India needs to ensure that semiconductor units are viable, says Chip War author

Professor Chris Miller, author of 'Chip War: The Fight for the World's Most Critical Technology'

India needs to ensure that the country’s upcoming semiconductor manufacturing units are economically viable and support their further development, Chip War author Chris Miller said after the government approved three plants worth Rs 1.26 lakh crore for state subsidies.

“Building a semiconductor ecosystem requires deep relationships between fabs and customers. The facilities announced today seem likely to integrate well with India's existing manufacturing ecosystem,” Miller told Moneycontrol on February 29.

“The key is to ensure that the facilities being built are economically viable and support further development.”

Chip War, published in October 2022, is an epic account of the decades-long battle to control microchip technology, which is indispensable to the modern world, powering microwaves, smartphones, missiles to the stock market.

On February 29, the Union Cabinet approved three semiconductor plants under its Rs 76,000 crore ($10 billion) chip subsidy scheme. Of the Rs 1.26 lakh crore ($15 billion) total investments in these three facilities, an estimated Rs 48,000 crore ($5.8 billion) will be financed by Centre's subsidies.

A fab will be set up by the Tata Group and Taiwan's PSMC. Tata Group will also set up an assembly, testing, marking and packaging (ATMP) unit in collaboration with two unnamed US companies. An outsourced semiconductor assembly and test (OSAT) facility will be set up by Indian electronics company Crompton Greaves along with Japan's Renesas.

This is in addition to an ATMP plant that will be set up by US chip major Micron in Gujarat’s Sanand, which was announced in 2023. The four projects will cumulatively cost the government around Rs 59,000 crore in subsidies, according to current projections.

The government has said it is examining a proposal for a $11-billion fab by Israel's Tower. At the incentive level of 50 percent of project cost, it could mean a subsidy outgo of $5.5 billion.

“Today, every major government is providing substantial subsidies for chipmaking facilities. Companies see incentives and tax credits as a key criteria in deciding where to invest,” said Miller.

Despite offers of large subsidies, the government has been seen to be struggling till now to attract any major foreign foundry like Intel, Samsung or TSMC to the country at a time when advanced economies like the US, the European Union and Japan have also announced large subsidy programmes to corner the semiconductor pie.

After the latest announcements, India will finally gets its first semiconductor fabrication plant, which Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corp (PSMC) will set up in Gujarat’s Dholera at a projected cost of Rs 91,000 crore.

The fab will mostly produce 28 nanometre (nm) chips, apart from 50 nm, 55 nm and 90 nm ones. However, these are seen as "trailing edge" nodes in the industry, which has advanced to 3 nm, 6 nm and 9 nm nodes. The advanced or leading edge nodes require more sophisticated technology and are used in the latest smartphones and artificial intelligence systems.

However, the demand for older generation nodes is expected to remain strong as these chips continue to be used in consumer durables, cars and the space sector.

“These foundational nodes are key to modern manufacturing, from automotives to household goods. Our demand for these nodes is likely to increase as we deploy computing capabilities in more devices,” said Miller.