ministry, semiconductor demand in India would increase to $70-$80 billion by 2026 with the growing demand for digital devices and electronic products.
Importance Of Semiconductor:
● Semiconductor chips play a critical part in making life easier, stimulating digital disruption, and advancing the economy.
● Semiconductors are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0.
● The ubiquitous chips are now an integral part of contemporary automobiles, household gadgets such as refrigerators, and essential medical devices such as ECG machines.
● Scarcity of chips can cause production to suffer in almost every industry, underlining the necessity to diversify chip supply.
India's Semiconductor Reliance On Other Countries:
● India is ready in just one of the three parameters of chip self-reliance. According to government data, India imports 94 percent of its electronics and 100 percent of its semiconductors.
● India currently imports all chips and the market is estimated to touch $100 billion by 2025 from $24 billion now.
Chip Making Industry Across Globe:
● The chip-making industry is a highly-concentrated one, with the big players being Taiwan, South Korea and the U.S. among others.
● According to a New York Times estimate, 90% of 5nm (nanometre) chips are mass-produced in Taiwan, by the Taiwan Semiconductor Manufacturing Company (TSMC).
● Therefore, the global chip shortage, U.S.- China tensions over Taiwan, and the supply chain blockages owing to the Russia-Ukraine conflict have led major economies to enter the chip-making sector with a renewed push.
● For example, the U.S. announcement of $52.7 billion in government funding for the CHIPS and Science Act and the EU’s Chips Act that will mobilise €43 billion for public and private investments.
New Semiconductor Policy:
● Government will provide up to 50% of Project cost for two semiconductors and two display fabs.
● Support shall be provided for a period of six years. The tenure of the actual fiscal support outflow may be extended based on the approval of the Minister of Electronics and Information Technology.
● Further, for additional support, the government will offer infrastructure support through "Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme" for development of infrastructure / Common Facility Centre subject to the proposal satisfying the EMC 2.0 framework requirements.
● The semiconductor fabs set up in India will be supported through purchase preference in procurement of electronic products by the Government under the Public Procurement (Preference to Make in India) Order 2017.
● Additionally, up to 5% of the outlay of the scheme shall be earmarked for meeting the research and development (R&D), skill development and training requirements for the development of semiconductor ecosystem in India.
● Companies / Consortia / Joint Ventures proposing to set up a Silicon CMOS based Semiconductor Fab in India for manufacturing Logic / Memory / Digital ICs / Analog ICs / Mixed Signal ICs / SoCs will be eligible.
Why is promotion for the Semiconductor industry necessary?
1. Import dependency:
● Presently, India imports 100 percent of its semiconductors (approx. $15 billion in 2020) of which 37% comes from China.
2. Safeguarding against future chip crunches:
● Presently, there’s a global shortage of many categories of chips, which is affecting global automobile production and the global prices of many electronic items.
● Setting up domestic manufacturing units would help to insulate India against future supply disruptions. Moreover, any intellectual property that is generated will be a big bonus.
3. Geographic specialisation:
● Semiconductor supply chains are marked by geographical specialisation with 75% of global manufacturing capacity in East Asia.
● Geographic specialisation creates vulnerabilities emerging due to natural disasters, infrastructure shutdowns or geopolitical events.
● Therefore, it is critical to develop secure and resilient semiconductor supply chains for industrial growth, digital sovereignty, and technological leadership.
4. Need of the Global electronics market:
● Currently valued at around USD 2 trillion (₹150 lakh crore), the global electronics market is expected to grow significantly given the increasing penetration of emerging technologies including 5G, IoT, Artificial Intelligence, Robotics, Smart Mobility, Smart Manufacturing, etc.
5. India’s Low Market penetration:
● While the global semiconductor market was valued at ₹33 lakh crore in 2020 and expected to reach ₹75 lakh crore by 2030, the Indian semiconductor market stood at ₹13 lakh crore in 2020 and is estimated to reach ₹4.73 lakh crore by 2026.
6. Need for EVs:
● With India pushing for Electric Vehicles, there is higher dependence on semiconductor chips.
● For example, in EVs nearly 80 percent of functionality comes from software, including battery optimisation, heat management, performance etc.
Semiconductor Industries planned in India:
● So far, Vedanta and Taiwanese chipmaker Foxconn have signed an MoU to set up a ₹1,54,000 crore semiconductor plant in Gujarat.
● Two other projects have also been announced - a $3 billion plant in Karnataka by the International consortium ISMC (a joint venture between Abu Dhabi-based Next Orbit Ventures and Israel’s Tower Semiconductor).
● A $3.5 billion plant in Tamil Nadu by Singapore’s IGSS Ventures. The modified scheme also emphasised the production of the 45nm chip, which is fairly less time-consuming and economical in terms of production.
● The government said that these chips had high demand, driven primarily by automotive, power and telecom applications.
Schemes related to Semiconductor Industry:
1. Production linked Incentive scheme for semiconductor:
● In December 2021, India announced its roughly $10 billion dollar production-linked incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country.
● Incentive support to the tune of Rs.55,392 crore (7.5 billion USD) have been approved under PLI for Largest 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 Rs.98,000 crore (USD 13 billion) are approved for allied sectors comprising ACC battery, auto components, telecom & networking products, solar PV modules and white goods.
2. Semiconductor Fabs and Display Fabs:
● It would provide fiscal support of up to 50% of the project cost for setting up semiconductor and display fabrication units.
● The Union government will work with the States to set up high-tech clusters with the required infrastructure such as land and semiconductor-grade water.
3. Semi-conductor Laboratory (SCL):
● MeitY will take requisite steps for modernization and commercialization of Semi-conductor Laboratory (SCL).
● MeitY will explore the possibility for the Joint Venture of SCL with a commercial fab partner to modernise the brownfield fab facility.
4. Compound Semiconductors:
● It will support fiscal support of 30% of 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.
5. Semiconductor Design Companies:
● The Design Linked Incentive (DLI) Scheme shall extend product design linked incentive of up to 50% of 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.
1. Recent changes made in PLI scheme:
Fiscal support:
● The Government approved uniform fiscal support of 50% of project cost for semiconductor fabs across technology nodes and display manufacturing.
● It also raised fiscal support for compound semiconductors, packaging and other semiconductor facilities to 50% from 30%.
Target technologies:
● It will include discrete semiconductor fabs.
● Discrete semiconductors are used for devices performing basic electronic functions.
2. Design linked incentive scheme:
● It also announced fiscal support for a design-linked initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights etc.
● Three components of the scheme:
● Chip Design infrastructure support: C-DAC will set up the India Chip Centre to host the state-of-the-art design infrastructure (viz. EDA Tools, IP Cores, and support for MPW (Multi Project Wafer fabrication) & post-silicon validation) and facilitate its access to supported companies.
● Product Design Linked Incentive: Reimbursement of up to 50% of the eligible expenditure subject to a ceiling of Rs. 15 Crore per application will be provided as financial support to the approved applicants who are engaged in semiconductor design.
● Deployment Linked Incentive: An incentive of 6% to 4% of net sales turnover over 5 years subject to a ceiling of Rs. 30 Crore per application will be provided to approved applicants whose semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design are deployed in electronic products.
3. India Semiconductor Mission (ISM):
● It is a specialized and independent Business Division within the Digital India Corporation that aims to build a vibrant semiconductor and display ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design.
● The mission aims to serve as a focal point for the comprehensive, coherent, efficient, and smooth deployment of the Program for Development of Semiconductor and Display Ecosystem.
● ISM has been proposed with the objective to:
○ Facilitate the adoption of secure microelectronics and developing a trusted semiconductor supply chain, including raw materials, specialty chemicals, gases, and manufacturing equipment.
○ Enable a multi-fold growth of the Indian semiconductor design industry by providing requisite support in the form of Electronic Design Automation (EDA) tools, foundry services and other suitable mechanisms for early-stage startups.
○ Promote and facilitate indigenous Intellectual Property (IP) generation.
○ Encourage, enable and incentivize Transfer of Technologies (ToT).
○ Establish suitable mechanisms to harness economies of scale in the Indian semiconductor and display industry.
○ Enable cutting-edge research in semiconductors and display industry including evolutionary and revolutionary technologies through grants, global collaborations and other mechanisms in academia/research institutions, industry, and through establishing Centres of Excellence (CoEs).
○ Enable collaborations and partnership programs with national and international agencies, industries and institutions for catalyzing collaborative research, commercialization and skill development.
STATE GOVERNMENT INITIATIVES:
● The Gujarat Government has announced a dedicated ‘Gujarat Semiconductor Policy 2022-27’ with a view to generating at least 2,00,000 new employment opportunities during a period of five years.
● The Gujarat Government has also decided to develop a “semicon city” which would be a part of the Dholera Special Investment Region.
Challenges in Semiconductor industry:
1. Capital intensive:
● Chip design and manufacturing is a highly capital-intensive business.
● It calls for a developed ecosystem for the business to thrive. As per a government estimate, it would cost roughly $5-$7 billion to set up a chip fabrication unit in India.
2. Minimal Fiscal Support from the Government:
● To increase investments, the Indian government should prioritise increasing fiscal support in this sector.
● There is minimal support at this time, making it hard to set up manufacturing capacities in the semiconductor industry.
3. Low Availability of Fabrication Capacities:
● India has been dealing with a lack of fabrication (fab) capacities recently. Even though the country has adequate chip design talent, there is no proper chip fab capacity.
● Hence, it is imperative to overcome the low availability of fab capacity to remain ahead in the global semiconductor industry.
4. Resource Inefficient Sector:
● Chip fabs are also very thirsty units requiring millions of litres of clean water, an extremely stable power supply, a lot of land and a highly skilled workforce.
WAY FORWARD:
1. Need to Become a Key Player:
● India should aim to become a key player in a trusted, plurilateral semiconductor ecosystem that keeps key adversaries out.
● Favourable trade policies are critical for building a plurilateral semiconductor ecosystem.
2. Focus on back-end of manufacturing:
● Semiconductor foundries are the world’s most expensive factories, accounting for 65% of industry capital expenditure but only 25% of the value addition.
● Therefore, to lower the risks of investment, India should especially look at the back-end of manufacturing such as assembly, packaging and testing. Once it stabilises and an ecosystem develops, the front-end of manufacturing will follow.
3. Proactive cooperation of states:
● Areas like stable power, large quantities of pure water and land, are state subjects, and it will be up to state governments to create the right climate for easy implementation of semiconductor projects.
4. Connectivity and Capability Related Measures:
● Many factors need to come together for India to make a mark in the niche chip-making and designing industry.
● The immediate need for the Indian government is to connect related industries in India to create the chip manufacturing ecosystem. National capability needs to be enhanced.