Semiconductor Fab: the Unfinished Agenda

Context: 

The Indian government launched the India Semiconductor Mission (ISM) in 2022, but today, there is still uncertainty about whether India will have a fab. 

About India Semiconductor Mission (ISM):

• Independent Business Division: It has been set up as an Independent Business Division within Digital India Corporation. 
• Powers & Responsibilities: It has all the administrative and financial powers and is tasked with the responsibility of catalyzing the India Semiconductor ecosystem in manufacturing, packaging and design.
  • It is serving as the nodal agency for efficient, coherent and smooth implementation of the programme for development of semiconductor and manufacturing ecosystem in India.
  • It has been working as nodal agency for the Schemes approved under Semicon India Programme. 
• Following four schemes have been introduced under the aforesaid programme:
  • ‘Modified Scheme for setting up of Semiconductor Fabs in India’ for attracting large investments for setting up semiconductor wafer fabrication facilities in the country.
  • ‘Modified Scheme for setting up of Display Fabs in India’ for attracting large investments for manufacturing TFT LCD or AMOLED based display panels in the country to strengthen the electronics manufacturing ecosystem. 
  • ‘Modified Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab, etc,’ shall extends a fiscal support of 50% of the Capital Expenditure on Pari-passu basis for setting up of Compound Semiconductors / Silicon Photonics (SiPh) / Sensors (including MEMS) Fab/ Discrete Semiconductor Fab and Semiconductor ATMP / OSAT facilities in India.
  • ‘Semicon India Future Design: Design Linked Incentive (DLI) Scheme’ offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design. 

Earlier Initiatives Taken by Indian Government related to Semiconductors:

• Semi-conductor Laboratory (SCL): It was set up in Mohali in 1983 by the then Central Government, with the vision of creating an electronics ecosystem in India.
• Production Linked Incentives (PLI): Incentive support has been approved under PLI for Largest Scale Electronics Manufacturing, PLI for IT Hardware, SPECS Scheme and Modified Electronics Manufacturing Clusters Scheme.

What are the Issues India is facing?

• High Cost & Complexity: Semiconductor fabrication drives human tech advancement, following Moore’s law of doubling transistors every 18 months. 
  • However, miniaturization’s progress comes with increased complexity and costs, leading to a decline in industry participants.
• International Competition: China has experienced significant growth in chip production due to lower manufacturing costs, control over rare earths, and a thriving electronics manufacturing industry. 
  • The U.S. and its Western allies have blocked the transfer of the latest fab-related technology to China, as she has been growing rapidly in chip production. 
  • The U.S. enacted the CHIPS and Science Act in 2022, with nearly $40 billion in subsidies, in an effort to bring back semiconductor manufacturing to the country. 
  • The European Union sanctioned €7.4 billion for a new fab in France. 
  • India will have to contend with these countries in what has become an intense chip warfare.
• Riskier Investment: Investment in a semiconductor fab is one of the riskiest. 
  • Billions of dollars need to be recovered before the technology becomes obsolete. 
  • This necessitates substantial production volumes for economic viability, often reaching levels that are adequate to meet global demand. 
  • It is therefore difficult to conceive of a fab which is based on the domestic market only. 
• Challenge of Setting up a Greenfield Fab & Ecosystem: The advantage of semiconductors having a small freight-to-price ratio and a zero-custom duty regime under the Information Technology Agreement, 1996, facilitates production in a single location and global sales. This is why no company is interested in setting a greenfield fab.
• Other Issues: There are other issues, such as whether to set up a logic/processor, memory or analog fab. 
  • Hundreds of chemicals and gases are required for chip fabrication, people need to be trained, and abundant clean water be made available. 
  • But above all is the art of chip-making. Despite the best of equipment, poor quality and low yields can make fabs fail.

Advantages of Acquiring existing fabs:

• They are reasonably priced
• They have stabilized technology
• A supply chain ecosystem
• An established product line and market
• They will enable India to build the fab ecosystem and train human resources
• Much lower subsidies would be required
  • The funds saved could be used for advanced R&D in fab technologies which will help build state-of-the-art fab in next few years. 

Steps Need to be Taken:

• Assets: Need to leverage human and capital assets.
• Advanced Technology: Need to re-focus on the Semiconductor Mission by using advanced technological breakthroughs.
• Attractive Ecosystem: Need to set up Greenfield Fabs and Ecosystems and provide incentives to make it attractive to companies to adopt.
• Counter Riskier Environment: Need to take steps in a direction to counter associated risky investments.
• Trust Building: Most importantly, there is a need to build such infrastructure and mechanisms, which helps in gaining trust from both domestic and international companies.

Conclusion: 

India’s strategy has been to set up a new logic fab, for which example of China could be a best lesson to learn, which acquired loss-making fabs and then set up its own logic fab, and as mentioned above acquiring existing fabs has many advantages.

News Source: The Hindu