The Covid pandemic, global chip shortages, and now the war in Ukraine have laid bare both the urgent need for Indian self-sufficiency in high technology domains and the opportunity to become a global technology hub, as companies and countries seek to diversify their supplier base away from China and Europe.
From smartphones to medical devices to fighter jets, semiconductors are the life-breath of the electronic industry. Presently, only a handful of fabrication plants (or 'fabs') serve most of the world's integrated circuit (or 'chips') needs, making them a potential economic chokepoint for the industry.
As a result, advanced fabs are the tip of the spear in India's fight for technology parity. "Building a fab is very challenging. Its technology keeps evolving. Even a small tweak in the technology or processing can lead to serious investment and financial implications," says Vivek Saxena, a semiconductor-industry veteran and former CEO of Global Accelerator.
At the edge of the impossible
Modern chip fabs use advanced technology that would've been considered science fiction just a few years ago. The building blocks of chips are inconceivably tiny transistors whose sizes are measured in nanometers (nm) - a billionth of a meter. These are etched on the surface of a silicon wafer using extremely precise ultraviolet lasers and then connected to create circuits.
As transistors get smaller, chips become smaller and more complex, a trend that is more commonly known as Moore's Law. Each reduction in transistor size is called a Technology or Process Node. Transistors can now be etched as small as five nm, about the width of two DNA molecules.
India: The new kid on the block?
Given how advanced fab technology is and how expensive fabs are to set up, run, and upgrade, it is no surprise that a handful of fabs dominate the world chip market – TSMC, Samsung, UMC, GlobalFoundries, and SMIC, are the only chipmakers with a market share over one per cent. India faces an uphill battle in breaking into this club, and government support is essential.
In December 2021, the Union Ministry for Electronics and IT (MeitY) invited applications under the ₹76,000 crore India Semiconductor Mission (ISM). The MeitY invited proposals for silicon chip fabs, display fabs, and compound semiconductor fabs as part of this mission. In response, the MeitY received five proposals. The ISM also seeks to build a semiconductor ecosystem around these fabs, with programmes incentivising testing, packaging, assembly of chips and boards, chip design, and building the necessary talent base.
The level of support on offer is impressive. "Anyone setting up a fab will get a capital investment support, complete support for infrastructure, developing the supply chain, and many other resources that would be required to create an ecosystem around that fab," said Ashwini Vaishnaw, Minister of Railways, Communications and MeitY at a recent webinar. "The government is tackling the semiconductor mission on a war footing," he said. This support is in addition to incentives being offered by the state governments.
Chip and display fabs
The centrepiece of the ISM is the scheme to bring chip fabs to India. The MeitY invited bids for silicon CMOS fabs in the 65 nm (or smaller) nodes with a minimum investment of ₹20,000 crore. The government is offering up to 50 per cent in fiscal support, depending on the technology node being offered. Three proposals were received for chip fabs – a joint venture between Vedanta and Foxconn, Singapore-based IGSS Ventures, and India Semiconductor Manufacturing Corporation (ISMC) from Abu Dhabi-based NextOrbit Ventures in partnership with Israel's Tower Semiconductor. These bids have proposed chip fabs with investments totalling $13.6 billion, seeking $5.6 billion in fiscal support from the Centre.
The MeitY's proposed chip fab requirements, such as 28, 45, 65 nm nodes, are now 10 to 17-year-old technology. This is not unexpected since no company will be willing to give up its hard-won technological advantage to provide India with the most advanced technology. In addition, due to lower cost and complexity, these older technologies still find use in the large market for lower-end chips used in automotive electronics, consumer gadgets, mobile devices, IoT (smart devices and internet-connected industrial machinery and sensors), and smart wearables (such as fitness trackers and smartwatches).
Also critical for India's consumer market needs are display fabs, which manufacture the LCD and AMOLED displays that go into televisions, computers, smartphones, and screens in other devices. Displays make up a significant portion of the value of such appliances. Korean companies LG and Samsung lead the display market, followed by Taiwan's Innolux Corp, a Foxconn subsidiary, and the Chinese companies AU Optronics and BOE.
In contrast to chip fabs, where transistors are becoming smaller, display fabs follow the 'bigger is better' mantra. The latest Generation-11 fabs can manufacture LCDs on glass substrates that are over 10 ft by 10 ft in size, the size of a small room. Larger glass substrates can result in lower costs, higher profit margins, and higher yield efficiency. The MeitY seeks to fund display fabs for Gen 8+ TFT LCD displays or Gen 6+ AMOLED displays, the latter being increasingly useful for smartphone displays. Bidders will need a minimum capital investment of ₹10,000 crore, of which the central government will fund up to 50 per cent. Two companies have proposed display fabs – Vedanta and Elest.
"I feel that display fab is the need of the hour. It doesn't need much data investment. Wherever you see any display, whether a touchscreen or a normal display, from 2 to 65 inches (the display fab can serve that need)," Saxena says.
India's share of the global electronics market is 3.6 per cent (as of 2019), but much of this is in final assembly from semi- and completely-knocked-down kits (SKD and CKD), with only 10-30 per cent value addition. A homegrown display fab can provide a low-cost supply for India's burgeoning electronics industry, which is now valued at ₹4.97 lakh crore and growing at 17 per cent CAGR, according to the MeitY. This will be crucial for Indian electronics companies as they seek to move up the value chain.
The display fab industry is itself at an inflexion point. Korean companies that lead the field are withdrawing from manufacturing LCD displays (used in TVs and computer monitors) to focus on AMOLED displays (which are thinner and currently used in cell phones and tablets), ceding space to Chinese display makers to fill the LCD production void. This provides an opportunity for India.
A new day or more of the same?
Setting up wafer fabs is just the first of many steps. "The semiconductor industry is complex, high value, high demand, and high risk, with a long gestational business model. Creating national champions in this field requires political, commercial, social, and techno-nationalist outlooks to converge, backed by a long-term vision," says Ajay Jalan, Founder and Managing Partner of NextOrbit Ventures Fund. Ashwini Vaishnaw concurred with this assessment, saying, "We gave a 20-year roadmap to the industry; short-term action, medium-term planning, and long-term vision."
While the ISM is ambitious, India's history of failed attempts to set up chip fabs makes for depressing reading. In mid-2005, a major multinational semiconductor company started operations in South India, hired seasoned experts, and set up a class-100 cleanroom to check for impurities in semiconductors. The endeavour faced roadblocks at each step.
Equipment imported from the US was stuck at the port for several months. Leave alone receiving any concessions, they were levied heavy import duties and had to pay huge sums as demurrage. Several trips to South Block did nothing to move the bureaucratic needle. Eventually, the equipment left without touching Indian soil. We lost a good semiconductor facility and 4000 jobs to China, which welcomed the project with generous incentives. Another multinational in the process of setting up their fab here withdrew after seeing the horrific experience of this MNC. As for the cleanroom, it was sold as scrap.
Besides power, water, land and other infrastructure support, another very critical area that needs attention are the consignment handlers at the airport and ports. The semiconductor industry completely depends on the import of highly sensitive equipment and materials, such as gases, chemicals, and wafers, all of which are time-critical requirements. When IIT Mumbai set up a centre of excellence for nanoelectronics in 2007-08, they had to import an electron lithography system worth Rs eight crore. The consignment was mishandled at the Mumbai airport, and the broken pieces reached IIT Mumbai in gunny bags.
There is cautious optimism among industry watchers that this latest attempt to right some of these past wrongs will buck the trend and find success. There is also trepidation that we might yet revisit our old bad habits.
Considering the stakes and the generous support for land acquisition, there are also apprehensions among industry specialists about the integrity of the process, especially the risk of land-grabbing in the guise of development. These fears are not unfounded; indeed, this was the case with Andhra Pradesh's Fab City project.
Ashwini Vaishnaw assured, "It's a transparent process. Unlike tenders, we are dealing with very complex proposals. Our focus now is to quickly assess the proposals, sign agreements, and decide site locations. We have a laser focus on execution."
Expert consensus points to the need for an integrated vision to develop the entire electronics ecosystem and build competency and partnerships at all levels of the electronics manufacturing chain – with researchers, fab equipment manufacturers, and design companies. "Our job is to put together a plan where in the next three to four years, we have an ability to import technology and advanced fab R&D," says a former managing director of a semiconductor MNC.
The stakes could not be higher. "The whole country needs to come together for an initiative like this," says Professor B Ramgopal Rao, former director, IIT Delhi. Raj Kumar, founder and Group CEO of IGSS Ventures (which has submitted a wafer fab proposal), agrees, "For this to be transformational for India, it is a journey that needs to be supported for the next 20 years at least, and if executed well, the eventual pay-off is huge."
(This is the first part of a two-part series.)
(Choodie Shivaram is a senior journalist and researcher)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.
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