India plans to manufacture silicon chips due to global shortage

The world is facing a major silicon chip crisis and this is hampering the production of automobiles and electronic products worldwide. India is also taking steps to start the manufacturing of silicon chips within the country.

Hyderabad: The world is facing a major silicon chip crunch. Everything from smartphones to cars, video game consoles to washing machines, laptops to televisions, webcams to CCTV run on silicon chips (semiconductors). Without them, the modern world would not have advanced this far. Since the automobile and domestic manufacturing industries got shut down during the COVID-19 lockdown, the demand for these chips plummeted. Chip production was further impacted when the Texas snowstorm overwhelmed the state’s electricity infrastructure and caused massive power outages.

During the pandemic, people began favouring private vehicles over public transport. Even after the lockdown was lifted and industries began production; the chip supply remained far too low for the surging demand. For this reason, Ford and Mahindra & Mahindra are planning to reduce automobile production in India. Internationally, Toyota and General Motors are also taking a similar route.

On the other hand, remote work and online education have pushed the demand for computers, smartphones and telecom sectors. Computer chip shortage is hampering these industries. Samsung and Apple are postponing the release of their latest models due to this global crisis. Australia’s state-owned broadband provider National Broadband Network (NBN) has not been able to expand its customer base due to the shortage of modems.

Chips are at the heart of everything

Advanced technologies such as Artificial Intelligence (AI), Internet of Things (IoT), 5G, Robotics, and self-driving cars are impossible without semiconductors. The US, Taiwan, South Korea, China and Vietnam have emerged as leading chip manufacturing centres. Although India is the second-biggest smartphone market, chip manufacturing is not a reality here yet.

South Korean and Chinese companies get mobile phone parts from their countries and assemble them in India. More than 80 per cent of the chips needed for mobile phones are made in Taiwan and South Korea. India has only 2 semiconductor fabrication plants (also called fab). Of these, the Society for Integrated Circuit Technology and Applied Research (SITAR) is located in Bengaluru and is run by DRDO. The other is Chandigarh’s Semi-Conductor Laboratory, under the Department of Space. However, neither of them manufacture chips for commercial purposes but the Indian Armed Forces and ISRO.

Though India is not a large scale chip manufacturer, it is its own competitor in terms of chip design. About 90 per cent of the world’s semiconductor companies operate research and development centres for chip design in India. They include top players like Intel, AMD and Broadcom. To become self-reliant and transition to a superpower, India must focus on chip manufacturing.

Challenges in establishing fabrication plants

Establishing a single fabrication plant requires investment worth thousands of crores of rupees. Chip manufacturing technology changes every 3 to 4 years. The uninterrupted power supply is a prerequisite. With all these facilities in place, China is determined to use domestic semiconductors for 70 per cent of its products by 2025.

India also aims to manufacture mobile phones, IoT equipment, medical devices and industrial electronic components worth Rs 40,000 crore by 2025. The Union Cabinet approved Production Linked Incentive (PLI) scheme to increment goods manufactured in India. For the Smart Cities mission and 5G network, the government plans to create 500 crores of IoT devices. Besides, the goal is to produce 5 crore laptops, notebooks, and tablets. If it reaches the stipulated target, India will become a major supplier of laptops and tablets. By 2025, the country will be able to capture the USD 10,000 billion global market and create 5 lakh jobs for its youth.

Incentives galore

Official sources said that the central government is considering giving a USD 100 crore incentive to every semiconductor manufacturer in the country. Further, the Center would encourage domestic companies to purchase semiconductor units abroad. The government would not just buy domestically manufactured chips but mandate the private players to do so too. The private industries have welcomed the move. Tata Group along with Apple Inc is going to set up a smartphone manufacturing plant in Tamil Nadu. Intel is also set to start an AI research centre in Hyderabad, with the Telangana government's support.

Workable for India

India can become an advanced technological and economic power if it can manufacture semiconductors independently. After all, India is the second-largest mobile phone manufacturer. We have so far relied on Chinese imports for telecom networks, electronic and mobile phone components. But post the border disputes, the Center has decided to reduce this over-reliance and focus on setting up robust domestic manufacturing units.