Chip(per) ambitions: Why India needs its wafer fabs

Semiconductor chips are at the heart of modern technology, powering everything from everyday consumer gadgets to critical defence systems. (Image: Pixabay)
Semiconductor chips are at the heart of modern technology, powering everything from everyday consumer gadgets to critical defence systems. (Image: Pixabay)

Summary

  • By focusing on semiconductor manufacturing, India is laying the foundations for a future where it is not just a consumer but a key player in the global technology landscape

India's first entirely indigenous semiconductor fabrication unit is set to start production in 2026, marking the start of the country's journey towards self-reliance in chips that power a wide range of technology, from smartphones to defence systems.

While the Tata unit will be the first to make chips from scratch in India, the government has also approved US-based Micron Technology's plant, a packaging and testing unit. The first ‘made-in-India’ chip from the Micron plant is expected in December 2024.

This is significant, as chip shortages during the global pandemic lockdowns heightened realisation of India’s dependency on international supply chains.

While the start seems promising, the odds appear to be stacked against India, for now at least.

Mint will delve into India's journey towards establishing its first semiconductor fabrication unit, and the critical role this will play in shaping the country's future.

A new era

Tata Electronics Pvt. Ltd’s plant in Assam, the first of such initiatives, is expected to begin semiconductor chip production by late 2025 or early 2026. Targeting sectors such as automotive, power, electronics, consumer, and medical, this move is a critical step towards reducing India's dependence on international semiconductor supply chains—a vulnerability starkly highlighted during the chip shortages experienced in the global pandemic lockdowns.

Alongside the Assam plant, India has greenlighted several other semiconductor fabrication projects, including a notable facility in Dholera, Gujarat, by Tata-PSMC, a partnership between Tata Electronics and Taiwan's Powerchip Semiconductor Manufacturing Corp, and an OSAT (outsourced semiconductor assembly and test) facility by CG Power in partnership with Renesas. 

The total investment for these projects is around 1.25 trillion, and will help position India as a contender in the global semiconductor manufacturing sphere.

The global semiconductor landscape

The journey towards semiconductor self-reliance, however, is fraught with challenges, particularly given the advanced stages of development in countries like Taiwan, South Korea, China, and the US. 

China's ambitious investment of $27 billion to bolster its chips industry and the US's $50 billion investment to enhance its semiconductor manufacturing capabilities are indicative of the highly competitive global environment. India's entry into this arena, therefore, comes at a time of heightened strategic competition and technological advancement.

India's semiconductor journey

India's tryst with semiconductor manufacturing has been long and complex, with initial attempts dating back to the 1960s. Despite setbacks, including bureaucratic hurdles and a devastating fire in the 1980s that gutted the country's first semiconductor complex, India's ambition has never waned.

Recent policy initiatives, such as the production-linked incentive (PLI) scheme, which promises significant investments into the sector, reflect a renewed commitment to achieving semiconductor self-sufficiency.

Rekindling ambitions

With the approval of four major semiconductor projects, including significant investments from both domestic and international players, India's semiconductor landscape is witnessing a resurgence of activity and optimism.

India's semiconductor manufacturing capacity is expected to touch 1.8 lakh wafers per month soon, considering the current project proposals, according to Rajeev Chandrashekhar, minister of state for electronics and information technology.

The projects should provide the building blocks for local microchip-making and the critical semiconductor value chain of design, fabrication, assembly, testing, marking and packaging, although the new investments will only manage to make chips of only 28-40 nanometres (nm), while sophisticated plants globally have moved on to 2-3nm.

Semiconductor chips are ubiquitous in our computers, smartphones, sensors, cameras, cars, aircraft, medical equipment, and defence systems, to name a few. AI applications, too, require new semiconductor architecture with faster data movement between processor and memory. 

Other areas such as cloud computing, machine learning, and the internet of things (IoT) too will continue to drive the need for a new breed of chips.

The economics of chip manufacturing

About 65% of global semiconductor revenues are generated from general-purpose components utilized across various applications, from mobile phones to data centre servers. These chips, often manufactured on 5-10nm nodes, underscore the technological advancement and complexity of current semiconductor production.

However, the financial and technological barriers to entering this space are substantial. According to the India Electronics and Semiconductor Association (IESA), the cost of building and equipping a 5nm production line is approximately $5.4 billion, with a break-even period that can extend to 10 years, considering the rapid pace of technological obsolescence.

Recognizing these challenges, India's strategic focus on the 28-65nm range for its wafer fabrication efforts is pragmatic. This approach balances the need for technological advancement with financial viability, given the lower upfront investments and longer shelf-life of technologies within this range. A BCG-SIA report has said that only 2% of the global capacity currently operates on nodes below 10nm, justifying India's strategic positioning.

Strategic imperative of semiconductors

Semiconductor chips are at the heart of modern technology, powering everything from everyday consumer gadgets to critical defence systems. 

As India invests in semiconductor fabrication units, it is not merely aiming for technological self-reliance but also positioning itself as a key player in the global digital economy. This endeavour is critical for national security, economic prosperity, and the technological innovation needed to address the challenges of the 21st century.

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