Why in the News?

• NITI Aayog's Frontier Tech Hub has released a report titled "Future of India's Semiconductor Industry", highlighting the challenges and strategic imperatives for building a globally competitive chip manufacturing ecosystem in India.

What’s in Today’s Article?

• About Semiconductors (Definition, Stages of Manufacturing, India’s Push)
• NITI Aayog Report (Key Findings, Challenges, Recommendations, etc.)

About Semiconductors

• Semiconductors, commonly known as chips, are materials that conduct electricity better than insulators but not as well as conductors.
• They form the foundation of modern electronics and are found in virtually every electronic device, including:

• Consumer electronics: Smartphones, laptops, televisions, and home appliances.
• Automobiles: Modern cars contain hundreds of chips for engine control, infotainment, and safety systems.
• Defence equipment: Missiles, radars, satellites, and communication systems.
• Industrial machinery: Robots, automation systems, and IoT devices.
• Healthcare devices: Medical imaging, diagnostic equipment, and wearables.

Stages of Semiconductor Manufacturing

• The semiconductor value chain comprises several stages:

• Design: Creating chip architecture and circuits.
• Fabrication (Fabs): Manufacturing the actual chip on silicon wafers in highly specialised facilities.
• Assembly, Testing, Marking, and Packaging (ATMP): Final stages where chips are packaged and tested before shipment.

• Fabrication is the most capital-intensive and technologically complex stage, requiring ultra-clean environments and specialised equipment costing billions of dollars.

India's Semiconductor Push

• The Union government launched the India Semiconductor Mission (ISM) with a corpus of 76,000 crore to develop a robust semiconductor ecosystem. The mission supports:

• Semiconductor fabrication units with capital subsidies of over 50%.
• Display fabs for manufacturing display panels.
• Compound semiconductors and packaging facilities.
• Design-linked incentives for chip design startups.
• Bulk subscriptions to industry-grade semiconductor design applications for students and academia.

• Current Status

• India does not yet have a single operational fabrication unit.
• The first fabrication unit is expected to begin operations in Dholera, Gujarat by 2028.
• A total of ten semiconductor projects are in various stages of development.
• Multiple semiconductor packaging and testing facilities have been approved with significant subsidies.

Key Findings of the NITI Aayog Report

• India's Current Ecosystem Is Not Self-Sufficient
  • The report explicitly states: "India's local ecosystem is not ready to fully meet domestic demand for semiconductors."
  • Even chips used in domestic electronics assembly are largely sourced from outside the country.
• National Security Imperative

• Many semiconductor parts used in defence systems are produced outside India.
• This creates threats to national security as India deploys foreign chips in aerospace and defence programmes.
• Geopolitical disruptions, such as a potential disaster in Taiwan, which dominates global chip manufacturing, could massively disrupt the global electronics supply chain.

• Long Gestation Period

• Fabrication units typically require 4-5 years before commencing production.
• Investment in 50+ specialised equipment from global players is required during the gestation phase.
• Yield optimisation and reliability testing take several quarters even after production begins.
• Talent development for semiconductor fabs is similarly time-consuming.
• The sector requires "sustained, mission-mode commitment over a decade or more," the report states.

Strategic Recommendations

• Building Sovereign Capabilities

• Sovereign design and research capabilities to reduce dependence on foreign IP.
• R&D excellence in materials sciences and silicon design.
• Harnessing agentic AI for semiconductor engineering.
• Moving from a services-led design base to becoming a creator of differentiated IP, architectures, and integration technologies.

• Capital Investment Requirements
  • The report estimates the necessary capital expenditure from the state at $45-60 billion over a decade for the second phase of the India Semiconductor Mission (ISM 2.0).
• Strategic Focus Areas

• Away from frontier chips (3-7 nanometre transistors) where risks are very high.
• Towards mature and advanced nodes aligned with strategic relevance.
• Focus on compound semiconductors for defence and industrial applications.
• Emphasise "selective depth, capital efficiency, and system-level differentiation" rather than attempting to replicate the full global manufacturing spectrum.

• Packaging as a Core Pillar
  • The report identifies chip packaging, traditionally seen as a downstream activity, as a "core production pillar":
    • Less expensive and complex than fabrication.
    • Can enable rapid import substitution in high-volume domestic segments.
    • Provides a strategic entry point into the global semiconductor value chain.

• Trusted Partners Strategy
  • The report outlines a strategic partnership framework for India's semiconductor ambitions:
  • Priority Partners
    • The report highlights the following nations as trusted partners: the United States, Japan, the European Union and South Korea
  • Areas of Collaboration
    • Cooperation with these partners would provide:
      • Access to critical tools, equipment servicing, and lifecycle support.
      • Leveraging India's market scale, talent base, and packaging capacity.
      • Joint research and development opportunities.
      • Technology transfer arrangements.

• China as an Adversary
  • The report implies that China remains an adversary in chipmaking despite recent diplomatic thaws between the two nations.
  • This reflects the broader geopolitical realignment in the semiconductor industry, where Western nations and their allies are seeking to reduce dependence on Chinese supply chains.

Challenges Facing India's Semiconductor Industry

• Capital Intensity

• Setting up a single fab requires billions of dollars in investment.
• High operational costs and long payback periods deter private investment.
• Need for sustained government support over decades.

• Technology Gap

• India lags significantly behind established semiconductor manufacturers like Taiwan (TSMC), South Korea (Samsung), and the US.
• Lack of indigenous process technology and IP.
• Heavy reliance on foreign equipment and expertise.

• Talent Shortage

• Shortage of specialised engineers with semiconductor manufacturing experience.
• Need for comprehensive training programmes and educational reforms.
• Competition for talent with established global semiconductor hubs.

• Supply Chain Dependencies

• Dependence on imported raw materials, chemicals, and gases.
• Need to develop a domestic ecosystem of suppliers.
• Vulnerability to geopolitical disruptions.

• Infrastructure Requirements

• Need for reliable power supply, ultra-pure water, and specialised gases.
• Requirement for clean room facilities with stringent environmental controls.
• Long lead times for setting up support infrastructure.