A big leap

Investment in semiconductors is just beginning

After US chip-making giant Micron laid the foundation for constructing its first semiconductor plant in India in Gujarat last year, the country has increased its semiconductor ambitions. Recently, the Union Cabinet approved three more semiconductor units with investment worth Rs 1.26 trillion, including what will be India’s first semiconductor fabrication plant. Tata Electronics Pvt Ltd will set up a semiconductor fab in partnership with Powerchip Semiconductor Manufacturing Corp of Taiwan in Dholera, Gujarat. Besides, two semiconductor ATMP (assembly, testing, marking, and packaging) units will be set up in Morigaon, Assam, and Sanand, Gujarat, respectively. This is a big leap for India’s semiconductor prospects, given that the country missed the opportunity for several decades despite governments’ efforts to incentivise global companies to set up facilities here.

The announcement comes after the world witnessed an acute shortage of chips. Moreover, as geopolitical tensions heighten, domestic electronics manufacturing is seen as a potential driver of economic growth. Also, it is not very difficult to foresee how hostilities between mainland China and Taiwan can severely impact the production of semiconductor chips. Vulnerabilities in global supply chains make it more vital for India to ensure a steady supply of electronic components required by different sectors, though it is worth noting that capacity in India will not be on a par with the cutting-edge in the segment. Further, the government is optimistic about the employment potential of India’s emerging semiconductor ecosystem. These units are expected to generate about 20,000 advanced-technology jobs and about 60,000 indirect jobs. While India has just embarked on a journey to become a significant semiconductor manufacturing nation, it already enjoys the position of being a leading semiconductor design nation, having nearly 20 per cent of the world’s semiconductor design talent pool. This could be critical as manufacturers improve quality.

Investment in fab facilities will boost component and ancillary manufacturing, along with providing more employment opportunities for skilled workers. It must be noted, however, that skilled labour that can work on factory floors of a fab facility could be hard to find in the immediate future. In this regard, the All India Council for Technical Education has introduced courses on the manufacturing and design of integrated circuits and semiconductor chips across engineering colleges in the country. It is hoped that skilling and proper training can help resolve the talent shortage problem. Notably, several other countries are also working to bring chip production to their shores, including other developing nations like Malaysia and Vietnam. Many like the US and the European Union have rolled out more lucrative incentive schemes than New Delhi. India thus will have to wait before it starts manufacturing chips of very high sophistication.

To move forward in this direction, it is also important to focus on infrastructure bottlenecks, including the lack of reliable power supply, water resources, and transportation networks. Producing chips is a highly precise and expensive process, involving multiple complex steps. Even minute disruption in power supply can render huge losses. Nonetheless, India has done well to make a beginning, and both government protection and private-sector investment will be needed for this sector to succeed. The government has a Rs 76,000 crore chip incentive scheme in place and is providing large capital subsidies. It remains to be seen if this would be enough to attain reasonable success in developing the required ecosystem.