On 15 Dec. 2021, Union cabinet approved $ 10 billion (Rs.76000 crore) proposal to build semiconductor ecosystem in the country. Over the next five-six years, the incentives will be extended to greenfield chip fab units, display fab units, compound semiconductor and ATMP (assembly, testing, marking and packaging) facilities.

There are fabless players — the design companies — which will be given a fiscal push. Semiconductor and display fab units will be offered financial support. Compound semiconductor units make chips for mobile chargers and electric vehicles. The government will offer fiscal support to compound semiconductor units and ATMP facilities.

The move will attract international investment into the country. It is estimated it will bring an investment up to Rs. 1.7 lac crore.

Developing capability in semiconductor design and manufacturing is a vital strategic necessity for India. Advanced microchips power defence missile systems, satellites and communications. Through these complex bundles of software and microscopic hardware, a foreign power can snoop on or control. There could be a chase for parts at a crucial moment. It is prudent for India to develop a semiconductor manufacturing industry.

As business go digital and the use of AI, VR, AR increase, the notion that India should focus on medium and low-end chips is flawed, There is need to build competitive advantage in high-end semiconductors and chip design.

The machines necessary to supply components of a chip fab are sophisticated and produced by a couple of companies. Here we should do backward integration.

The government’s intention is to create a complete semiconductor ecosystem. India intends to join the list of Asian countries that currently control 3/4ths of the world’s fab capacity — Taiwan, South Korea, Japan and China. The US is far behind with a share of 13 per cent.

The global short supply and fear of dependence on China for fab supplies have driven the present incentivisation.

The government is actively engaging with top global investors. It is in talk with leading chip makers — TSMC, Intel, Hynix, STMicroelectronics as well as the Tata Group.Vedanta too is interested.

There is a demand for display fabs, the major market for which is controlled by China. Display fab makes half the cost of a TV a a quarter of the cost of a mobile. India can ill afford to depend on China.