India has decided to take a policy initiative in setting up chip-making industry here in India. Chips, as we know, are integrated circuits (IC) imprinted on silicon wafers. They are the vital components of so many manufacturing plants such as automobiles and telecom gear. They are needed in solar panels and defence equipment. In the digitised world of AI and ML, they become all the more important. Chip making is highly capital intensive and requires cutting edge research. It has thus centralised this business in half-a-dozen companies which command global market.
Many governments are introducing incentives to chip manufacturing units, and these incentives run into billion of dollars. The US, the EU and China are in the race. Samsung plans a massive investment in new chip factories. India too has a massive market for chip-based products, and as a fastest growing economy in the world, wants a share in the fast growing chip market. It has decided to offer $10 billion dollars as capital subsidy. The issue is whether this is adequate for self-reliance, or it is better to remain a part of the eco-system which is complex.
In the chip-manufacturing eco-system, the tools in the factories come from Japan. It is the Dutch specialisation to do the photolithography — the process of photo-printing circuits on silicon wafers. Materials such as Neon and palladium which go into the making of the finished product come from Russia and Ukraine. China has concentrated on the supplies of some rare earths and minerals. The US has tied up with several countries for the supply of minerals. Thus there is so much of inter-dependence.
The US enjoys leadership in logic chips, S. Korea in memory chips. Wafer fabrication is outsourced by Intel and others to Taiwan. Japan’s chip manufacturing uses older technology. Intel, US has not yet broken 10-nm barrier, whereas TSMC and Samsung can produce 3nm chips. China has broken through to 7nm. Japan and US have collaborated to produce 2nm chips. Such alliances are likely to emerge.
India is trying to enter electronics manufacturing. It has been encouraged by its success in mobile manufacturing. It wants to manufacture display units, and it is to be seen how it succeeds. India may look at chip manufacturing of mid-range, say 28nm used by automobile industry and certain smart phones.
Should we full-scale or should be specialise? India has the talents and skills. It has an advantage in labour-intensive part of chip making — assembly, testing and packaging. It could invite component manufacturers or sub-assembly makers to invest here. These will help feed the assembly lines. In future, an eco-system with global linkages can develop.
The government prefers full-spectrum approach — avoid imports of chips and downstream products. However, in the meantime, India can continue to upstream imports of materials and production equipment.
Wafer-fabrication is highly capital intensive. There are constant technological changes. Thus investments of huge capitals are constantly needed. Still India cannot isolate itself from this game.
The CHIPS and science Act, 2022 received presidential assent in the US. Its aim is to push leading edge investments — nodes containing 5-7 nanometer (nm) chips. These chips in fact gave the world its original Silicon Valley — coined after an accumulation of silicon chip manufacturers around San Francisco, California.
India’s focus nodes of 28 nm is where the demand is in the Indian market, and in white goods globally. It is the right strategy for India.
The top crop in semi-conductor manufacturing –Intel, Samsung, TSMC, Micron, SK Hynix, Texas Instruments and Global Wafers — are ramping up investments in the US and Europe in the wake of Chips Act. Even the EU has its own CHIPS Act.