How to recover from the stumble in chip production

The government has had to retool and reopen its application window for grant of subsidy for the domestic manufacture of semiconductors. Despite brave government talks that major chipmakers have India on their investment radar, the fact remains that India will find it hard to attract existing players to shift base here.

The US, Europe and Japan are all offering liberal subsidies to boost their own semiconductor capabilities, with the subsidy amount on offer ranging from $2.8 billion in Japan to $52 billion in the US and larger amounts by the EU and individual member countries. India has offered $10 billion or even half the investment cost of a new fab. The couple of applicants that turned up, including the Vedanta-Foxconn venture, do not qualify, as they do not have a technology partner.

Create industry from ground-up

Instead of trying to lure existing chip producers to set up shop in India, the government should work on creating a domestic semiconductor industry from the ground up. Nvidia, the most valuable semiconductor manufacturer in the world, with a market cap that crossed $1 trillion after a new wave of Artificial Intelligence startups, has boosted the demand for its chips, does not manufacture even a single chip. It designs the chips, and gets them made by contract manufacturers, like Taiwan Semiconductor Manufacturing Corporation, which has the capacity to produce chips with circuits as thin as 7 nanometers. India needs both chip designers and chip manufacturers.

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The Dutch company ASML is a virtual monopoly in producing the lithographic machinery used to manufacture chips. Lithography literally means writing or drawing on stone. What ASML does is a little more complex than making streamlined versions of stone tablets, such as the one carrying the Ten Commandments, or the trilingual decree carved on the Rosetta Stone, which helped unravel the mystery of Egyptian hieroglyphics. ASML’s machinery helps etch nanometre-thin grooves onto silicon wafer chips, focusing laser using specialized lenses.

Chipmaking makes use of assorted chemicals and super-pure gases, such as nitrogen, oxygen, hydrogen and argon.

Subsidies not enough

All these inputs into the semiconductor industry call for continuous R&D and talent. If India is to manufacture semiconductors in a meaningful fashion, it must gain every element of the chipmaking ecosystem. This will not happen just by offering subsidies that are a fraction of what rich countries offer.

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India has raw talent in plenty, which is what the world’s multinational companies assemble in their India-based Global Capacity Centres, to carry out their proprietary R&D and create intellectual property. The talent has to be trained to meet the requirements of semiconductor manufacturing. India does not have anything like the Interuniversity Microelectronics Centre, the industry’s vaunted brains trust, located in Belgium.

Last October, India entered into an agreement with IMEC, which is welcome. But the point, really, is to set up something like IMEC in India. Scroll through the list of IMEC authors, and you will find a fair sprinkling of Indian names. The point is to enable and empower such people to work at a centre in India doing similar work, with sizeable R&D budgets that would create the pool of talent the industry needs, apart from innovative products and ideas.

DRDO’s efforts

The Defence Research and Development Organisation has done some good work in using startups for indigenous production of a variety of parts and kit needed for weapons systems. A similar effort must be made for the semiconductor ecosystem. Indian startups today have moved beyond me-too versions of companies and businesses that have succeeded in the West. They have forayed into Artificial Intelligence, robotics and Space industries. Their energy must be used to build all the constituents of the semiconductor ecosystem right here.

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Why self-reliance is important 

Why should India try to build indigenous capability in every segment of the semiconductor ecosystem, from the components of the machinery involved to R&D and assembly, testing and packaging? If India were part of any power bloc or military alliance, India would not need to bother with self-reliance in critical technologies. It could simply buy whatever is available in the market, provided it is not denied to it on national security grounds by the existing masters of the universe. But India has chosen the path of strategic autonomy, right from the moment of Independence, rather than subordination and dependence on bigger powers, as befits one-fifth of humanity.

What that means is that it cannot afford to be in a place where any other power can cripple its strategic capability by barring the sale of critical components to Indian entities, whether advanced silicon or special chemicals, at some crucial juncture.

Of course, having a plentiful and indigenous availability of every kind of semiconductor would avert two commercial/economic problems as well: a balance of payments problem, as chips outstrip oil, at some point, as the biggest item of imports, and crippling shortages of the kind witnessed during the pandemic. But the real reason for developing India’s own capability in semiconductors is strategic autonomy.

China moving ahead

China has moved ahead in this direction, with established Chinese companies in the automobile and telecom industries, as well as the defence industry funding assorted startups to advance on many fronts. It is this sort of detailed planning, funding and outsourced testing support for startups that will create a semiconductor ecosystem in India, not blithe offers of subsidy rendered paltry by rich-nation incentives to appropriate emerging capacity in the sector.