Why India wants semiconductor manufacturing

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Semiconductors are an important part of India’s manufacturing ambitions for the next five years. The government has made no secret of the fact that it wants to attract semiconductor companies to India. Mint explains why:

Why does India need to make chips?

Chips are an integral part of pretty much all electronic products, so making them here will massively improve the country’s net value addition to the overall electronics manufacturing process. This year’s production linked incentive (PLI) schemes will help drive scale of manufacturing, but the industry still imports many components. India aims to increase value addition to 35-40% by 2025. In addition, semiconductor manufacturing also has strategic advantages, as countries don’t want to depend on their imports for essential infrastructure like defence and power.

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Which chips will be manufactured in India?

Industry experts say India won’t be going after high-tech semiconductors used in smartphones. Instead, it will target the assembly, test, marking and packaging (ATMP) businesses and companies that make chips for automobiles, medical devices, etc. ATMP majors have reportedly had discussions with the government as well. The government also invited expressions of interest for semiconductor fabs of 28nm or lower node size last year. The node size is a manufacturing process that is influential in the performance and efficiency of semiconductors.

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Lucrative market

What are India’s plans for chip manufacturing?

The government hasn’t revealed its plans yet, though a Reuters report from last month said it is offering $1 billion to each semiconductor company that sets up business in India. In May, Ajay Prakash Sawhney, secretary, ministry of electronics and information technology, said the government will announce “concrete schemes” in six months.

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What are the roadblocks?

Experts say firms will need to put in more investments in chip plants than they have in mobile phone manufacturing so far. As a result, these firms may need more than a simple cash incentive. For instance, India’s offer of zero customs duty on components and machinery in the past, didn’t impress firms much. Experts also see gaps in infrastructure, particularly with respect to uninterrupted availability of power and clean water, and a big skill-gap in terms of workers, all of which could take a decade or more to fix.

How do chip-making plants help?

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Chip fabrication plants could have an overall impact on the country’s gross domestic product (GDP). They reduce a country’s import bill significantly and can add billions to its GDP. In February, Taiwan’s domestic statistics office said the country outgrew China in 2020 for the first time in 30 years. Taiwan is one of the largest chip makers in the world, and gained from the growing need for micro-processors, memory chips, etc. But firms like Taiwan Semiconductor Manufacturing Co. didn’t get to where they are today in five years.

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