Why is India keen on setting up chip units?
Semiconductors are the life blood of modern electronics, and their demand is increasing exponentially. India, a large consumer of electronics, is importing almost all its semiconductor needs to the tune of $24 billion a year (demand is expected to touch $110 billion by 2030). Massive supply disruption during the pandemic and emergence of virulent geopolitical tensions across the world, is forcing nations to seek self-reliance for accessing this precious commodity. Also, India has identified electronics manufacturing as a key sector to boost growth and exports.
Did India try to get fab units going earlier?
Yes, there were many attempts. Way back in 2006, the Andhra Pradesh government signed up with SemIndia to set up a $3 billion chip making facility. The project failed to take off. In 2007, the Centre wooed Intel Corporation, but it, instead, chose to invest in China and Vietnam. In the decade that followed, India sought and got multiple expressions of interest (EoIs). The Union Cabinet approved two projects, one by JP Associates and the other by Hindustan Semiconductor Manufacturing Corporation, in February 2014. Both the projects got stalled and were eventually dropped.
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What are the challenges India faces in the sector?
Semiconductor making is highly capital intensive and needs huge government support to become viable. It was limited till recently. Also, chip-making involves designing, fabricating, assembling, testing, marking, and packing. Experts say the government is trying to put the cart before the horse by seeking fab units before the necessary ecosystem is in place.
What happened to the govt’s latest attempt?
Under the PLI scheme, the Centre announced $10 billion in subsidies, or up to 50% of the project cost, for setting up semiconductor fab units in India. Of the EoIs received, three—Vedanta-Foxconn, ISMC consortium backed by Israel’s Tower Semiconductors and Singapore-based IGSS Ventures—were approved. But they have seen little progress. Vedanta-Foxconn project is dead as the JV broke up. ISMC project is on hold as Tower Semiconductors and Intel are merging, and IGSS is still seeking an Indian partner.
Countries other than India are also looking to reduce dependence on imports and to increase domestic production of semiconductor chips. The US government has enacted the CHIPS Act, which offers subsidies worth $280 billion for research and production of chips in the American soil. Germany has announced subsidies worth $22 billion to get companies to set up fab units. European Union has enacted the European Chips Act to boost semiconductor production. UK, too, has unveiled a semiconductor strategy.
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