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Semiconductor Mission of India

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Introduction

Information Technology Minister, Ashwini Vaishnaw, launched the India Semiconductor Mission on December 29, 2021. Companies which are interested in tapping the Rs 76,000-crore incentives earmarked by the Center for development of semiconductors and display manufacturing ecosystem in India can begin applying for the same from January 1 2022. Semiconductors are materials which have a conductivity between conductors and insulators. They can be pure elements, silicon or germanium or compounds; gallium, arsenide or cadmium selenide.

  • They are the basic building blocks that serve as the heart and brain of all modern electronics and information and communications technology products.
  • These chips are now an integral part of contemporary automobiles, household gadgets and essential medical devices such as ECG machines.

Major features of the semiconductor mission of India

  • The India Semiconductor Mission (ISM) is a specialized and independent business division within the Digital India Corporation. 
  • It has been set up with the aim to build a vibrant semiconductor and display ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design.
  • The mission is authorized to negotiate with the applicants under the semiconductor fab scheme and the display fab scheme. 
    • A fab (fabrication facility) is short for fabrication plant where raw silicon wafers are processed and turned into integrated circuits.
  • This mission has been given the autonomy to decide the appropriate technology mix, applications, node generation, capacity, among others and propose the structure and quantum of fiscal support for the selected applicants. 
  • The design-linked incentive (DLI) scheme—aims to help budding Indian semiconductor design firms. India is a major global center for chip design courtesy of foreign direct investment, a large, qualified engineering workforce and favorable government policies
  • A fiscal support of up to 50 per cent of the project cost has been approved for setting up certain variants of silicon-based semiconductor fab in India. A
  • The financial support is for six years from the date of approval. 
  • Semiconductor fabs set up in India will also be eligible for a purchase preference in procurement of electronic products by the government.
  • A support of up to Rs 12,000 crores per fab has been earmarked under the scheme for setting up display fabs in India. This scheme aims at attracting large investments in manufacturing TFT LCD or AMOLED-based display panels.
  • The Ministry of Electronics and Information Technology will take requisite steps for modernization and commercialization of Semi-conductor Laboratory (SCL).
  • A Scheme for Setting up of Compound Semiconductors / Silicon Photonics / Sensors facilities in the country extends fiscal support of 30 percent of capital expenditure to approved units. 

What is the importance of the Semiconductor industry 

  • Semiconductors play a critical role and will continue to do so in an Internet of Things (IoT) environment, where physical devices of all kinds, all over the world will be connected to the internet, seamlessly collecting and sharing data over 5G networks.
  • Semiconductors are an essential component of electronic devices. Information communications technology (ICT) is the engine that drives modern digital economies. Core ICT – which includes semiconductors, 5G infrastructure, data centers – is the service layer where the applications are provided be it social media or online shopping platforms. Core ICT enables innovation in smartphones, computing, healthcare, military systems, transportation, clean energy, search engines, gene sequencing and countless other applications.

Semiconductor manufacturing in India 

  • With this mission 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.
  • In India, for instance, Gujarat, Maharashtra, Tamil Nadu, and Uttar Pradesh are leading manufacturing hubs for automobile, mobile phones and industrial parts and setting up semiconductor manufacturing facilities
  • Currently, India has two fabrication facilities (fabs)  i.e. SITAR, a unit of the Defense Research and Development Organisation (DRDO) in Bengaluru and a semiconductor laboratory in Chandigarh, which builds silicon chips for strategic purposes like defense and space and not for commercial use.
  • There are many prominent startups like Signalchip, a semiconductor company also based in Bengaluru, which rolled out 4G and 5G modem chips. 
  • Saankhya Labs, is another Bengaluru-based startup that has been creating chipsets for use in defense, satellite communication and broadcast. Another one is a microprocessor called Shakti, developed at IIT Madras which can be used in mobile computing devices, embedded low power wireless systems like smartphones, surveillance cameras and networking systems. 

What is the  need of semiconductor mission in India

  • Monopoly of China: China constitutes 54% of the world’s global semiconductor market, so it may not be possible to decouple economic activity from China.The US-China strategic competition will place pressure on Indian companies because it might lead to losing out on the massive economies of scale that the industry benefits from. It has been assumed that excluding China from the global supply chain of   microelectronics is not possible therefore it is nonetheless important to develop indigenous design capability.
  • Need for the robust semiconductor ecosystem: Due to Covid -19 many industries have witnessed the shortage of chips and demanded to establish a robust semiconductor ecosystem in India. Several sectors, including electronics, auto and medical technology, have been severely hit by the scarcity of chips that are manufactured mainly in East Asia. Against this backdrop, the mission is a 'comprehensive programme for the development of a sustainable semiconductor and display ecosystem'.
    • The Center has committed a support of Rs 2.30 trillion for positioning India as a global hub for electronics manufacturing. In this context the mission is a way forward for the atma nirbhar bharat.
  • Strategic importance: In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure. 
  • Digital Sovereignty: The approved program will propel innovation and build domestic capacities to ensure the digital sovereignty of India. With the bulk of semiconductor manufacturing and supply capability concentrated in a handful of countries including Taiwan, South Korea, U.S, Japan and, more recently, China, governments worldwide have realized that it is in the national interest to treat chip manufacturing as a strategic imperative.
  • Skilled employment opportunities: It will also create highly skilled employment opportunities to harness the demographic dividend of the country.
  • Deeper Integration with the global market: Development of the semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy with deeper integration to the global value chain. The program will promote higher domestic value addition in electronics manufacturing and will contribute significantly to achieving a USD 1 Trillion digital economy and a USD 5 Trillion GDP by 2025.
  • Globally competitive incentive package: The program will usher in a new era in electronics manufacturing by providing a globally competitive incentive package to companies in semiconductors and display manufacturing as well as design. This shall pave the way for India’s technological leadership and economic self-reliance.
  • Semiconductors and displays are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0. 
  • Semiconductors and display manufacturing is a very complex and technology-intensive sector involving huge capital investments, high risk, long gestation and payback periods, and rapid changes in technology, which require significant and sustained investments. The program will give an impetus to semiconductor and display manufacturing by facilitating capital support and technological collaborations.

Challenges  before India to start semiconductor mission

  • Stronghold of Taiwan and Vietnam: India is offering benefits even in this pandemic situation to foreign companies to come to India for starting their business like double the land than they required for doing business and free electricity & water supply etc. for attracting new companies. But majority of the companies exiting China are preferring Vietnam and Taiwan. 
    • Taiwan Semiconductor Manufacturing Company, holds a virtual monopoly in the global chip manufacturing industry. The company is responsible for over half of all semiconductor chips that are manufactured in the world, and the country as a whole is responsible for over 60 percent of global production. Other major centers include South Korea and the US.
  • India’s failed bids: The government had previously floated an offer to foreign companies in 2017 to set up their facilities in India by waiving customs duty for the import of the relevant machinery and equipment. However it had zero response.
    • In 2020, the central government floated another expression of interest (EoI), inviting companies that were interested in setting up semiconductor fabrication units. An earlier failed attempt to woo semiconductor giant Intel to India which chose Vietnam instead also stands as a stark reminder of India’s lack of real progress on the front.
  • Loopholes in the semiconductor scheme: The recently launched scheme does not talk about the design services firms in the country whereas most Indian engineers in the sector provide services to global semiconductor design firms. The government should have brought these design services companies under the design infrastructure support incentive. 
    • Administering an industrial policy for 100 firms requires the nodal agency, C-DAC, to substantially improve its regulatory capacity. Otherwise, delays, rent seeking and corruption will mar the scheme.
  • The scheme provides incentives for specialized fabs used to manufacture high frequency, high power, optoelectronic devices. It will also cover assembly, testing, marking, and packaging (ATMP) units of conventional silicon semiconductor chips. Whether the scheme will lead to the setting up of ATMP units in India might depend on factors outside the scheme. That is because most ATMP units are coupled with chip fabs for cost reasons.It will need to be imported, packaged in India, and then re-exported.

Keeping such ATMP units cost-competitive will require lowering import barriers.

  • Change in technology: Technology is changing fast related to semiconductors and that too is limited with the few companies. Given the limited improvements from node scaling, chip packaging is becoming a hot area of research to increase the density of chips. Research collaboration in this area with other trusted partners such as the Quad and Taiwan will be critical to ensure long-term success.
  • Requirement of Massive Investment: One of the biggest hurdles in setting up fab manufacturing units is the fact that it requires massive investment running into billions .
  • Lack of Basic Infrastructure: The heart of the issue is that India is still not unto the par in terms of the basic infrastructure needed to pursue endeavors in the chip manufacturing space. A single chip requires hundreds of gallons of pure water, which may also be hard to find in India in the required quantities

Chip manufacturing requires uninterrupted power supply.

  • There is also constant price pressure from other global players, particularly China which is also building a homegrown chip program for the adoption of local semiconductors in 70% of its products by 2025.

What can be done 

  • The semiconductor production is a highly resource, knowledge and emission intensive process. Factories need a constant uninterrupted supply of power and vast quantities of water, besides the technical knowledge and a supporting ecosystem that involves the rest of the processing between the chips being made and then being put to actual use in products.
  • There is also a need for suitable locations to set up the planned area for plants with adequate land, water and manpower.
  • India must work on the Tax barriers to provide a hustle free business process.

Written by Rashmi

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