Editorial. India’s semiconductor push needs some tweaks

The $2.5-billion Micron project, finalised as part of a series of Indo-US technological initiatives, seems to have imparted a crucial momentum to India’s semi-conductor push. Many companies are keen on investing in various stages in the semi-conductor value chain. A key incentive at work here is the 50 per cent subsidy on offer for investing across a range of segments in this space. In the case of Micron, the Centre and States will together foot 70 per cent of the project cost. The recently held semi-conductor conference underscores India’s intent to be a big player in this space.

However, it is important at the take-off stage to be clear about long-term goals and then lay out incentives accordingly. As External Affairs Minister S Jaishankar observed recently, India’s semi-conductor push is not just about economics, but also about achieving strategic objectives. If the world is looking at India as a base for its China plus one strategy to source critical goods, India too needs to ensure that its needs for defence as well as consumer goods are not choked by external shock. Therefore, the subsidies being promised (pegged at $10 billion to be spent over the next few years) should be viewed against the idea of building a robust industrial, aerospace and defence ecosystem, rather than merely measuring jobs being created.

With this template, it is useful to examine the semi-conductor PLI announced last year. It offers a 50 per cent subsidy on the project cost for setting up semi-conductor fabs, display fabs, compound semi-conductors, silicon photonics and sensors fabs, among others. These are disparate products — if display fabs are for electronic screens with more consumer interface than strategic value, compound semi-conductors, silicon photonics and sensor fabs are useful for defence and high-end electronic applications. Therefore, it is a bit intriguing that the same incentive applies to products with varied uses. It may lead to a spraying of funds with less impact.

The semi-conductor ecosystem has three broad elements: design; manufacture and assembly, testing and packaging. The US, Japan, Taiwan, Korea and The Netherlands are dominant players. If the design of a unit entails an investment of half a billion dollars, manufacturing would require an investment of the order of $20 billion, while the assembly and testing will need another $2-3 billion. Micron’s investment in the last leg should be supplemented by a big entry in the manufacturing space. India can, however, fare well in design and packaging, which are less resource-intensive and demand software skills. As India screens applications for big bang projects, it must be sure of the antecedents of the players. There should be greater transparency about the terms on which projects are sanctioned. In Micron’s case, a quid pro quo such as an equity stake for the government or an R&D facility would be ideal. The question of whether the Chinese model of state-supported industrial parks are a better bet than firm-specific subsidies remains.

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