Semiconductors: Why India should not make chips – Instead, the focus should be on other parts of the global value chain

Synopsis: There is a burgeoning Electronics market, and also there is a consequent fight over the major powers to control the semiconductor industry. India can use this opportunity to improve to achieve digital India targets.

Introduction 

The global supply crisis in semiconductors has led many to suggest India should create chip fabrication facilities (fabs). The feasibility of this industry in India in light of raw material availability, technology and skilled manpower remains to be seen. 

Why is there a global chip fight? 

This tussle is mainly led by two countries, the US and China. On the one hand where the US controls the IP, design and technology, China, on the other hand, is the largest chip buyer, consuming 60% of all chips produced globally. 

The US, using export control laws in 2019, stopped its firms from helping Huawei (a China-based company) to restrict the export of design, fabrication among other technologies. 

What are its impacts on the world’s geopolitics? 

US has pressurised Taiwan Semiconductor Manufacturing Company (TSMC) and others not to make chips for China. As, this step will cripple Chinese electronics and the advanced technology industry, China responded by violating Taiwanese airspace many times this year. 

What are the reasons India should not involve in chip-making? 

Investment– Chip fabrication facilities (fabs) are not a one-time investment.it needs huge annual investment as electronics technology is fast changing. 

Chipmakers like Intel, TSMC each spends over $20 billion in R&D, process improvement and new fabrication machinery every year. 

Technology- Fab technology is complex with very high failure rates. China is a case in point that even significant investments are no guarantee of success. 

World’s fab capacity– World will soon have surplus fab capacity. The US-China rivalry has spurred large investment in new fabs. The US government will spend $50 billion on chip manufacturing. Intel, TSMC is also spending huge on new fabrication technologies. Many other proposals are being discussed. 

Read more: Need of Indigenous Semiconductor Manufacturing Facilities in India – Explained Pointwise
What is the way forward for India? 

India should focus on other things in the chip value chain except for fabrication. These contribute to 40% of the value chain revenue. 

Chip design and assembling, testing, and packaging (ATP) are the two segments of interest for India. Chip design involves using software tools to simulate the physics of chip circuitry. India may leverage this skill set. 

The US which is a major player in semiconductors is seeking allies to develop a new supply chain, excluding China. India being an active Quad member, must participate in the fabless segment of the chip value chain. 

What are the advantages for India? 

The ATP industry generates millions of jobs and has low barriers to entry. Besides, it will give a push to Digital India mission, Make in India and the skilled manpower it will create. 

Source: This post is based on the article “Semiconductors: Why India should not make chips – Instead, the focus should be on other parts of the global value chain” published in “Tines of India” on 12th October 2021. 

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