When the Covid-19 pandemic created an acute shortage of semiconductor chips, the world waited helplessly. It also gave countries a chance to reflect on how their overreliance on a single supply chain could be devastating. Then a heightened geopolitical tussle between China and the US and the ongoing war in Ukraine have given us a clearer picture of how the war for ‘brains of electronics’ will be played out. During the last half century, semiconductors have made electronic devices smaller, faster, and more reliable. Perhaps a war over semiconductors could happen. Why? If you are reading this on your smartphone, perhaps you know the reason.
We need semiconductors in washing machines, refrigerators, cars, and almost everything. So do more complicated things, such as ships, planes, and rockets for outer space. Moreover, the ongoing Russia-Ukraine war has demonstrated that they are essential in precision-guided bombs, missiles, drones, fighter jets and naval vessels. In other words, they have become the technology that underpins almost everything. But the industry, which is worth $ 664.2 billion and expected to touch $1,883.7 billion in 2032, is dominated by big companies, as it costs an arm and a leg to manufacture them.
In this backdrop, semiconductors have been in the news lately in India. As China and the US are engaged in a chip war, many have concluded that India has emerged as an alternative option. The country is exploring every opportunity to be recognised as a significant player in the supply chain. In July 2023, while addressing the SemiconIndia 2023 industry event in Gujarat, Prime Minister Narendra Modi asked, "Who can be a more trusted partner than the world's largest democracy?"
Over the past two decades, India has had two failed attempts to build semiconductor plants. Fearing that the moment might pass again, if the country doesn’t recognise its potential, in 2021, the government approved the Modified Programme for Development of Semiconductors and Display Manufacturing with an outlay of Rs. 76,000 crores. It aims to provide attractive incentive support to companies that are engaged in silicon semiconductor fabs, display fabs, semiconductor packaging, and semiconductor design, to mention some.
The result has been a flurry of developments. Larsen & Toubro plans to set up a subsidiary in the domain of fabless semiconductor chip design. Qualcomm will outsource the manufacture of semiconductor chips to India when the country has set up its own fab plants and Outsourced Semiconductor Assembly and Test facilities. Meanwhile, Tata Group is reportedly drafting a proposal to tap into the government’s semiconductor subsidy scheme, and it is also exploring overseas technology partnerships. There are more. However, these are advanced interests the companies have expressed.
The ambition isn’t without challenges, as, it can be said, India had missed the bus through the 80s and 90s when East Asia was leveraging this opportunity. The government-run fab, Semi-Conductor Laboratory, in Chandigarh makes chips for the Indian Space Research Organisation, but it doesn’t make any commercial chips. Add to this the virtual absence of downstream companies.
With the new policy, India aims to capitalise on its strengths, reduce vulnerabilities in supply chain, and reduce import dependence on China. This can be done through fabs, because, at present, India has zero commercial manufacturing capability of any chip. The investment in the display fab is with the objective of reducing imports from China. The investment in design, through design-linked incentives, aims to build strengths. The other focus is on the outsourced semiconductor assembly and testing. Painting a rosy picture, India Electronics and Semiconductor Association claims that around nine out of 10 chips that go into the market will have some Indian design centre work behind them.
The move, this time, is different from those in 2006 and 2013, which also had government incentives in the form of reimbursement. This time, the government is making an upfront capital investment. The policy also entails 50% support, irrespective of the chip fabrication, even if a manufacturer is doing the 65-nanometer analog chip. This should be seen as a welcome move, as suddenly no one is going to start a 5-nanometer fab.
But the sticky part is its aim to reduce imports. It means increasing tariffs, which will only hurt companies, including Apple, which has tripled iPhone output to $7 billion. This move towards self-sufficiency makes little sense, as no country is self-sufficient in semiconductor manufacturing. For instance, Apple might be making mobile phones in India with chips from China that are designed in California, made by TSMC and assembled in China.
The task at hand for India is to build everything from scratch, and this warrants some flexibility in its approach. The country should look at the need to have enough redundancy in the supply chain and to collectively have expertise in every segment of the supply chain to outpace competitors. A good start could be to explore complementary strengths among the Quad members. The US is the indisputable leader in design. But manufacturing there is tough, as the costs are prohibitively high. Japan has strength in the materials that go into semiconductor manufacturing. Australia can supply silica, gallium and indium. If India can ensure this, the country will be able to achieve a great deal of its ambition. However, if it assumes that it can do every part of this on its own, it will end up attempting everything and achieving little. Furthermore, India should know that its competitive advantage is talent. Even if the US introduces harsher bans, who will do the work? So it’s Indian talents who will be used.
*Written in October, 2023
Comments
Post a Comment