- Why in News- The Union Government has disbursed around ₹1,645 crore in performance linked incentives (PLI) for electronics manufacturers so far, as part of its efforts to bring in more of the electronics supply chain to India.
- The push for semiconductors, or integrated circuits, is far more pressing now, as these chips are found in practically every modern electrical appliance and personal electronics devices.
- More and more nations are trying to turn away from China’s dominance in the space, following geopolitical pressures to deleverage themselves from supply chain vulnerabilities.
Why is the government encouraging semiconductor manufacturing?
- Semiconductor fabrication units, or fabs, turn raw elements such as silicon into integrated circuits that are fit to be a part of practically all electronic hardware in the world.
- Fabs are highly capital intensive undertakings, costing billions of dollars.
- Semiconductor fabs of today may still be building circuits, but they require highly reliable and high quality supply of water, electricity, and insulation from the elements, reflecting the high degree of precision, cost and capital needed to make the sophisticated circuits.
- China pulled ahead of Taiwan last year, in terms of share of global sales from fabs, according to a report by the Semiconductor Industry Association (SIA).
- It’s not just India that is wary of this dominance.
- The U.S. passed the CHIPS Act, providing billions in subsidies
and investments to manufacturers opening fabs and making
semiconductors in the U.S.
Are fabs opening in India?
- The government’s Invest India agency estimates that electronics manufacturing as a whole will be wort $300 billion by the financial year 2025–26.
- Minister of Electronics and Information Technology Ashwini Vaishnaw said that the first semiconductor manufacturing fab would be announced in the coming weeks.
- India should lean on its strength in the electronics manufacturing value chain.
- So called “foundry companies”, which turn silicon into semiconductors, require huge investments and entry costs.
- But companies that specialise in Outsourced Semiconductor Assembly and Test (OSAT) are less expensive to set up, and generate better margins.
- The OSAT setups take care of the less capitalintensive parts of chipmaking, such as assembling the precise components that have already been manufactured, and running specialised tests to approve them.
What other advantage does India have?
- A large part of semiconductor manufacturing involves design and intellectual labour.
- India has an advantage here, as a large portion of semiconductor design engineers globally are either Indian or Indian origin; chip making firms such as Intel and NVIDIA have large facilities in India that are flush with Indian talent working on design problems.
- This is an advantage as China is losing control over in the face of sanctions and an ageing population.
- The opening of display and semiconductor fabs is one of the strategic and economic goals of India’s electronics manufacturing incentive programmes, and breaking new ground on ambitious plans connected to popular brands such as Apple is something that the Union government and States are equally eager to accomplish. The government appears to be developing the
parts of the ecosystem for that.