Semiconductor Chips Industry – UPSC GS3

Context: The pandemic has highlighted the vulnerabilities of the global supply chain of semiconductor manufacturing.
Significance of Semiconductor Chips:
  • Chips are at the heart of every product and device from automobiles to aircraft, and from motor cars to mobile phones. Its importance is only going to increase in the coming years.
  • Securing access in advance to the latest and most powerful chips will determine the winner in the latest technologies such as artificial intelligence, cryptocurrency, NFT mining, 5G, etc.,
Reasons for disruption in the supply of semiconductors:
  • Supply-side constraints due to the COVID-19 pandemic
  • Overdependence of the world on East Asia for fab manufacturing (semiconductor fabrication plant is commonly called as “fab”)
  • The rising prices of silicon
  • The China-U.S. trade war
Global initiatives to resolve semiconductor shortage:
  • Various countries are trying to safeguard their interests by introducing packages to attract more chip manufacturing.
  • The U.S. has announced a $50 billion package to create factories
  • Intel is adding two more foundries to its Arizona campus and is also developing its own foundry business to compete with chip-makers such as Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC).
  • TSMC, which controls 24% of the semiconductor supply chain, is setting up a $12 billion facility in Arizona.
  • Japan and Germany have got TSMC to start specialty technology fabs in their countries.
Initiatives by India:
  • India has approved a $10 billion package to incentivise the manufacturing of semiconductors in the country.
  • The government has announced a list of incentives to attract leading international manufacturers to set up their manufacturing units in India.
  • Production-linked incentive (PLI) scheme for semiconductor and display board production has been allocated ₹76,000 crores.
  • Chips to Startup (C2S) Programme: The Program aims to train 85,000 high-quality and qualified engineers in the area of Very-large-scale integration (VLSI) and Embedded System Design.
  • Design Linked Incentive (DLI) Scheme: The scheme aims to nurture at least 20 domestic companies involved in semiconductor design and facilitate them to achieve a turnover of more than ₹1500 crores in the next 5 years(2022-27).
Way forward:
  • Fab manufacturing
    • India has the largest number of chip designers outside of the U.S. For instance Karnataka has over 85 fabless chip design houses of various global companies.
    • To create the ecosystem for fab manufacturing, it is important to lock in the demand for semiconductors produced within the country.
    • The total demand for semiconductors stands at $24 billion. This is expected to grow to $80-90 billion by 2030.
    • It would be ideal to enter into an agreement with the consumers of such semiconductors to ensure that the production is consumed within the country.
  • Develop raw material supply capabilities
    • The India Electronics and Semiconductor Association is exploring the opportunity to start supplying processed raw materials like minerals and gases to the fab industries.
    • This will help the Indian gas, materials, and mines industry and also expand opportunities for semiconductor equipment, spares, and service industry.
  • Fab clustering
    • To ensure that semiconductor supply chains and related businesses are in one place to create linkages.
    • Such sites should be chosen based on the ability of the location to act as a force multiplier for the development of an ecosystem.
    • It needs to ensure high-quality infrastructure along with uninterrupted power availability and the availability of semiconductor grade Ultra Pure Water to the extent of 10 MLD per fab.
  • Creating a conducive environment for women and night shifts with zero labour disputes.
  • Focus on encouraging Indian manufacturers and start-ups to enter and master complex R&Ds
  • Premier research institutions such as the Indian Institute of Science should be incentivised to work on R&D in chip designing and manufacturing.
  • Further, the government must focus on emerging technologies like LiDAR and Phased Array in which incumbents do not have a disproportionate advantage and the entry barrier is low.
Securing Chip industries is a necessity for India if it has ambitions of becoming a big global hub for manufacturing and technology innovation in the future.
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