India and Singapore deepening cooperation in Semiconductors

Singapore's President, Tharman Shanmugaratnam, recently visited India, focusing on strengthening bilateral ties and exploring new initiatives in key sectors like technology and manufacturing.

Key-highlights of the Visit

• Singapore’s President visited India to mark the 60th anniversary of diplomatic relations between the two countries. He is focusing on strengthening ties, especially in the eastern states of India, like Odisha and Assam.
  • During his visit, the President underscored the growing partnership between Singapore and India, which has been upgraded to a "Comprehensive Strategic Partnership." This move reflects the desire to deepen cooperation in multiple sectors, including renewable energy, digital technologies, and advanced manufacturing.
• Semiconductor Cooperation: Singapore is looking to help India build a semiconductor ecosystem, including advanced manufacturing and technological solutions. The collaboration aims to enhance India's capabilities in the semiconductor industry, an area of growing global importance.
• Digital and Financial Cooperation: Singapore and India are also exploring a data corridor between Gujarat's Gift City and Singapore. This initiative will allow their financial institutions to safely exchange data, enhancing economic and technological collaboration.

What are India’s Current Semiconductor Capabilities?

• India is strong in the design stage of semiconductors. It is home to 20% of the global talent pool for chip design, with many professionals employed by global companies like AMD. India’s domestic chip design sector is growing, especially with the government’s Design-linked Incentives (DLI) program that supports local design firms.
• Chip Fabrication (Fabs): India is a newcomer in the manufacturing side of semiconductors.
  • Although India has no semiconductor manufacturing plants (fabs) of its own yet, a major step was taken in March 2024 with the launch of India’s first semiconductor fab in 30 years at Dholera. This facility is a joint venture between Taiwan's PSMC and Tata Electronics. The Indian government is funding 70% of the investment, while Tata and PSMC are managing the technology transfer and training.
• India’s Semiconductor Value Chain: The semiconductor value chain has four main stages:
• Design: India has a strong presence here.
• Manufacturing (Fabs): India is developing this area.
• Assembly, Testing, and Packaging (ATP): India could focus more on this to get faster results.
• Distribution: This is the final stage where chips are distributed to electronic manufacturers.

Challenges India Faces in Building Semiconductor Fabs:

• High Cost of Semiconductor Fabs: Building a semiconductor fabrication plant (fab) is extremely expensive. In the early 2020s, the cost of setting up a fab was over $20 billion, a significant increase from USD 200 million in the 1980s. These costs make it a risky investment, especially since achieving technological sovereignty (self-reliance) is not guaranteed.
• Resource-Intensive Nature of Fabs: Fabs need a constant, reliable power supply and vast amounts of ultrapure water (up to 10 million gallons daily) to clean silicon chips. This could put pressure on India’s already strained water resources and energy grid, especially as India works towards meeting net-zero emission targets.
• Shortage of Skilled Workers: There is a shortage of skilled workers in semiconductor manufacturing in India. The National Skill Development Corporation (NSDC) report from 2022 highlights this issue, estimating that India could face a shortage of 250,000 to 300,000 professionals in the semiconductor industry by 2027.
• Dependence on Imports: India is highly dependent on imports for critical raw materials, especially Rare Earth Elements (REEs), which are crucial for chip manufacturing. Despite holding 6% of global REE reserves, India has not developed its mining infrastructure for these materials since the 1950s. Only 10-20% of India's exploration capacity for critical minerals has been used.

India’s Semiconductor Strategy (Moving Forward):

• Short-Term Strategy (ATP Focus): Instead of immediately focusing on expensive and resource-heavy semiconductor fabs, India could prioritize the back-end stages like Assembly, Testing, and Packaging (ATP). These stages are capital-light (require less money) but still labor-intensive and can be more easily integrated into India’s existing industrial landscape. This could be a faster, more feasible way to get involved in semiconductor manufacturing.
• India Semiconductor Mission (ISM): Launched in December 2021, this initiative is crucial for India’s semiconductor ambitions. It offers two key types of incentives:
  • Production-Linked Incentives (PLI): For companies that set up manufacturing units in India.
  • Design-Linked Incentives (DLI): For domestic companies involved in chip design. The ISM also focuses on establishing semiconductor fabs, testing facilities, and design centers within India.

What Needs to Be Done:

• Invest in Fabs: India needs to continue its investments in semiconductor fabrication plants, like the Dholera fab, while ensuring cost-effectiveness and efficiency.
• Develop Resource Infrastructure: India should focus on improving its water management systems and energy supply to meet the needs of semiconductor fabs without overburdening resources.
• Bridge the Skill Gap: India must focus on upskilling its workforce to meet the growing demand for semiconductor professionals. This includes training more engineers and technicians and expanding semiconductor education programs.
• Boost Rare Earth Element Mining: India should begin exploring and developing its reserves of Rare Earth Elements (REEs) to reduce dependence on imports, ensuring a steady supply of critical materials for semiconductor manufacturing.
• Support ATP Development: India should prioritize developing the ATP (Assembly, Testing, and Packaging) part of the semiconductor process, as it is more cost-effective and can be rapidly scaled.