Semiconductor Manufacturing

SYLLABUS

GS 3 >> Indian Economy >> Manufacturing Sector

REFERENCE NEWS

Recently, the Union Cabinet chaired by the Prime Minister of India approved the establishment of three semiconductor units under the Development of Semiconductors and Display Manufacturing Ecosystems in India.

STATUS OF INDIA’S SEMICONDUCTOR SECTOR

• The Indian semiconductor market, which is valued at approximately USD 23.2 billion and is projected to reach USD 80.3 billion by 2028, is growing at a compound annual growth rate (CAGR) of 17.10%. (Source: Invest India)
• India has the requisite expertise in software and chip design. Yet, India lags in the establishment of semiconductor wafer fabrication (FAB) units.

SIGNIFICANCE OF SEMICONDUCTOR SECTOR

• Boost domestic manufacturing and Supply Chain Resilience: India seeks to become self-reliant in manufacturing capabilities under Atmanirbhar Bharat and aims to emerge as a global hub for electronic system design and manufacturing.
• Attract investment: Through efforts like globally competitive incentive package to companies, the government hopes to attract large global chip makers to make India their production base.
• Reap benefits of chip shortage: The world has been reeling under the shortage of semiconductor chips affecting production targets across almost all industries. If the recent policies can lure some of the fabrication units, it would go a big way in making our country self-reliant.
• Strategic significance: Manufacturing and supply capability are concentrated in few countries like Taiwan, South Korea, U.S., Japan and China. Any geopolitical tension can disrupt the supply chain and adversely affect India. Ex: Taiwan is the world’s leading chip producer and its growing tension with mainland China can impact India’s import. Here, attaining self-sufficiency can alleviate any threat of Chinese aggression.
• National Security: Semiconductors are critical for defense technologies. Having a domestic supply of these components ensures that a country's security apparatus is not dependent on potentially unreliable foreign sources, thus enhancing national security.
• Technological Sovereignty: Control over semiconductor technology and manufacturing is synonymous with technological sovereignty. It allows countries to set their own standards and regulations, ensuring that they are not beholden to foreign entities for critical technologies.
• R&D Ecosystem Development: A strong semiconductor manufacturing sector fosters a vibrant ecosystem of research and development, attracting talent and investments in cutting-edge technology areas. Silicon Valley in the United States exemplifies how a strong semiconductor industry can foster a vibrant ecosystem of research and development.
• Economic Diversification: Investing in semiconductor manufacturing sectors helps diversify a country's economy. It reduces reliance on traditional industries and can pave the way for sustainable economic growth by tapping into the rapidly growing tech industry. 

CHALLENGES:

• Capital intensive industry: A semiconductor fabrication facility can cost multiples of a billion dollars to set up even on a relatively small scale. They also have high operating costs and need frequent technology replacement. This makes it a viable industry for only a few corporate giants.
• Power demand: Chip fabs require extremely stable power supply. But this is a challenge in India. Ex: India recorded a power supply shortage of 1,201 million units in October 2021 — the highest in 5.5 years — due to coal shortage in thermal plants.
• Concerns over water use: Semiconductor manufacturing requires large volumes of ultra-pure water to avoid the contamination of electronic devices. For a water-stressed country like India, such levels of water usage are unsustainable. Ex: Taiwan Semiconductor Manufacturing Company uses around 60 liters of water per layer of chip and the recent severe drought in Taiwan has affected production.
• Challenges and Previous Attempts: Previous attempts to establish semiconductor fabrication facilities in India faced challenges. Notably, a joint venture between Foxconn and Vedanta, aimed at setting up a USD 19.5 billion chip plant, was dissolved. Additionally, Tower Semiconductor's initial proposal for a USD 3 billion plant in Karnataka was stalled due to its then-impending merger with Intel, which was eventually canceled due to regulatory hurdles
• Environmental concerns: India is the third largest producer of e-waste, generating about 2.4 kg of e-waste per capita. The arrival of new industries would increase the amount of e-waste generated in the country.

WAY FORWARD

• Infrastructure Development for Semiconductor Manufacturing: Governments and industry stakeholders should collaborate to invest in infrastructure development tailored to the needs of semiconductor manufacturing.
• Advanced Supply Chain Management Practices: Implementing advanced supply chain management practices, such as Just-In-Time inventory systems and strategic partnerships with suppliers, can enhance efficiency and resilience in the semiconductor supply chain.
• Investment in Research and Development: Encouraging investment in R&D and fostering collaborations between industry, academia, and research institutions can facilitate technology upgradation in the semiconductor sector.
• Skilled Workforce Development: Developing comprehensive training programs and educational initiatives focused on semiconductor technology can address the shortage of skilled professionals.
• Financial Incentives: Governments can provide financial incentives, such as tax breaks, subsidies, and low-interest loans, to attract investment in semiconductor manufacturing.
• International Collaboration: Collaborating with international partners can facilitate technology transfer, access to global markets, and knowledge sharing. Joint ventures, strategic alliances, and participation in industry consortia can help Indian semiconductor manufacturers compete effectively on the global stage.

India's effort to develop its own semiconductor and display industry aligns with the growing importance of electronics in daily life. By focusing on indigenous capabilities and sustainable growth, India aims to become a key player in the global semiconductor supply chain. This is crucial not only for economic growth but also for enhancing India's strategic position in the technology sector, which is both highly competitive and geopolitically sensitive.

PRACTICE QUESTION

Q: How significant is semiconductor manufacturing for India and what are the challenges associated with its manufacturing? Discuss.(10M,150W)