Don’t miss the chip bus again

THE tariff war triggered by the aggressive trade policies of US President Trump has again brought into focus the semiconductor industry. Semiconductor chips are the backbone of products ranging from automobiles to missiles, and their supplies are mired in complicated global chains. While China and other East Asian countries like South Korea, Japan and Taiwan are key players in the semiconductor supply chains, the inclusion of Canada and Mexico as well in Trump’s protectionist mission has surprised many.

Several semiconductor products from destinations like China and Taiwan are routed through Mexico and Canada for manufacturing or packaging and end products meant for American and other markets. Besides semiconductor manufacturing, China also controls the milling and refining of rare earth metals that are critical for high-tech products like mobile phones and electric vehicle batteries.

The shortage of semiconductor chips during the Covid-19 pandemic five years ago was a wake-up call. The disruption in the global supply chains resulting from the stoppage of production for a few weeks led to a drop in manufacturing of consumer products like cars, mobile phones and washing machines in several countries as the supply of chips went down. Now, the production lines are not threatened with closure, but higher tariffs are bound to increase the prices of products with embedded chips. The scenario about the supply of rare earth materials and the Chinese threat to restrict the supplies is still emerging and fuller impacts may become clear over the next few months.

In response to the pandemic situation, several steps were initiated in India in this strategic sector. It was realised that India’s share in the global electronics design and manufacturing industry worth $2 trillion was minuscule at $100 billion. Moreover, just a fraction of it was value addition since India lacked local semiconductor manufacturing and the Indian industry is merely engaged in system integration and assembly. This is despite the country possessing good strength in silicon design with several design groups working for global chip companies.

To promote local manufacturing and reduce reliance on global supply chains, the government initiated the India Semiconductor Mission (ISM) in 2021. Since semiconductor manufacturing of any kind is highly capital-intensive, the mission envisaged capital subsidies of up to 50 per cent to attract private companies. The Production Linked Incentive (PLI) scheme covered semiconductor foundries, Assembly, Testing, Marking and Packaging (ATMP) or Outsourced Semiconductor Assembly and Test (OSAT) facilities and display fabrication facilities. In the past four years, the Central Government has sanctioned subsidies worth Rs 76,000 crore under this PLI and the first chip is supposed to roll out this year.

However, silicon fabrication activities like OSAT are not at the high end or cutting edge of semiconductor manufacturing, but low-hanging fruit which, at best, allow a toehold in the global chip business. With these technologies, India will not be able to catch the semiconductor bus it had missed decades ago. India entered this field much ahead of Taiwan, with investments in Bharat Electronics Limited in the 1960s and Semiconductor Limited (SCL) in the 1980s. It could not keep pace with fast-changing technology because requisite investment was not made in research and development (R&D) and SCL took a long time recovering from the devastating fire it suffered in 1989.

With ISM, a new beginning has been made, but India could lag the second time around by repeating the mistake — neglecting R&D. Deliberations of the scientific community since the pandemic have repeatedly pointed this out. India stands at the fifth position globally in producing scientific knowledge relevant to electronics and semiconductors with a smaller number of scientists working in this field compared to America. “This needs to be leveraged and funnelled towards industrial R&D with appropriate engagements with commercial semiconductor fabs. A serious and sustained R&D investment is a must to ensure that India doesn’t repeat the mistakes of the past, while also ensuring that India becomes self-reliant in the R&D feed for semiconductor manufacturing entities,” said the group of scientists in their recommendations to the government in 2022.

Specifically, scientists suggested the creation of an R&D fab to develop and test emerging technologies like using two-dimensional materials like graphene and Transition Metal Dichalcogenides (TMDCs) instead of silicon. A group led by Mayank Shrivastava, a professor in the Department of Electronics Systems Engineering at the Indian Institute of Science, Bangalore, proposed a blueprint for a national R&D centre dedicated to 2-D materials. He envisaged that it should be developed on the lines of ‘early day Intel or Bell Labs’ when silicon technologies were at a nascent stage. The centre should be headed by a technocrat and work with other academic groups as well as industry partners.

The precedent to establish such mission-oriented R&D centres already exists. The Centre for Development of Telematics (C-DOT) was established in 1984 to develop a digital telephone exchange. It was given a budget of Rs 36 crore and a timeframe of 36 months, and it delivered. The centre was headed by a technocrat, Sam Pitroda, and not an officer of the telecom department. Then came the Centre for Development of Advanced Computing to develop a supercomputer.

It is time to take a similar mission approach for the R&D fab. This is the only way India can jump the silicon roadmap and ensure a place for itself when post-silicon technologies mature. Shrivastava’s proposal was backed by the officer of the Principal Scientific Advisor, but is yet to get the final go-ahead. Since the proposal was made three years ago, the global semiconductor industry has already made good progress with 2-D material-based technologies. It is projected that these technologies will progress faster than the pace at which silicon did. The first commercial products based on 2-D materials are expected to be out in another two years. The pandemic-triggered chip shortage was the first wake-up call. Now, the tariff war has come as the second warning. If we don’t act fast, we are bound to miss the semiconductor bus again.

Dinesh C Sharma is a science commentator.