SEMI-CONDUCTORS  

Context

Chip Industry 

• Semiconductors are the thumbnail-sized building blocks of almost every modern electronic device from smartphones to connected devices in the Internet of Things (IoT).
• They help give computational power to devices.
• The global semiconductor industry is currently valued at $ 500-$600 billion.

Components

• The basic component of a semiconductor chip is a sliver of silicon, which is etched with billions of microscopic transistors, forming patterns to control the flow of current while following different computational instructions.
• The chip-making process is complex and highly exact, having multiple other steps in the supply chain such as designing software for chips and patenting them through core Intellectual Property (IP) rights.
• It also involves making chip-fabrication machines; setting up fabs or factories; and ATMP (Assembly, Testing, Marking and Packaging).

Chip-making industry in the world

• The Chip-making industry is a highly-concentrated one, with the big players being Taiwan, South Korea and the U.S. among others.
• According to a New York Times estimate, 90 per cent of 5nm (nanometre) chips are mass-produced in Taiwan, by Taiwan Semiconductor Manufacturing Company (TSMC).
• Therefore, the global chip shortage, U.S.- China tensions over Taiwan and the supply chain blockages owing to the Russia-Ukraine conflict have led major economies to enter the chip-making sector with a renewed push.
• For example, the U.S. announcement of $52.7 billion in government funding for the CHIPS and Science Act and the EU's Chips Act will mobilise € 43 billion for public and private investments.

Changes to India's chip-making scheme

• In December 2021, India announced its roughly 10 billion dollars production-linked incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country.
• It also announced financial support for a design-linked initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights etc.
• According to the Electronics and IT Ministry, Semiconductor demand in India would increase to 70-80 billion dollars by 2026 with the growing demand for digital devices and electronic products.

Government incentives

• The new change announced last Wednesday seeks to harmonise government incentives for all technology nodes of semiconductors.
• In the previous version of the scheme, the Centre was offered to fund 30 per cent of the project cost for 45 nm to 65 nm chip production, 40 per cent for 28 nm to 45 nm and 50 per cent or half of the funding for chips 28nm or below.
• The modified scheme provides uniform 50 per cent financial support for all nodes.
• Besides, it will provide 50 per cent of capital expenditure for other steps of the process as well (Chip design and ATMP).

MoUs

• So far, Vedanta and Taiwanese chipmaker Foxconn has signed an MoU to set up a 1, 54, 000 crores semiconductor plant in Gujarat.
• Two other projects have also been announced a $ 3 billion plant in Karnataka by the International consortium ISMC and a $ 3.5 billion plant in Tamil Nadu by Singapore's IGSS Ventures.
• The modified scheme also emphasised the production of the 45 nm Chip, which is fairly less time-Consuming and economical in terms of production.

Challenges 

• While the scheme is an encouraging move, Chip production is a resource-intensive and expensive process.
• While the new scheme provides equal funding for all steps of the process, the outlay of the scheme remains $ 10 billion.
• Notably, just the setting up of one semiconductor fab requires an investment of anywhere between $3 and $7 billion.
• Analysts, while positive is concerned that not much of the current scheme outlay would be left to support other elements including display fabs, packaging and testing facilities and chip design centres.
• They also argue that the initial funding should focus on areas like design and R&D, for which India already has an established talent pool.

• Another task for the government is to drive up consumer demand in the semiconductor and linked electronics industry to not end up in a situation where these ventures remain successful only till taxpayers are forced to fund required subsidies.

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