As India aims to become a major semiconductor manufacturer in the coming years, here is a chronology of the country’s chip industry.
Is India, at last, getting a commercial semiconductor fabrication (fab) plant? On 19th February (2022) the government announced that India Semiconductor Mission (ISM), which was set up as a dedicated institution for Semicon India Programme, has received 5 applications for Semiconductor and Display Fabs with a total investment to the tune of $20.5 billion (Rs 153,750 crore) under PLI (Production Linked Incentive) scheme.
Three companies viz., Vedanta in JV with Foxconn; IGSS ventures Pte, Singapore; ISMC have submitted applications for setting up of Semiconductor Fabs with a projected investment of $13.6 billion. The PIB release also informed that the ISM has also received two applications for Display Fabs and four applications for compound Semiconductors and Semiconductor Assembly, Testing, Marking and Packaging (ATMP). This means if investments do pour in, in the near future India is expected to become an important player in the semiconductor fabrication sector.
Dream vision and reality
The Minister of State for Electronics and IT Rajeev Chandrasekhar while speaking at the 35th International VLSI and Embedded Systems Conference was quite candid about India’s ambition in the semiconductor space. He said that the government’s ambition and roadmap to semiconductor space involved a big investment. It was natural given the geopolitics of the world in fabs (semiconductor fabrication). With the world increasingly adopting AI and IoT based digital revolution, the semiconductor has become an essential element for our survival.
Right from smartphones to laptops, air-conditioners to microwave units, communication-based train control systems to fly-by-wire aircraft, CT scanners to angioplasty procedures- it is a set of chips that operate at the hearts of every system. After supply disruptions of chips during the Covid-19 period affected the productions of several critical items, no country can ignore its commercial and strategic importance.
India’s ambition to enter into the exclusive world of semiconductor fab is many decades old. In 1983 the state-owned Semiconductor Complex Limited was set up with a fabrication unit in Chandigarh. However, a mysterious fire in 1989 knocked out India’s dream of becoming a major player in chip manufacturing. The now formidable Taiwanese companies were only a few years ahead of India at that time. The Taiwanese semiconductor industry got its start in 1974. The first 3-inch wafer fabrication plant was built in 1977. But by 2002 with USA’s help, Taiwan had 40 fabs in operation.
There were a few other initiatives as well but none could grow into a successful enterprise. The most promising was perhaps Metkem Silicon Limited which in the mid-1980s in partnership with Bharat Electronics Limited (BEL) produced polysilicon wafers for solar cells and electronics. Professor A.R. Vasudeva Murthy of the Indian Institute of Science helped to initiate the venture. The then Prime Minister late Rajiv Gandhi was so impressed with this initiative that he visited the polysilicon plant at Mettur established by the private sector chemical firm Chemplast. Unfortunately, without the government’s financial support (both from the centre and state) it soon could not compete with cheap import substitutes and shut its operation. Clearly, the political vision and will was lacking.
Proof of pudding…
Semiconductor manufacturing which prints nanometre scale integrated circuits (ICs) into silicon wafers with specific design layout is considered to be the hardest technical operation today. The complexity of the product requires hundreds of manufacturing steps in a highly controlled environment. The chip units packaged with its ICs/System often take 10-12 weeks from the start before it’s ready for end applications. For this reason, capital and technology-intensive semiconductor manufacturing need prolonged government support.
At the same time, it is a product of immense strategic value. One of the major causes of the US-China tussle can be viewed as a fight for supremacy in semiconductor technology.
The first ‘National Semiconductor Policy’ or ‘Fab Policy’ came out in 2007. Since then India has been consistently wooing global semiconductor giants. Under the 2007 policy, the Government of India promised special incentives to companies for setting up semiconductor fabs and related ancillary manufacturing here. In 2011, the government had set up an empowered committee to identify technology and investors for establishing two fabs in the country. Due to these initiatives, frequent news items were coming out in various news media linking different global semiconductor majors.
While companies like Intel, TSMC or GlobalFoundries did not show any interest, a few others were quite serious in their exploration of the Indian market. In fact, the UPA government in 2013 had given in-principle approval to two consortia led by IBM (USA) & Tower Jazz (Israel) and STMicroelectronics (France/Italy) & Siltera (Malaysia) for setting up two-chip fabs in India. The expected total investment was ₹52,000 crore. The Government was expected to subsidize around 40% of the total cost. Despite such announcements, the investment didn’t materialize.
The change of government in 2014 did not change India’s quest for a fab. It didn’t happen under the initial ‘Make In India’ push. Then came the PLI scheme and the government notified the semiconductor sector scheme on 21 December 2021 which got some quick responses. The government is saying that it is still open to any new serious proposal, and expects a few big firms to ultimately set up their shop in India. The history is being recounted here only as a caution to the slippery path that India has to negotiate till the entire ecosystem of semiconductor manufacturing starts functioning.
An alternative road
A large number of experts feel that $10 billion support for developing chip fabrication is not enough when one compares with the budget of China, South Korea or the USA. According to a recently published article in Fortune India (February 2022) by Rakesh Sood China, in the last two decades, had spent around $50 billion in tax breaks to achieve a 16% market share in semiconductor production but is still at least five years behind the US or Taiwanese companies in the production of the critical chips.
The USA on the other hand has passed a Chip Act in June 2021 where it has committed $39 billion assistance for chip plant construction in the country over the next five years, and another $11.2 billion for the research and development activities. South Korea’s plan for global dominance has been most ambitious. It plans to spend around $450 billion to become the leader in the chip-making base over the next decade.
European countries like Germany are also spending huge sums to ensure strategic independence in chip availability. The disruptions caused to the economy due to the Covid-19 pandemic have quickened the pace of the decision-making process everywhere. It is in this context, some experts opine that India explores the alternative path of becoming a global player in ‘Fabless Chip’ manufacturing.
Fabless Chip manufacturers are companies that produce the blueprints, i.e. designs for what needs to be fabricated in actual factories somewhere else. As per Investopedia, ‘the term “fabless” means that the company designs and sells the hardware and semiconductor chips but does not manufacture the silicon wafers, or chips, used in its products; instead, it outsources the fabrication to a manufacturing plant or foundry.
In India, semiconductors are a 100% import sector.
This helps the original companies to focus on the investments in R&D for the development of new technologies while maintaining the high production volumes needed to sustain growth in sales.’ Top ranking chip companies like Qualcomm, NVIDIA, MediaTek and AMD fall in this category. While Nvidia and AMD chips are offered in Apple’s Macbooks, the company has developed its own chip M1 for use in its Macbook Pro series. Qualcomm chips are used by the carmaker BMW, as well as in a large number of mobile phones of various brands.
In India, semiconductors are a 100% import sector. As per information provided by the Ministry of Electronics and Information Technology (MeitY), the Indian semiconductor market stands at $15 billion in 2020 and is estimated to reach $63 billion by 2026. However, India has a distinct advantage in chip design. Multiple global Integrated Device Manufacturers (IDMs) have set up design centres across India. MeitY states that India produces nearly 2,000 chips every year and more than 20,000 engineers in the country are involved in chip design.
There is a growing talent pool of engineers in India that are skilled in Integrated Chip (IC) design. The alternative thinking is that instead of chip manufacturing, India should instead leverage its existing strengths and focus on chip design. Already some start-up firms like Saankhya Labs and Signalchip, both Bangalore based semiconductor companies follow the fabless manufacturing route. They outsource manufacturing to third parties.
Some experts think that nurturing these companies would help India’s electronics sector mature and grow in the value chain. Ultimately India could produce its own Qualcomm or AMD. Presently, India accounts for 5 per cent of global semiconductor demand. In future, as it goes up further, the mature ecosystem with solid design capability will automatically attract global semiconductor manufacturers to India.
What is different this time?
With previous experiences of failure to attract semiconductor manufacturers in India, the government this time sweetened its offers generously. For chips of node size 28nm or lower fiscal support, up to 50% of the project cost has been offered. The government is even willing to provide financial support as project equity.
India’s semiconductor market is growing fast, and with the PLI scheme being sanctioned for electronic goods like mobile/laptop manufacturing and allied sectors like telecom and networking products, solar PV modules, medical equipment, the demand for chips are expected to soar even further. In addition, this time the government has declared that semiconductor Fab(s) set up in India will be supported through purchase preference in procurement of electronic products by the Government under the Public Procurement (Preference to Make in India) Order 2017.
With most of the top players in the semiconductor sector present in India with their R&D centres, the basic skill set required for further growth and development is already here in India. Back in 2012 Aynampudi Subba Rao, a management consultant had written an article with the caption ‘India: A Fab-Less Wonder’ attributing India’s success to the government programmes in manpower development since the mid-1980s.
Now, government incentives for research and development are critical to the nation’s goals of competing successfully in the global arena. In the last century, Taiwan could convince US corporations to invest in the country to become a giant in semiconductor manufacturing. The government in India today needs to build an echo system consisting of global semiconductor leaders, Indian industrialists and academia to fulfil its vision. With major nations across the globe fighting for a space within the semiconductor industry, it truly is now or never for India.
Let’s begin the journey again as a fab toddler….
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(Susanta Majumdar was Secretary of Consumer Affairs Department, Government of West Bengal. He was also Secretary of Information Technology Department, Government of West Bengal.)
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