The Cabinet’s recent approval of the Production Linked Incentive scheme for the semiconductor industry carries geopolitical and geo-economic significance.
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.
A typical semiconductor business includes integrated circuits (ICs), optoelectronics, discrete components, and sensors. A sudden surge in demand for microcontrollers, AI processor and new generation baseband chips, sensors and memory chips has forced policymakers to revisit policies for developing an ecosystem for in-house manufacturing and supply chains of semiconductor chips.
Of late, disruptions in its supply chains have reportedly affected over 169 industries and businesses world over. The Communications and IT Minister, Ashwini Vaishnaw, described the silicon semiconductor chip as a strategic weapon at a recent media briefing. Hence, the possibilities of using it as a geopolitical tool can’t be ruled out in times to come. This, being a huge capital intensive business concentrated in a handful of producing nations, mostly located in East Asia, competitive politics could lead to nations denying access to the semiconductor supply chain.
As the ICs business accounts for more than 80 per cent of the total economic value of the semiconductor market, it is high time India takes steps to create an ecosystem for attaining self-reliance. A typical semiconductor value chain includes strong research and development followed by design, production, assembly, testing and distribution and logistics network. Despite several claims of India being a strong candidate for fabless design market, several supply-side constraints such as inadequate availability of ultra-pure and clean water and clean sand used for growing wafers, uninterrupted quality electricity supplies, controlled pollution free environment, etc., inhibit its local manufacturing.
Inadequate logistics and absence of proper waste disposal have further exacerbated the poor state of its production. Besides, heavy investments into establishing and equipping production lines both in terms of capital and gestation period do not encourage private players to venture into it.
Interestingly semiconductor assembly and testing is a high volume and labour intensive business, though less attractive in terms of profitability. India’s position is sui generis, given trained technical human resource availability in sufficient number. Further, as asserted by the Minister, the Government of the day is sending signals to promote networking with 60-odd institutions in India by aligning its skilling policies with this industrial segment, which in the long term will not only impart necessary push to employment but also pave way for development of R&D and build indigenous intellectual property, in addition to creating about 85,000 trained technical workforce in such places.
Such plans will propel R&D initiatives that are crucial for the development of critical technologies and solutions locally. The recent Cabinet approval with an outlay of ₹76,000 crore spread over a period of six years for the development of semiconductors and display manufacturing ecosystem is expected to be a shot in the arm. This move claims to attract ₹1.7 lakh crore private investment in India.
Tie-ups with Vietnam
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.
Technical collaboration with Vietnam may especially be stressed, as it is home to many technical research and academic institutes in the area of microchip design and development besides having abundant availability of trained and skilled manpower. India can take a leaf out of Hanoi’s book to plan its policies, programmes and legal instruments to create favourable conditions and ecosystem for development of IT hardware and products, as semiconductor sector is deemed to be a stimulator for many ancillary businesses.
Strategic partnership with Taiwan, a leading global hub for semiconductor design and manufacturing, with leading producers of the semiconductor chip like Taiwan Semiconductor Manufacturing Co., which caters to the needs of Apple, Intel, AMD, Nvidia and other conglomerates, can be a good beginning in this direction. Similarly, any collaboration with neighbouring countries such as Bangladesh, a champion of competitive manufacturing, can open doors of opportunities for low-cost manufacturing.
Authored by Milind Kumar Sharma, Professor, Department of Production and Industrial Engineering, MBM University, Jodhpur, and was first published in The Hindu Business Line.