Learning from the CHIPS Act of the U.S.

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    Learning from the CHIPS Act of the U.S.

    Syllabus: GS2/ Government Policies & Interventions

    In Context

    • The United States’ Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act) recently completed one year as a law.

    About Semiconductors:

    • Semiconductors are the thumbnail-sized building blocks of almost every modern electronic device from smartphones to connected devices in the Internet of Things (IoT). 
    • The basic component of a semiconductor chip is a sliver of silicon, which is etched with billions of microscopic transistors and projected to specific minerals and gases, forming patterns to control the flow of current while following different computational instructions.

    Semiconductor Industry 

    • The global semiconductor industry: The global semiconductor industry is currently valued at $500-$600 billion and caters to the global electronics industry currently valued at about $3 trillion.
      • The chip-making industry is a highly-concentrated one, with the big players being Taiwan, South Korea and the U.S. among others. 
        • 90% of 5nm (nanometre) chips are mass-produced in Taiwan, by the Taiwan Semiconductor Manufacturing Company (TSMC). 
      • Issue of the global chip shortage: U.S.-China tensions over Taiwan, and the supply chain blockages owing to the Russia-Ukraine conflict have led major economies to enter the chip-making sector with a renewed push.
    • India’s semiconductor sector: The country’s electronics and semiconductor products manufacturing sector has witnessed a quantum growth in the last almost a decade. 
    • Import & manufacturing: In 2014 some 92% of the mobile devices sold in the country were imported while in 2022 some 97% of mobile devices were manufactured in the country. 

    What is CHIPS Act?

    • The Act authorises $52.7 billion over five years to boost American competitiveness, innovation and national security in semiconductors.
    • As industrial policy has become a default policy of choice for nation-states, the Act provides a clear window into the capabilities and structures needed to execute such policies. 

    What can India learn from the Act?

     

    CHIPS Act:

    India’s Policy

    Cooperation & coordination between different arms of the government

    • Four separate funds have been created for the execution of the Act. 
    • The Department of Commerce is the lead agency administering the $50 billion CHIPS for America Fund for accelerating semiconductor manufacturing and research. 
    • But there are also allocations for the Department of Defense for defence-unique technologies, the Department of State to coordinate with foreign partners on semiconductor supply chain security, and the National Science Foundation to promote the growth of the semiconductor workforce. 
    • This structure highlights the priority accorded to semiconductors.
    • On the other hand, India’s semiconductor industrial policy is being managed mainly by the Ministry of Electronics and Information Technology (MeitY)
    • The schemes for manufacturing, assembly, displays and compound semiconductors have been assigned to an independent division called India Semiconductor Mission (ISM) within a non-profit company set up by MeitY. 
    • The policy for chip design is being administered by C-DAC, an R&D organisation again under the MeitY. 
    • The ISM Committee comprises largely MeitY bureaucrats. While the committee is a good beginning, ensuring that the semiconductor strategy survives beyond government terms requires a whole-of-government approach along the lines of the CHIPS Act.

    Companies seeking funding

    • Companies seeking funding under the CHIPS Act are required to submit workforce development plans. 
    • A nodal agency, the National Semiconductor Technology Center (NSTC), has been created to collaborate with industry and educational institutions. This must become a focus area for India as well. 
    • A competent semiconductor engineering workforce is India’s quickest route to gaining leverage in the semiconductor industry.
    • Keeping this in mind, MeitY has begun a Chips2 Startup (C2S) programme, collaborating with over 100 universities and colleges. Like the NSTC, C2S aims to scale up workforce expansion by supporting existing quality training programmes. 
    • In the Indian case, however, many private training centres prepare chip designers outside the conventional university system.
    • Hence, it is important for C2S to focus on certifying good programmes of universities or private training institutes rather than running them.

    Structuring accountability

    • The CHIPS Act has also created a CHIPS Program Office (CPO) to lay down the guidelines for assessing the financial viability of a project. 
    • The CPO is hiring Investment Principals and Financial Structuring Directors to catalyse private sector investments.
    • India also has guidelines for assessing the viability of proposals, a lot remains to be done concerning transparency. 
    • The government needs to put out regular monthly progress reports on its semiconductor programme. 
    • This will help manage expectations and instil reassurance in India’s plans.

    Research in future technologies

    • The CHIPS Act is not just about bringing semiconductor manufacturing back to the U.S. The Department of Commerce also invests $11 billion focused on future research. 
    • Packaging was considered a labour-intensive and low-margin component of the supply chain only a few years ago. 
    • However, as downscaling transistors becomes difficult, researchers have zoomed in on advanced packaging techniques that combine multiple semiconductors in a multi-dimensional arrangement on a single substrate, all in one package.
    • In India’s semiconductor strategy, advanced manufacturing and packaging research are not priority areas of focus. 
    • This makes sense to the extent that India is currently nowhere in the picture in high-volume chip manufacturing. 
    • However, the lesson from the CHIPS Act is that India’s strategy needs to identify and invest in research on future technologies.

    Way ahead

    • The CHIPS and Science Act is a useful template for industrial policy in semiconductors. 
    • The administrative capacity that the U.S. has marshalled together institutionalised the Act in a manner that will ensure its continuity beyond governments. 
    • India’s semiconductor strategists should study the positives and drawbacks of this Act deeply. Nothing matters more in industrial policy than effective implementation.

    Daily Mains Question

    [Q] What are the key elements of India’s semiconductor industrial policy? What are its shortfalls? What can India learn from its Global counterparts while framing its semiconductor policy?