Seizing the Future

TECHNOLOGIST VINOD DHAM, also known as the father of the Pentium chip, recalls a story about the 1969 visit to India of Intel’s co-founder Robert Noyce, to explore the possibility of setting up a semiconductor manufacturing facility. But the government then showed very little interest. As some sort of consolation, it said it was willing to allow a small facility that could manufacture a limited number of chips. But for Noyce that was of no consequence. So, he moved on.

Around the same time, Taiwan began its semiconductor journey which became a catalyst in its economic growth and technological advancement. From the late 1980s, through the 1990s, Taiwan’s semiconductor industry grew at an astonishing rate. Many Taiwanese engineers and entrepreneurs returned from Silicon Valley, and a heavy investment in research and development (R&D) resulted in Taiwan becoming a leader in semiconductors. Right now, along with China and South Korea, Taiwan manufactures around 70-80 per cent of the chips. In the absence of its own facility, India, on the other hand, has remained heavily dependent on others, missing its chance to play a significant role in industrial revolutions.

But now, this may change. As the government announced part­nerships to start manufacturing semiconductors, India’s techno­logical landscape is looking at a critical overhaul. With a major thrust on manufacturing, India’s new ambition on semiconduc­tors has the potential to change its reputation as a service-oriented country. India will set up its first semiconductor fabrication unit in Dholera in Gujarat, anchored by the Tata group. It will be set up in partnership with Taiwan. One more will be set up in Gujarat’s Sanand, while the third will come up in Assam.

“We have come a long way and we have proved hundreds and thousands of sceptics, both in India and abroad, wrong about India’s ambition and backed up that ambition with real progress,” Rajeev Chandrasekhar, minister of state, Ministry of Electronics and IT (MeitY) told Open.

It is in the last few years, after the pandemic, that the govern­ment began to pursue its interest in semiconductors on a war foot­ing. The pandemic exposed the fragility of global supply chains and the critical role of semiconductors in various industries. The Indian automotive sector was one of the hardest hit by the semi­conductor shortage. Automakers had to cut down production and, in some cases, halt manufacturing lines due to the lack of critical components that contain semiconductors. This led to extended waiting periods for popular vehicle models and impacted overall sales and revenue. The demand for consumer electronics, includ­ing smartphones, laptops, and home appliances, surged during the pandemic as people adapted to working and studying from home. However, the semiconductor shortage meant that manufactur­ers struggled to meet this increased demand, leading to delays in product releases and higher prices for consumers. India’s push towards 5G technology and digitalisation also faced challenges due to the semiconductor shortage. Telecom equipment manu­facturers experienced delays in the procurement of chips neces­sary for network infrastructure, potentially slowing down the rollout of 5G networks in the country. For India, it underscored the need for strategic planning to enhance domestic manufacturing capabilities, diversify supply chains, and reduce dependence on external sources for critical components.

“Semiconductors are the new oil,” said Akhil Ramesh, director of the India programme and economic statecraft initiative at the Pacific Forum. “If India has to have a chance, it has to play a pivotal role in this industry. Whosoever controls the value chain, controls the global trade architecture and will have considerable leverage.”

India currently imports a substantial portion of its semicon­ductor requirements, leaving its tech industry vulnerable to supply chain disruptions and geopolitical uncertainties like the Ukraine war. By bolstering domestic semiconductor manufactur­ing capabilities, India now seeks to mitigate these risks and ensure uninterrupted access to critical components.

BUT IT IS A long journey, the first step for which has been taken now. It is a long journey because how it plays out can change if the requirements of the industry are not met adequately. A thriving semiconductor ecosystem requires a robust infrastruc­ture. A semiconductor fab (manufacturing facility) unit needs a large supply of water, along with uninterrupted power supply, besides good road connectivity and smooth customs clearance. In the long run, it will also require R&D, and other skill sets of which there is a shortage in India. “Paradoxically, we don’t have a semiconductor industry, but 20 per cent of global chip design­ers are based out of Bengaluru. India has roped in people who have worked abroad in the industry, which is a good move,” says Ramesh. But it is just a beginning. Industry experts like Dham have pointed out that India needs semi­conductor engineers trained in domains like process technology and device physics, which are key ele­ments in the manufacture of chips.

“We are taking care of these things,” said Akash Tripathi, CEO of the government’s India Semi­conductor Mission. “We have a huge resource in terms of young engineers whom we can easily train. In fact, AICTE is now going to have a curriculum specially designed for this and will help us in the long haul.”

Chandrasekhar said he had personally made presentations to all semiconductor companies, where he said questions of infrastructure were raised. “There is this old perception of India being a deficit country, that India’s problems limit India’s ambitions. But now the world has woken up to trans­formation in the last 10 years, and to how we are creat­ing modern global standard infrastructure,” he said.

India is now trying to collaborate with leaders like South Korea on initiatives like training programmes and other knowledge exchanges. Speaking about the government’s prioritising of the semiconductor industry during his recent visit to Korea, Minister of External Affairs S Jaishankar said: “Our expectation is that even within a few years, a very different larger ecosystem [of semiconductors] will take shape in In­dia. I am sure that it will create more possibilities for collaboration between India and the Republic of Korea.”

What also works for India is the global tendency of what has come to be known as the China Plus One strategy. It is an approach adopted by multinational companies seeking to diversify their manufacturing and supply chain operations beyond China. This strategy gained prominence due to various factors, including the rising labour costs in China, geopolitical tensions, trade wars, partic­ularly between the US and China, and the vulnerabilities in global supply chains exposed by the pandemic. A big beneficiary of the US-China tech war has been a country like Malaysia, which is emerg­ing as a hotspot for Chinese companies to expand to Southeast Asia. According to a Financial Times report, the state of Penang in Malaysia (which has become a hub for semiconductor companies), attracted foreign direct investment (FDI) of $12.8 billion in 2023, more than it received from 2013 to 2020. This is where India could leverage its position and emerge as an alternative to countries like Malaysia, as an alternative where China cannot circumvent sanctions, as Ramesh put it. India’s strategic position as a democratic counter to China to attract companies and countries looking to diversify away from Chinese dependence is a big advantage that requires to be tapped properly.

The self-reliance in semiconductors also makes sense as it will en­able India to remain unaffected by sanctions from Western powers. An Indian microelectronics company, Si2, for example, was recently sanctioned by the European Union (EU) because chips imported by it from the US were allegedly supplied by the company for dual use to Russia. With India’s increased ambition of becoming a defence manufacturer (and exporter), it would make further sense to have supply chains closer to home. “It’s a competitive world,” said Chandrasekhar. “There are Vietnam, Philippines, Mexico, who compete with us. But some of them lag us in talent, domestic mar­kets, and government responsiveness. Competition is the new normal for investment.”

Industry experts are now hoping that India’s semiconductor flight will take off. For it, they say, a conducive policy environment, encompassing incentives, subsidies, and regulatory reforms is imperative to galvanise semiconductor investments and foster industry growth. Streamlining regulatory approvals, providing tax incentives, and offering infrastructure support are essential for nurturing a vibrant semiconductor ecosystem in India. On the day Prime Minister Narendra Modi laid the foundation for the semi­conductor plants, on March 13, Chandrasekhar said that certain state governments had jumped to the opportunity and created local infrastructure and an enabling environment because they saw it as an opportunity. “Who would have thought five years ago that we would have a [semiconductor] plant in Assam? Because the chief minister there seized the opportunity and made the required invest­ment in land, water, power, and connectivity.”

In the fast-moving universe of technology, semiconductors will be at the heart of it. According to industry experts, they will play a crucial role in the development of quantum computers, which promise exponential increases in computing power for specific tasks, potentially revolutionising fields like cryptogra­phy, material science, and complex system simulation. They will also be an enabler for more powerful and efficient AI systems, facilitating advancements in autonomous vehicles, robotics, natural language processing, and predictive analytics. Semicon­ductors are key components in solar panels, wind turbines, and energy storage systems, playing a critical role in the efficiency and effectiveness of renewable energy sources. In the field of power conversion, they are bound to be a game-changer. Ad­vanced semiconductor materials like silicon carbide (SiC) and gallium nitride (GaN) are making power conversion systems more efficient, which is crucial for electric vehicles (EVs) and smart grid technology (they are considered most suitable for next-generation semiconductors).

As Chandrasekhar said: “It is not a today or tomorrow game, it is a day after tomorrow, decades-long game.”

chip manufacturingNarendra ModipolicyRajeev Chandrasekharsemiconductorstechnology