Semiconductor fab: the unfinished agenda – on developing semiconductor fabrication industry in India | 21st June 2023 | UPSC Daily Editorial Analysis

What's the article about?

• It talks about the developing semiconductor fabrication industry in India.

Relevance:

• GS3: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth;
• Essay;
• Prelims

Context:

• Semiconductors are the backbone of the present digital era. Thus, developing a versatile semiconductor manufacturing industry is the need of the hour.
• India, too, realised this point and started to build semiconductor fabrication plants there. But India’s efforts could not bring the desired success.
• In this article, the writer analyses these efforts and offers some suggestions.

Analysis:

Importance of semiconductor fabrication industry:

• Semiconductor fabrication represents the ultimate frontier of human tech advancement.
• The frontier has been advancing adhering to Moore’s law that the number of transistors in a unit area doubles every 18 months.
• But the progress of miniaturisation is accompanied by higher complexity and costs. As a result, the industry has seen a decline in the number of participants.

Reasons for India’s failure in successfully setting up semiconductor fabrication industries:

• The first serious attempt was made in 2007 in the form of a Special Incentive Package (SIP), but it yielded no response. The second attempt in the form of Modified SIP in 2012 fared better.
• Greenfield vs Assembly, Testing, Packaging and Marking (ATMP):
  • India’s strategy has been to set up a new logic fab from scratch. But China started with ATMPs and became one of the leading global players.
  • Developing an ecosystem for chip manufacturing in a greenfield location is a major challenge.
  • Hundreds of chemicals and gases are required for chip fabrication, people need to be trained, and abundant clean water be made available.
• Technological challenges:
  • There are other issues, such as whether to set up a logic/processor, memory or analog fab.
  • Electronic equipment and its functionalities are characterised by their logic chips, which are therefore strategically important and generate the highest profit.
  • The most advanced set of technologies is needed to manufacture them.
• Other challenges:
  • Investment in a semiconductor fab is one of the riskiest. Billions of dollars need to be recovered before the technology becomes obsolete.
  • This necessitates substantial production volumes for economic viability, often reaching levels that are adequate to meet global demand.
  • It is therefore difficult to conceive of a fab which is based on the domestic market only.

Lessons from China:

• India’s strategy has been to set up a new logic fab. China, which acquired loss-making fabs and then set up its own logic fab, provides lessons.
  • Acquiring existing fabs has many advantages: they are reasonably priced, have stabilised technology, a supply chain ecosystem, an established product line, and market.
• Another strategy could be setting up ATMPs.
  • Tessolve, now acquired by Tatas, had set up an ATMP in 2013-14. This ATMP is successfully packaging chips upto 7 nm feature size.
  • China has over 100 ATMPs.

Way Forward:

• Lessons from China needed to be incorporated in India’s strategy to develop the semiconductor fabrication industry in India.