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India Needs to Focus on Chip Industry – IMPRI Impact and Policy Research Institute

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India Needs to Focus on Chip Industry - IMPRI Impact and Policy Research Institute

TK Arun

For strategic autonomy, the country must acquire indigenous capacity in chip manufacturing.

INTEL has scaled up its 2022 plan to invest $17 billion in advanced chipmaking in Germany to a whopping $30 billion. It is also investing billions in Poland, Ireland, and France. Presumably, it will benefit from the 43-billion euros subsidy the EU has allocated, to sustain microprocessor investment in Europe, in the face of the US government’s move to offer subsidy worth $52 billion and more for advanced chipmaking facilities in the US.

Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, and Intel are all racing to scoop up as much as they can of this moolah. Israel has announced fresh investment by Intel in that country as well. Where does all that leave India’s plans to kickstart a semiconductor manufacturing revolution in this country? Pretty much at the starting block.

Not that India has been standing still. The Centre for Development of Advanced Computing (CDAC) has developed the design for a processing unit that would fit into a supercomputer that ranks among the fastest in the world. The CDAC had, of course, been set up in 1988, in the dark ages before the dawn of the Indian civilisation in 2014, but seems to be unaware that it was part of an alleged conspiracy of stasis, and is doing brisk business, living up to the goal for which it had been set up.

Subsidies for Chip Manufacturers

India has announced a subsidy of $10 billion — that was what the amount of Rs 76,000 crore worked out to before the rupee took a dive to its current level of approximately Rs 82 to a dollar — for those setting up advanced semiconductor manufacturing plants — or fabs, short for fabrication units — in India.

A proposal for a joint venture between Vedanta and the Taiwanese contract manufacturing giant Foxconn failed to win support from the government, as it did not have a technology partner which could help it manufacture at least a 20-nanometre chip. A nanometre is a billionth of a metre, and, in the context of semiconductors, refers to the thickness of the copper circuitry on the chip. A strand of human hair would typically be 70 microns thick, and things smaller than 40 microns across are not visible to the naked eye. One micron is 1,000 nanometres. The most advanced microprocessors seek to achieve circuits that are less than five nanometres.

India’s Ministry of Electronics and Information Technology has been encouraging young engineers to develop chip designs. This is all to the good, but is not enough. Given the reluctance of the big players in the fabs’ business to set up shop in India, India must rethink its strategy. Mohammed must go to the mountain.

Why does India need domestic manufacturing capacity in computer chips, in the first place? There are, broadly speaking, two reasons. One is the balance of payments argument. India will have to import such huge volumes of chips of all kinds that these will account for a larger import bill than oil. So, prudence would suggest manufacturing the processors right here in India itself, to avoid this huge claim on our foreign exchange reserves.

The second, more critical reason why India needs indigenous capacity in chip manufacturing is strategic autonomy. India has nurtured its ability to take its own decisions on relations with other countries, without being beholden to any foreign power, right since Independence. This policy is another survivor from modern India’s pre-history. This quest for strategic autonomy underpinned the policy of non-alignment. India would not like technology to be used against it as a coercive lever, as it had been since India’s nuclear tests.

India had been kept outside the technology control regimes of the world till the Manmohan Singh government signed the Indo-US nuclear deal. That deal gained India quasi-membership of the Nuclear Suppliers’ Group, even without signing up to the unequal Nuclear Non-Proliferation Treaty, and full membership of the Missile Technology Control Regime, the Wassenaar Arrangement on dual use technologies and the Australia Group on chemical weapons and precursor chemicals. Prime Minister Modi and his party were vehement critics of the nuclear deal.

What this means is that technology that is available off the shelf will not be denied to India. But chip manufacturing tech is not available off the shelf. While there is no bar on Intel or TSMC setting up a plant in India, they are not obliged to. Nor is India immune from a decision — improbable, but not impossible — to deny it certain advanced technology, in some special circumstances. Currently, China has been placed under a regime that bars access to advanced chips used in the development of artificial intelligence and quantum computing. It has also been denied access to chipmaking machinery and technology.

China is racing to develop its own capability in chip design and manufacturing. A Chinese startup recently pulled off the manufacture of 20-nanometre chips.

A Dutch company, ASML, has a virtual monopoly on the machines that make the most advanced chips, complete with focused lasers that cut nanometre-thin grooves on silicon wafers and kit to flow vaporised copper into those grooves, which, once cooled, forms the circuits.

Rather than spending money on subsidising established chip makers, India should invest money in startups that design and manufacture different machines that produce those chips. A startup might come up with a process that is better than ASML’s, who knows?

The world’s multinationals set up global capacity centres in India, hiring Indian engineering talent to find solutions to their problems and challenges. The point is for Indian companies, whether subsidiaries of state-owned giants or state-funded startups, to bring Indian technical talent together to find solutions to national security challenges.

Use the money meant for semiconductor subsidy to fund a series of startups in the chip ecosystem, to let India emerge a major player in chip design, manufacturing, testing and assembly businesses. This will protect strategic autonomy, as well as add economic heft to Indian industry.

The article was first published in The Tribune as “ India must recalibrate its chips strategy” on June 22,2023

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