It’s raining subsidies in the semiconductor industry. With several countries waking up to the need to create their domestic semiconductor ecosystem, governments across the globe are pouring subsidies into the sector. However, it is already feared that large economies jostling among each other to gain self-sufficiency in semiconductor manufacturing are ignoring basic supply chain constraints, and therefore, creating white elephants.
India, which had earlier announced a $10 billion subsidy scheme, is now planning to announce another $15 billion subsidy for the chip industry. The minister of IT and technology Ashwini Vaishnaw has hinted that the second phase of the subsidy scheme would be bigger and better from the first one, and that the aim is to create the entire semiconductor ecosystem in the country.
In the first phase, Gujarat and Assam got the investments; the second phase will see Uttar Pradesh getting priority. Domestic industry experts believe India needs to have 150 fab units by 2030 to meet the demand for chips. By 2030, the semiconductor industry is expected to invest $1 trillion in semiconductor fabs.
India’s ambition of becoming a semiconductor manufacturing hub is being matched with similar efforts by bigger economies like the US, European Union, and Japan. The US is doling out $52 billion and Europe $43 billion in subsidies to revive their chip-making industry as most of the manufacturing is currently concentrated in China and Southeast Asia.
China gave away $2.5 billion in subsidy in 2023 to five of its top semiconductor manufacturers. While availability of subsidies has become a primary consideration for chip makers to select their investment location, the doles alone may not suffice. Also, the semiconductor programmes cannot solely be driven by national interest.
The semiconductor supply chain is spread across the globe and no country can expect to grow its chips industry in isolation. Each country could face local constraints such as availability of raw material, labour cost, expertise and skilled labour at every step. The effort should be not to disrupt the existing expertise spread across many countries, but to leverage them through meaningful collaboration to expand the supply chain instead of working in silos.