Why it is critical to make semiconductors in India
ENIAC, the world’s first programmable general-purpose computer, introduced in 1945, weighed an astounding 30 tonnes. Much of the bulk was contributed by the 18,000-odd vacuum tubes, which were the large, fragile, energy guzzling electronic circuits that performed the machine’s computational tasks.
With advancements in technology, vacuum tubes were replaced by transistors, and later by integrated circuits, commonly known as chips, where multiple transistors, mostly made from pure silicon, were mounted into a single semiconductor wafer. The chip’s evolution has followed Intel cofounder Gordon Moore’s observation, that the number of transistors in a chip would double every year. This would exponentially increase their computing power, while making them smaller and cheaper.
We now even have chips with billions of components embedded in them, each no longer visible to the naked eye. Miniaturising of the increasingly powerful chips drives the creation of smaller, smarter electronic devices, and the growth of the mobile internet. They remain the primary building block of all hardware in our digitised economy.
The global semiconductor manufacturing ecosystem is extremely complex and interlinked. Supply chain disruptions since the onset of Covid-19 resulted in a steep drop in chip production and supply. This caused a dip in the manufacturing of all devices, appliances and equipment ranging from automotives, space satellites, household, defence and health care equipment across the globe. The chip shortage played a decisive role in the pandemic-induced economic contraction.
After a brief period of recovery, the ongoing conflict in Ukraine is again creating conditions that may interrupt the global chip supply. This is because Russia is the supplier of nearly 40% of the world’s palladium, a critical raw material in chip production, and Ukraine supplies 70% of neon, a gas used in a process called photolithography that fabricates integrated circuits. Taiwan, seen by many military and geopolitical analysts to be a future theatre of great power conflict, accounts for over half the global chip supply and over 90% of the market share for the most advanced chips. In recent times, the United States (US), China, and the European Union (EU) have been making concerted efforts to diversify their chip supply chains, and decrease their dependency on this crucial yet vulnerable ecosystem. For instance, the EU proposed the European Chips Act, seeking to mobilise $49 billion of public and private investments into semiconductor technology and applications, with the stated aspiration of doubling their global market share to 20% by 2030. The US is working on its own Chips Act to boost domestic manufacturing, and has convinced Taiwan’s Taiwan Semiconductor Manufacturing Company (TSMC) to build a $12 billion facility in Arizona, aiming to produce cutting edge 5 nanometre chips by 2024. India announced an ambitious semiconductor sector road map against this highly competitive and volatile backdrop at the end of last year. The initial response has been very positive, with three consortiums with requisite credentials showing interest in setting up fabrication facilities.
The Congress-led United Progressive Alliance (UPA) government also had earlier envisioned, and cleared two consortiums for setting up indigenous chip manufacturing units. Both the projects struggled to take off the ground, mainly because of their inability to raise the then required funds of ₹63,000 crore. This could again turn out to be a major challenge, as the government’s $10 billion (₹76,000 crore) support, spread over six years, would still require participating entities to raise even higher amounts to complete the capital intensive projects.
The fabrication plants would also have to be supported by a very diverse secondary ecosystem of packaging, testing, and design units. India does have a strong foundation required to create these, with most of the global chip companies already having their research and development innovation centres here, and with the country contributing over 20% of the world’s chip design engineers.
The government has also conceptualised a Chips-to-Startups (C2S) programme that will create a talent pool of 85,000 high skilled engineers, equipped to support the domestic industry. This initiative will have to be much more effective than the long-running Skill India programme for us to have a fair chance to meet the stated goals. A fabrication facility would also need uninterrupted power supply, and could use up millions of gallons of ultrapure water. Despite these challenges, the strides we have made in sectors including IT, space, biotech and vaccine industries show that with political will and private participation, India can thrive in globally competitive environments.
At the moment, our semiconductor demand is fully met through imports, and the consumption is projected to cross $110 billion, even higher than our current oil imports, by 2030. Domestic production would greatly ease our trade deficit. Microchips will remain an unavoidable mainstay in every electronic device including critical defence, space and communication equipment. Indigenous products greatly reduce the threat of backdoor espionage, a very common, and difficult-todiscern practice in the global hardware market. Successful execution of our semiconductor policy is, therefore, vital for India to achieve its long-term economic, security and strategic objectives with autonomy.