Syllabus: GS3/Science & Technology, Economy, and Infrastructure
Context
- NITI Aayog’s Frontier Tech Hub recently released the report titled Future of India’s Semiconductor Industry, highlighting both the opportunities and challenges in building a domestic semiconductor ecosystem in India.
Why Semiconductors Matter?
- Semiconductors are the backbone of modern electronics. They power smartphones and laptops; electric vehicles and telecom systems; AI infrastructure; defence and aerospace technologies.
- Today, India imports nearly all its semiconductor requirements, making the economy vulnerable to global disruptions.
Current Status of India’s Semiconductor Ecosystem
- India currently does not possess a fully operational semiconductor fabrication plant. The first fab, expected in Dholera, Gujarat, may become operational by 2028.
- At present, around 10 semiconductor projects are under various stages of development.
- India still imports most chips used in domestic electronics manufacturing.
- The geopolitical tensions around Taiwan highlighted the risks associated with concentrated chip production.
- The NITI Aayog report warns that dependence on imported chips for defence systems can create serious national security vulnerabilities.
Major Challenges Before India
- Long Gestation Period: Semiconductor fabs are among the most complex industrial facilities in the world.
- According to the report, a fab requires 4–5 years before production begins.
- Yield optimisation and reliability testing take additional time.
- Thus, commercial viability emerges only after several years.
- Massive Capital Requirements: Chip manufacturing requires enormous investment. The report estimates that India may need $45–60 billion in public expenditure over the next decade.
- It raises concerns regarding fiscal sustainability; efficient allocation of subsidies; and investor confidence and ‘bankability’.
- It suggests targeted and commercially viable investments under the upcoming India Semiconductor Mission (ISM) 2.0.
- Technological Dependence: India lacks advanced lithography technology, high-purity semiconductor materials, and specialised manufacturing equipment.
- Most of these technologies are controlled by a few countries and firms globally.
- Skilled Workforce Gap: Semiconductor manufacturing requires highly specialised engineers and technicians. Building such human capital involves long training cycles, advanced research institutions, and industry-academia collaboration.
- The report stresses the need for sustained investments in R&D and talent development.
India’s Semiconductor Mission
- India launched the India Semiconductor Mission (ISM) with an outlay of ₹76,000 crore recognising the strategic importance of semiconductors.
Key Features of ISM
- Fiscal Support for Fabrication Units: The government offers up to 50% capital subsidy for semiconductor fabrication plants (fabs).
- Several State governments are also providing incentives such as land, electricity, and infrastructure support.
- Incentives for Packaging and Testing: India has promoted semiconductor packaging, assembly, and testing facilities.
- These are less capital-intensive than fabrication and can integrate India into global supply chains more quickly.
- Talent and Design Ecosystem: The mission supports semiconductor design tools for students and universities; research and innovation in chip design.
- It builds upon India’s existing strength in semiconductor design services.
Strategic Shift Suggested by the Report
- Focus on Mature and Strategic Nodes: Report recommends focusing on mature semiconductor nodes; strategic and defence-oriented chips; and compound semiconductors instead of competing immediately in cutting-edge chips (3–7 nanometre nodes).
- This approach is considered more practical and economically viable.
- Packaging as a Core Strength: The report identifies semiconductor packaging not as a secondary activity but as a ‘core production pillar’.
- Advantages for India include lower capital requirement, faster scalability, employment generation, and integration into global supply chains.
- It aligns with India’s comparative strengths in manufacturing and services.
- Building Indigenous Research Capacity: The report emphasises sovereign chip design capabilities, materials science research, and AI-driven semiconductor engineering.
- India already has a strong presence in semiconductor design services. The challenge is to move from a ‘services-led model’ to creating indigenous intellectual property (IP).
- Geopolitics and Trusted Partnerships: The semiconductor sector is deeply linked to global geopolitics.
- The report identifies the United States, Japan, European Union, and South Korea as trusted strategic partners for technology access, equipment servicing, and supply chain resilience.
- It indirectly reflects concerns regarding China’s growing influence in semiconductor manufacturing.
- For India, semiconductor diplomacy is becoming an important component of strategic and economic policy.
Conclusion & Way Forward
- A successful semiconductor ecosystem can reduce import dependence, enhance national security, boost electronics manufacturing, generate high-skilled employment, and support India’s digital economy ambitions.
- It complements initiatives such as Make in India, Digital India, Atmanirbhar Bharat, and Production Linked Incentive (PLI) schemes.
- India appears to be adopting a calibrated approach focused on selective strengths such as packaging, mature nodes, and chip design rather than attempting to replicate the entire global semiconductor value chain overnight.
| Daily Mains Practice Question [Q] India’s semiconductor ambitions are driven as much by strategic necessity as by economic aspirations. Comment. |
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