Relevance: GS-2: Effect of policies and politics of developed and developing countries on India’s interests.

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; indigenization of technology and developing new technology;

Key Phrases: Strategic weapon, Geopolitical tool, PLI Scheme, Semiconductors and display manufacturing ecosystem, Critical technological components

Why in News?

• The Communications and IT Minister, described the silicon semiconductor chip as a strategic weapon at a recent media briefing.

Key Points:

• The Cabinet’s recent approval of the Production Linked Incentive scheme for the semiconductor industry carries geopolitical and geo-economic significance.
  • A typical semiconductor business includes integrated circuits (ICs), optoelectronics, discrete components, and sensors.
• With an outlay of ₹76,000 crore spread over a period of six years, the scheme is crucial for the development of semiconductors and display manufacturing ecosystem in the country.
  • This move claims to attract ₹1.7 lakh crore private investment in India.
• Unlike previous PLI schemes where the government offered incentives on incremental sales, this one is expected to offset the high costs of setting up a semiconductor factory.
  • The government is expected to bear as much as 50% of the costs associated with setting up a fabricator and it could go a long way in alleviating some of the uncertainty involved in investing in such projects.

Need:

• 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.
• Semiconductors are critical technological components for emerging technologies viz. artificial intelligence (AI) and internet of things (IoT) 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.
• Of late, disruptions in its supply chains have reportedly affected over 169 industries and businesses world over.
• 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.

Issues:

• 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.
• It need access to lots of water. Not just any water, but millions of litres of ultra-pure water.
  • In fact, even a basic fabrication unit is known to consume more than 20 million litres of water per day.
  • And sourcing this water has turned out to be China’s Achilles heel in scaling production. Even Taiwan has had trouble with this thing for a while now.
• 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.

Significance:

• 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 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 is expected to be a shot in the arm.
• So far, the Indian government has introduced PLI schemes for a whole host of industries such as the auto sector, white goods industries, electronics and phone manufacturing.
  • In total, thirteen PLI schemes have already been put in place, and they are expected to cumulatively add up to investments of around $30 billion by 2025.
• The PLI schemes for mobile phones, in particular, have been a crucial factor in consolidating India’s place as the world’s second-largest mobile phone manufacturer, and boosting India’s mobile phone exports by 2050.

Way Forward:

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 be valuable, 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 learn from Vietnam, 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 conglomerates like 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.

Source: The Hindu BL

Mains Question:

Q. The world is reeling through a crippling semiconductor shortage and it desperately needs alternatives. By rightly positioning itself, India can be become a Global hub for Semiconductor Manufacturing. Discuss.