US marches ahead with its semiconductor plans, but India is lagging behind. Is it a cause of worry?

The world’s leading chip manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), has announced the opening of its second chip plant in Arizona in the US for high-end 3 nanometres (nm) chips that will go into production by 2026. The announcement followed TSMC’s initial announcement of $12 billion made in 2021 towards a fabrication plant (that will produce 4nm chips starting in 2024). While the US is bagging significant investments for semiconductor manufacturers, India has yet to approve the applications it received earlier this year under the India Semiconductor Mission.

The government of India announced its semiconductor scheme worth Rs 76,000 crore for attracting semiconductor and display fabs in the country on December 15, 2021. The government received three semiconductors fab and two display fab proposals in the first round that closed in February 2022. And following the industry concerns, the government modified the scheme in September this year to offer a flat 50 per cent incentive to approved fabs across the board. States were supposed to lure the applicants with another set of stimuli. As the government is yet to announce the applicants approved under the scheme, this delay in approval has created slight unrest amongst the applicants and has attracted criticism from some industry experts.

However, industry veterans who have worked closely in the semiconductor space, have different opinions. “The US is giving 30 per cent incentive. India is giving 50 per cent from the central government, and state governments are putting in another 20 per cent. Forget about the state or centre, [in total] 70 per cent of the cost of the project is being taken care of by India. When you have 70 per cent responsibility, it takes time to take such decisions because they have to be very careful that they do not waste Indian government money. It's public money that they're taking care of,” explained Ajai Chowdhry, Chairman of Epic Foundation, Co-Founder, HCL Technologies and a member of the Advisory Committee on India Semiconductor Mission.

Long-term Process

Setting up a fab (chip manufacturing plant) isn’t child’s play or as simple as setting up a smartphone or a wearable manufacturing unit. While it takes between two to three years to build the fab, even planning before setting up a fab takes about one to two years. After all, it involves high-end technical processes, sophisticated machinery, sourcing raw materials, and setting up an ecosystem, to name a few. And as India is starting its fab journey very late, there is a lot to catch up with.

“US, the leader in the semiconductor world, passed Chips for America Act [in order] to invest $280 billion to bolster [its] semiconductor capacity, catalyse R&D and create regional high-tech hubs and a bigger, more inclusive STEM workforce. The act was first proposed in June 2020 and only recently approved in August 2022. Even for this leading semiconductor nation, it will take a decade or more to implement the scheme and the plans,” pointed out Vinod Dham, the ‘Father of Pentium’ and a member of the Advisory Committee on India Semiconductor Mission.

“India’s Union Cabinet also approved the Semiconductor India Program in December 2021 for the development of the semiconductors and display manufacturing ecosystem in India. However, since we in India are, for all practical purposes, starting from scratch to build an entirely new industry, we are facing a much more complex task,” he added.

Changing Environment

The environment in which the Indian government is working has changed drastically over the last couple of years. Unlike before in the history of semiconductors, the nations that are into semiconductors have become very selfish in just the last two years. Given the recent chip crisis post-COVID-19 pandemic, there is a general desire to maintain those supply chains in-house. An industry expert, on the condition of anonymity, explains the scenario thus: “US for the last 40 years gave away semiconductors to the whole world without blinking. In the last 14 months, they've taken everything back. This has distinctly changed the world that we are operating in.” A case in point being the restrictions and strict regulations which the US has imposed on the sale of semiconductors and chipmaking equipment to China, all made to counter the Chinese onslaught on chip manufacturing.

Contrary to the reports suggesting India is waiting for better applications, the expert says further: “Unfortunately for the US, which is where most of this technology resides, there has been a sudden inflationary pressure that has caused the entire high-tech market, an entire stock market in fact, to drop 30 to 70 per cent. So, in that environment, the companies who would normally look at India in a very positive (as 70 per cent is a huge incentive) are just trying to save their companies from going under."

Building The Ecosystem

Setting up a fab isn’t just about getting partners in India and facilitating them in setting up fabs. It involves many other things to be taken care of, from sourcing raw materials, the kind of technology or chips that should be manufactured for domestic consumption and export, orders to fill the fab, and many more. “A very important issue before setting up the fabs is ensuring customers. This issue is being looked at by India Semiconductor Mission very deeply because they don't want the plant, where they're going to put 70 per cent of the money, to be unsuccessful in getting business. If it's unsuccessful in getting business, that 70 per cent of the money will go waste,” pointed out Chowdhry.

Dham echoes a similar sentiment: “Even a bigger challenge than even building a fab is “Filling a Fab” — we need a very high volume of chips to fully utilise the fab capacity. If a fab is not run at over 90 per cent plus capacity round the clock, the chip costs will go up due to poor capacity utilisation, rendering our products uncompetitive.”

What’s Ahead?

Praising the government, Satya Gupta, CEO of Epic Foundation and President of VLSI Society of India, an association helping to grow Indian R&D and talent in the semiconductors ecosystem, said, “Given the type of technology, infrastructure, global partnership required, and considering the complexity of the issue, I think we have made tremendous progress. One also needs to understand that it's not a private company but the government that has to decide. And they have to act in a certain way. You take a look at any government. I think this is probably the fastest execution I've seen. Not just from India's point of view, from a global point as well.”

According to sources at the Ministry of Electronics and IT, the government is well versed with the challenge at hand and has dealt with all these issues with insights from the industry leaders and advisory committee members. The government has shortlisted the applicants and will be announcing the approved applicants very soon.
 

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