Semiconductors: Why India Should Not Make Chips

Times Of India     12th October 2021     Save    

Context: The global supply crisis in semiconductors has led many to suggest India should create chip fabrication facilities (fabs). But the politics and economics of semiconductors are far too complex for such a solution to be feasible.

Reasons behind global chip fight

  • Chips are to this century what oil was to the last: US and China are at the two ends of chip universe.
    • US controls IP, design and technology, of making chip, whereas, China is the largest chip buyer, consuming 60% of all chips produced globally.
    • China’s plan to develop a local semiconductor industry has alarmed the US.
  • Underlying geopolitical crisis: It can lead to geopolitical crisis, as nations are battling against each other to get over the control of Chip supply chain.

Three reasons why India should not make chips

  • Lack of Investment: Fabs need significant annual investments, but India is not making any kind of investment in it.
  • Complex technology: Fab technology is complex with very high failure rates. China is a case in point that even significant investments are no guarantee of success.
  • Surplus fab capacity: The US-China rivalry has spurred large investment in new fabs. The world will soon witness surplus fab capacity.

Way Forward: India shall focus on parts of chip value chain except fab as it contributes 40% of revenue

  • Chip design and assembling, testing, and packaging (ATP) are the two segments of interest for India.
    • Chip design involves using software tools to simulate the physics of chip circuitry.
    • With more than a trillion chips sold annually, the ATP industry generates millions of jobs and has low barriers to entry.
  • India being an active Quad member, must play its cards well to participate in the fabless segment of the chip value chain.