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What Is the Significance of Semiconducting Devices in Indian Economy

  • Category
    Economy
  • Published
    17th May, 2022

Overview

  • Analysis
  • What are semiconductors?
  • What is India needs a Semiconductor Mission?
  • Need of Promoting Indigenous Semiconductor Industry
  • What are the challenges associated with domestic manufacturing of semiconductors?
  • Way forward
  • conclusion

Context

Recently 1st Semicon India 2022 Conference has been unveiled the Ministry of Electronics and Information Technology as a component of India's Semiconductor Mission.

  • The conference was organised to make India a leader in electronics production, semiconductor layout, production and innovation.

Background

  • The Semicon India Programme was cleared by the Union Cabinet in December 2021,with a financial outlay of INR 76,000 crore for the development of semiconductors and display manufacturing ecosystems over the next six years.
  • A specialised and dedicated “India Semiconductor Mission (ISM)”has been set up within Digital India Corporation to drive India’s strategies for developing semiconductors and display ecosystem.
  • The scheme has been aimed at making India a global electronics hub as a shortage of microchips hurts industrial production.

Analysis

What is India needs a Semiconductor Mission?

  • India Semiconductor Mission (ISM) is a specialised and independent business divisionwithin the Digital India Corporation (a not for profit company set up by the Ministry of Electronics and Information Technology).
  • The aim of the mission is to build a vibrant semiconductor and display ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design.
  • The mission is authorised to negotiate with the applicants under the semiconductor fab scheme and the display fab scheme.
  • This mission has been given the autonomy to decide theappropriate technology mix, applications, node generation, capacity and propose the structure and quantum of fiscal support for the selected applicants.

What are semiconductors?

  • Semiconductors are crystalline or amorphous solids that have electrical conductivity opposite at temperatures to those of metal, higher electrical resistance than typical resistant materials, but still of much lower resistance than insulators.
  • There are two basic groups or classifications that can be used to define the different semiconductor types:
    • Intrinsic material: An intrinsic type of semiconductor material made to be very pure chemically.
    • Extrinsic material: Extrinsic types of semiconductor are those where a small amount of impurity has been added to the basic intrinsic material.

Need of Promoting Indigenous Semiconductor Industry

  • Employment:Promotion of semiconductor industry will create highly skilled employment opportunities and help India harness its demographic dividend.
  • Reducing Imports Dependency: As the demand increases, electronics imports are expected to overtake crude oilas India’s largest import commodity.
  • Disruption in Global Supply Chains: Pandemic induced lockdown and restriction followed by Russia-Ukraine war has led to the shortage of semiconducting devices. It has a cascading effect on other industries as well leading to slowdown in many sectors of the economy.
  • Promoting Make in India: Indigenous manufacturing of semiconductor devices will give push to the Make in India program and will help in attracting investment.
  • Atmanirbhar Bharat:Local semiconductor manufacturing will pave the way for India’s technological leadership in areas of strategic importance and economic self-reliance.
  • National Security: India imports most of electronic components used in its communication and critical systems. There is a risk of programming backdoors in the manufacturing process and thus hampering national security and sovereignty of India.
  • Capital intensive: Semiconductor manufacturing is a highly capital-intensive industry which needs developed ecosystem to thrive. 
  • Shortage of process engineers: Despite having large talent pool of chip designers, Indialacks process engineers who can run a front-end chip factory.
  • Dominance of Few Countries: Taiwan and South Korea dominated the semiconductor manufacturing space. 75% of the semiconductor manufacturing capacity is concentrated in East Asia and China. Any disruption in supply chain due to conflict or restriction poses many challenges for the importing country.
  • Pursuing Western Companies: India needs to attract foreign investment to built-up chip fab capacity by overcoming the intense competition from other countries.

Required measures

  • Supporting startups: India has a huge talentof entrepreneurial engineers and hand-holding of Indian engineers by the government can produce large payoffs.
  • Budgetary support: Semiconductor manufacturing is a capital intensive process and will require government’s support to reach its full potential.
  • Focus on back-end of manufacturing: Semiconductor foundries accounts for 65% of industry capital expenditure but only 25% of the value addition. Therefore, to lower the risks of investment, India should especially look at back-end of manufacturing such as assembly, packaging and testing. Once it stabilises and an ecosystem develops, front-end of manufacturing will follow.
  • Cooperation of states: Semiconductor industry requires stable power, large quantities of pure water and land. These are state subjects, and state governments’ proactive cooperation is needed to create the right climate for easy implementation of semiconductor projects.
  • Transport logistics: Roads, railway and air connectivity to the site are also critical.

Conclusion

Semiconductors are foundation for the next Industrial Revolution. While, India ramps up its semiconductor manufacturing capabilities, need of the hour is to look for trusted partners and diversify supply chains to meet the growing need.

Practice Question

Q1. What is the significance of semiconducting devices in the Indian economy? Discuss the challenges associated with the domestic manufacturing of semiconductors.

Q2. Semiconductors are conceived as the harbinger of modern technology. Discuss Government of India’s policies and incentives promoting the semiconductor industry.

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