Despite a series of false starts, the government is giving chip production another go. The Rs 76,000 crore incentive package, announced this week, hopes to encourage manufacturing of semiconductors and create a viable design and fabrication system for microprocessors—the world’s fourth most traded product used in goods ranging from mobile phones to auto and consumer appliances. The move comes amid a prevailing global chip shortage accentuated by Covid-19 lockdowns. Currently, the most advanced semiconductor manufacturing facilities are located in Taiwan and South Korea, while the top three companies command 80–90% revenue, indicating high geographic concentration. The pandemic only exposed the risks of over-reliance and countries no longer want a situation where another nation controls a valuable resource.
India currently imports all chips and the market is estimated to touch $100 billion by 2025 from $24 billion now. The semiconductor policy not only hopes to reduce import reliance but also aims to take a substantial share in global electronics exports. While the initial package amounts to $10 billion, with the production- and design-linked incentives, capital support and anticipated states’ backing, it’s likely to exceed $30 billion. This appears good, but is less than others like the US, South Korea and China, whose incentives total about $50 billion, $100 billion and $450 billion respectively.
So future chip production, if we are to have it, shouldn’t be a one-trick pony and must develop an ecosystem from design to fabrication, to packing and testing. Given the long gestation periods and rapid technology changes, India must out-strategise on design and functionality as the end product will be out only three-four years from the moment work begins, by which point the prevailing chip shortage would have been resolved, while technology would have advanced further. Designing is India’s advantage and while we leverage people skills, we must improvise research and development—an area that we are lacking in currently. Importantly, WTO-consistent tariff and non-tariff barriers should be resolved to ensure flow of goods, besides ensuring policy stability, without which our chip production prospects will remain empty.