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FUTURE OF CHIP MANUFACTURING IN INDIA A billion dollar slip: Why India is far from achieving scale in chip manufacturing

Nov 9, 2021

Semiconductor chips are a vital part of the automotive industry and its shortage has led to significant increase in the lead time. While starting an own chip manufacturing plant may sound like a feasible option, it is easier said than done for a country like India. The opinion piece elaborates on why a chip manufacturing plant is rather less feasible for India and other lucrative options that we should consider to be a part of the global semiconductor manufacturing race.

Semiconductor chips are a vital part of the automotive and electronic manufacturing sector, and their shortage has significantly affected the lead time in both sectors. The Minister of State for Electronics, Rajeev Chandrashekhar, in a recent talk, mentioned that India is targeting to become the destination for semiconductor manufacturing. Though the proposition is alluring and India has two fab units — SITAR, a unit of DRDO in Bengaluru and semiconductor laboratory in Chandigarh for silicon chips for strategic purposes — We are nowhere close to becoming a player in the $1.5 trillion commercial semiconductor market worldwide. The idea of setting up a semiconductor plant in India is easier said than done.

To begin with, a semiconductor fabrication plant requires a reliable and stable power supply, which the country struggles to offer. Besides, the investment is significant; investments in the sector begin at nearly $8 billion, and the numbers keep growing owing to high running costs and upgradation every three to four years. Chip manufacturers such as Samsung, Intel, Taiwan Semiconductor Manufacturing (TSMC), and others spend nearly $20 billion every year on chip manufacturing. Additionally, these investments come with no guarantee of success.

Although there is an ongoing shortage of chips, the world will soon have fabs in surplus. The US already has been the leader due to its dominance over IP, design and technology. Additionally, China, which imported nearly 60% of the chips produced globally, has also announced its plans to develop the local semiconductor industry. Given the ongoing US-China rivalry, a boost in investments to develop new fabs from existing players is expected. Reports suggest that the US government will be spending $50 billion on chip manufacturing. Intel has already invested $20 billion in building its two fabs in Arizona and TSMC will be spending $200 nearly billion on building new fabs.

In a time when the country is barely managing to pull itself out of the COVID effect, where every penny counts, instead of spending on a semiconductor manufacturing setup, India can focus on creating a strategic position for itself in the segment. It can channel investments towards creating parts for the chips and have a piece of the $1.5 trillion market. The Ministry of Electronics and IT can develop policies for speciality fabs and subsidise capital investments so that companies can focus on the development part, build an ecosystem, promote common facilities and bridge the demand & supply systems.

A ‘fab plant’ in the country alone cannot bring total Aatmanirbharta in this semiconductor manufacturing sector. Perhaps, a good start to achieving Aatmanirbharta is by boosting the overall attractiveness of India as a market to ensure that major manufacturers make a beeline to sell here.

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