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Context:

• India is aiming to manufacture silicon semiconductor chips.
• India is in talks with Taiwan to set up an indigenous semiconductor assembly plant worth $7.5 billion.
• It has intensified efforts to set up a semiconductor fabrication plant with the help of Taiwan.

Developments Undertaken:

• The Tata Group is in talks with three States — Tamil Nadu, Telangana and Karnataka — to invest over $300 million to set up a semiconductor manufacturing facility.
• Several techies working in silicon fab and chip-making companies across the globe, who want to revive the five-year old initiative of bringing the industry to A.P.

Data:

• Around 40 percent of India’s demand is met through imports from China, despite the frequent geopolitical impasse that the two nations find themselves in.

India’s Failed bids:

• The government had previously floated an offer to foreign companies in 2017 to set up their facilities in India by waiving customs duty for the import of the relevant machinery and equipment. The sop evoked zero response.
• In 2020, the central government floated another expression of interest (EoI), inviting companies that were interested in setting up semiconductor fabrication units. The EoI’s deadline was April 30, 2021 and had no apparent takers.
• An earlier failed attempt to woo semiconductor giant Intel to India -- which chose Vietnam instead -- also stands as a stark reminder of India’s lack of real progress on the front.

Global Giants:

• Taiwan holds a virtual monopoly in the global chip manufacturing industry.
• The company is responsible for over half of all semiconductor chips that are manufactured in the world, and the country as a whole is responsible for over 60 percent of global production.
• Other major centres include South Korea and the US.

Basic Requirements for Chip Facility:

• A clean environment, ie, low air particulate matter,
• abundant supply of clean, fresh water,
• uninterrupted and stable power supply,
• quick access to an international airport or seaport,
• first-world levels of road infrastructure from the said port to the fab
• close proximity to well-trained technical talent

Challenges in Manufacturing:

• It is difficult to compete with neighbouring countries like China and Vietnam which have been favourite destinations for global chip manufacturers due to better cost-efficiency.
• massive investment: In addition to the huge cost, running in billions of dollars, manufacturing even a single chip requires hundreds of gallons of pure water, which may also be hard to find in India in the required quantities.
• An uninterrupted power supply is another major hurdle. The heart of the issue is that India is still not unto the par in terms of the basic infrastructure needed to pursue endeavours in the chip manufacturing space.
• There is also constant price pressure from other global players, particularly China which is also building a homegrown chip program for the adoption of local semiconductors in 70% of its products by 2025.

Way Forward:

• Land Acquisition by the government: acquire the land and develop a special economic zone (SEZ) which would encompass a complete semiconductor manufacturing ecosystem.
• Cover all ancillaries: The monetary benefits being extended for setting up a fab should also be made available for all the ancillary units manufacturing specialty chemicals to cleanroom apparel.
• Focus on simple technology: The requirements are less stringent and the fabs less expensive. These companies typically operate at much lower gross margins as opposed to the large fabs and OEMs.

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