Towards Self-Sufficiency: Exploring Strategies for Establishing a Semiconductor Fab in India

Towards Self-Sufficiency: Exploring Strategies for Establishing a Semiconductor Fab in India

Towards Self-Sufficiency: Exploring Strategies for Establishing a Semiconductor Fab in India

Context:

The semiconductor industry plays a crucial role in the technological advancement of nations, and India has recognized the importance of establishing a domestic semiconductor fabrication plant (fab) to reduce its dependence on imports and strengthen its strategic position.

Relevance: GS-02 (Government policies & interventions), GS-03(Growth and Development)

Prelims:

  • Semiconductors
  • Critical infrastructure
  • Fab industry

Mains Questions:

a) Discuss the challenges faced by India in establishing a semiconductor fabrication plant. What lessons can be learned from China’s semiconductor industry? (Word limit: 250 words)

b) Analyze the feasibility of setting up Assembly, Testing, Packaging, and Marking (ATMP) units as a stepping stone towards establishing a full-fledged semiconductor fab in India. (Word limit: 250 words)

What are semiconductor chips?

  • Semiconductors are materials with a conductivity between conductors and insulators.
  • They can be pure elements like silicon or compounds like gallium arsenide.
  • Semiconductor chips are the basic building blocks of modern electronics and information technology products.
  • They are essential components in automobiles, household gadgets, and medical devices.
  • The COVID-19 pandemic has increased the demand for semiconductor chips as more activities shift online.
  • Shortages of semiconductor chips have caused disruptions in various industries, leading to pent-up demand and subsequent supply shortages.

Need for Promoting Semiconductor Industry:

  • Semiconductor chips are essential for the functioning of electronic products and drive the development of information and communication technologies (ICT).
  • They play a crucial role in critical infrastructures, such as communication and power transmission, with implications for national security.
  • Developing the semiconductor industry has a multiplier effect across various sectors of the economy and strengthens integration into the global value chain.
  • Only a few countries, including the United States, Taiwan, South Korea, Japan, and the Netherlands, dominate the semiconductor manufacturing industry.

Dimensions of the Article:

  • Challenges in establishing a semiconductor fab in India
  • Lessons from China’s semiconductor industry
  • Feasibility of ATMP units and the way forward

Challenges in establishing a semiconductor fab in India:

India’s attempts to set up a semiconductor fab have faced significant challenges. The first attempt in 2007, through the Special Incentive Package (SIP), did not yield any response.

The subsequent Modified SIP in 2012 showed promise, with two consortia approved by the Cabinet and substantial investment and incentives offered. However, both consortia failed to mobilize resources effectively. Several factors contribute to these challenges:

  • High costs and complexity: Semiconductor fabrication involves high costs and complexity, particularly with the progress of miniaturization and adherence to Moore’s law. This has led to a decline in the number of participants in the industry, making it difficult to attract investors for a fab in India.
  • Global competition: China, backed by massive government support and lower manufacturing costs, rapidly developed its semiconductor fab industry and gained a strategic advantage in chip-making. The US and its allies have subsequently restricted the transfer of advanced fab-related technology to China. India needs to contend with these global competitors in the chip warfare.
  • Ecosystem development: Establishing a chip manufacturing ecosystem in a greenfield location presents a major challenge. It requires extensive infrastructure, including the availability of chemicals, gases, clean water, and skilled manpower. Additionally, the art of chip-making and ensuring high-quality production with satisfactory yields is crucial for the success of a fab.

Lessons from China’s semiconductor industry:

China’s semiconductor industry provides valuable lessons for India. China started late in the fab industry but acquired loss-making fabs worldwide and developed its own fab ecosystem. India can learn from this approach by considering the following strategies:

  • Acquiring existing fabs: Acquiring existing fabs offers advantages such as relatively lower costs, stabilized technology, established supply chains, and existing product lines and markets. This approach enables India to build the fab ecosystem, train human resources, and save funds that can be invested in advanced research and development (R&D) for state-of-the-art fabs in the future.
  • Assembly, Testing, Packaging, and Marking (ATMP) units: Setting up ATMP units can serve as a stepping stone towards establishing a full-fledged fab. These units focus on packaging chips and can help develop the necessary fab ecosystem while generating value. China has over 100 ATMPs, indicating their effectiveness in developing the semiconductor industry.

Feasibility of ATMP units and the way forward:

While ATMP units can contribute to ecosystem development, their value in actual chip-making is limited. Therefore, India must carefully assess the feasibility and long-term strategic value of ATMP units as a stepping stone towards a full-fledged fab. It is essential to strike a balance between establishing ATMPs and investing in R&D for advanced fab technologies.

To overcome the challenges and establish a successful fab in India, the government should consider the following measures:

  • Robust policy support: The government should provide a conducive policy environment that incentivizes investment in fabs, encourages R&D, and fosters collaboration between academia, industry, and research institutions. This support will attract domestic and foreign investors, enhance technology transfer, and promote indigenous innovation.
  • Skill development and research: Investments should be made in skill development programs and research initiatives to nurture a skilled workforce and develop indigenous chip design capabilities. Collaborations with global chip manufacturers and research institutions can facilitate knowledge exchange and technological advancements.
  • Infrastructure development: To attract investments, the government should focus on developing world-class infrastructure, including industrial parks, reliable power supply, efficient logistics, and high-speed internet connectivity. Special economic zones can be established to provide a conducive ecosystem for semiconductor manufacturing.

Conclusion

  • Establishing a semiconductor fab in India is a critical step towards achieving self-sufficiency in chip manufacturing.
  • While previous attempts have faced challenges, India can learn from China’s success and explore alternative strategies such as acquiring existing fabs and setting up ATMP units. However, it is crucial to strike a balance between short-term gains and long-term objectives.
  • The government should provide robust policy support, prioritize skill development and research, and invest in infrastructure to attract investments and foster innovation. By implementing these measures, India can overcome its dependence on semiconductor imports, enhance its strategic position, and contribute to the global semiconductor industry.