Semiconductor Ecosystem in India

In Context 

Electronics industry is critically dependent on Semiconductors.

• India’s National Policy on Electronics (NPE) 2019 aims for the electronics industry to achieve a turnover of about Rs 33 lakh crore by 2025.

Potential of Semiconductor industry

• Semiconductors are critical technological components for emerging technologies viz. artificial intelligence (AI) and internet of things applications, 5G communications, cloud computing, automation, electric vehicles, with a wide coverage of applications from basic consumable electronic gadgets and automobiles to areas of strategic operations.
  • They help give computational power to devices. 
• India’s semiconductor component market is likely to reach $300 billion in cumulative revenues by 2026, as ‘Make in India’ and PLI schemes will boost local sourcing of semi-components in the coming years, according to the report by the India Electronics & Semiconductor Association (IESA) and Counterpoint Research.
• According to the Electronics and IT Ministry, semiconductor demand in India would increase to $70-$80 billion by 2026 with the growing demand for digital devices and electronic products.

Challenges 

• COVID 19 Pandemic : It has brought to the fore the fragility of the global supply chain of semiconductor manufacturing. 
  • The situation is exacerbated by the overdependence of the world on East Asia for fab manufacturing, the rising price of silicon, and the China-U.S. trade war. 
• India does not have an ecosystem in place for advanced semiconductor manufacturing.
• Lack of investments and supportive government policies are some of the challenges to set up fabs in India
• Inadequate logistics and absence of proper waste disposal have further exacerbated the poor state of its production. 
• Russia -Ukraine Conflict  : The conflict impacted the supply of neon and hexafluorobutadiene gases. 
  • These gases are essential for manufacturing semiconductor chips used in the lithography processes for chip production, and Russia and Ukraine are the major sources of these gases.

Government’s Initiatives 

• In December 2021, India announced its roughly $10 billion dollar production-linked incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country. 
• It also announced fiscal support for a design-linked initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights etc.
  • The PLI and DLI schemes had attracted many global semiconductor players for setting up fabs in India 
• The new changes announced recently seek to harmonise government incentives for all technology nodes of semiconductors. 
  • The modified programme would expedite these investments and bring in more applicants.

Conclusion and Way Forward 

• Government needs to incentivise more FDI in electronics to deepen our supply chains through incentive schemes, 
• We need to focus on encouraging Indian manufacturers and start-ups to enter and master complex R&D and manufacturing verticals.
• Chip-making also requires gallons of ultrapure water in a single day, which could be a task for the government to provide to factories.
  • Besides, an uninterrupted supply of power is central to the process, with just seconds of fluctuations or spikes causing millions in losses 
• Another task for the government is to drive up consumer demand in the semiconductor industry to not end up in a situation where these ventures remain successful only till taxpayers are forced to fund required subsidies.
• Diplomacy can also play a crucial role in semiconductor business. 
  • A global platform such as Quad can come forward to collaborate and put resources in research, technological know-how, access to critical technologies and materials logistics and other market support.
  • Cooperation with consortium like ASEAN, a political and economic union of 10 member-states in Southeast Asia can further help to ameliorate the supply constraints with regard to semiconductor chips

• The Russia-Ukraine conflict served as a lesson. We need to be robust on the industry-supporting infrastructure front, so the supply chains are not disturbed