The Vedanta group has announced its plan to set up a semiconductor fabrication unit, a display fabrication unit and a semiconductor assembling-cum-testing facility in Ahmedabad district, Gujarat. The announcement has attracted much attention for two reasons — the size of the investment (Rs 1.54 lakh crore) and the choice of Gujarat for setting up the new facility after dropping strong hints to Maharashtra. However, more important is the fact that Vedanta has got Hon Hai Technology Group (or Foxconn) from Taiwan as its partner. Taiwan is the hub of semiconductor fabrication business globally and disruptions in supplies of chips due to the Covid pandemic plunged several manufacturing industries globally into a crisis.
One can’t keep pace in this market without developing our own technological capability. As of now, the proposed joint venture is silent on research & development.
The supply chain disruption and its impact on different sectors has woken up the world to the realities of overdependence on one or two sources of supplies. Semiconductor chips go into everything — from central processing units to cars and washing machines. Major consumers have moved to reduce dependence on fabs (as chip fabrication facilities are called) in Taiwan. There is rethink on the existing disaggregated model of chip designing and fabrication.
In July, the US passed the CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act that allows $52 billion government subsidies for semiconductor R&D and manufacturing for US companies. The EU is planning a similar initiative to boost chip production. South Korea has announced a $450-billion plan, including subsidies for Korean companies, to make itself into a semiconductor powerhouse. The India Semiconductor Mission envisages government subsidies worth $10 billion (Rs 76,000 crore) for chip and display fabs. Private companies can get up to 50 per cent of the project cost as subsidy.
India’s semiconductor journey started with Punjab in 1974. The Department of Electronics (DoE) realised that India needed to develop capacity in semiconductor design and fabrication, initially with foreign help. After the Cabinet approved the idea of setting up the Semiconductor Complex Limited (SCL), an expert panel in 1976 shortlisted two possible locations — Mohali and Madras. The DoE recommended a place near the Madras airport. Punjab CM Zail Singh came to know about it and prevailed upon PM Indira Gandhi to change the decision in favour of Mohali. She deputed DoE official Ashok Parthasarathi to explain to the CM that the unit would hardly generate any local employment because it needed highly skilled people. Zail Singh was adamant and Mohali got India’s first semiconductor fab in 1978, with a project cost of Rs 15 crore. The plant was inaugurated in 1983, manufacturing chips using technology obtained from American Microsystems Inc.
Around the same time as SCL, but independent of it, semiconductor design activity began in India. It was pioneered by Prabhakar Goel, an alumnus of IIT-Kanpur who had made it big in the US as a chip designer. His startup, Gateway Design Automation (GDA), specialised in making a testing tool, Verilog, for chips. It raked in millions of dollars in revenue and Goel’s customers included top Japanese and Taiwanese chip makers. Some work related to Verilog such as making ‘libraries’ was labour intensive, so he thought of shifting it to India. He formed a small team of engineers and set up his unit at the export processing zone in Noida in 1985. Four years later, Cadence Design Systems from Silicon Valley acquired GDA, including the India unit. This brought a leading name like Cadence to India. Two more US semiconductor design firms — Texas Instruments and STMicroelectronics — opened their offices in India in the late 1980s. In another decade or so, 17 out of 25 top semiconductor design firms, including Intel, had opened centres in India, making the country a formidable force in chip designing.
To meet the growing demand, US and European semiconductor companies took advantage of the Indian design talent, and used facilities in Taiwan for mass production. On the other hand, India lagged as SCL was soon in trouble with a major fire accident just when it was in the process to upgrade its production technology. Rebuilding took a long time and the company could not fully recover. It, however, met the requirements of chips for strategic projects in space and defence during the period of technology embargo. Now, the government has decided to run SCL as a commercial fab. The unit needs infusion of funding, technology and leadership.
Despite starting early on, India missed the bus due to several factors — suboptimal investment, low domestic demand, changing dynamics of the business globally, etc. The technology in this sector changes very fast and is considered strategic. The proposed fab unit of Vedanta will operate on 28-nanometer technology nodes. It will be able to produce chips useful in CPUs, graphic processors, networking chips, smartphones, cars and the Internet of Things. Leading fabs in Taiwan and Korea are already working on smaller nodes, going down to 3-nanometer.
SCL started with 5-micron (5,000 nanometer) chips and was about to upgrade to 1.2-micron (1,200 nanometer) based on in-house R&D when the facility was gutted. At that time, leading global fabs were just one generation ahead at 0.8-micron (800 nanometer). Within less than a decade, SCL could absorb imported technology and reduce the technology gap significantly because it had a strong R&D team right from its inception. One possibly can’t keep pace in this market without developing own technological capability. For this, massive investment is required in R&D. As of now, the proposed joint venture is silent on R&D. We don’t know if it entails any technology transfer. Hopefully, India will not miss the bus a second time around.
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