Inside the 99% cheaper plan of creating chip manufacturing jobs for Indians

Job postings for semiconductor technical roles in the European Union and United States rose at a CAGR of more than 75 percent from 2018 to 2022, says a McKinsey report.

Economist Raghuram Rajan recently criticised the government's chip manufacturing subsidy package of $10 billion (Rs 76,000 crore) as too costly to attract employment opportunities in the sector, at "Rs 4 crore per job created".

However, a new industry report may hold the key to creating semiconductor manufacturing jobs at a much lower cost. According to a proposal by industry body Indian Cellular and Electronics Association (ICEA), India should refurbish an existing fab facility where people could be trained to become semiconductor manufacturing professionals for an investment of $200 million to skill workers not only for its own requirements but also to cater to the global demand for chip talent.

Also, this fab would have to spend an additional $35-40 million annually from the second year of operation to train 10,000 chip fabrication workers per year.

As the suggested yearly intake is 10,000 students and the course duration is 6 months, it would train 5,000 students simultaneously over a 6-month period and then the next batch starts. This would mean that 100,000 workers could be skilled at the fab in 10 years, at an expenditure of around $560 million at the higher end of the range.

As such, the cost of creating highly skilled semiconductor manufacturing employment through this route works out to be $5,600 per job or Rs 4.67 lakh per job—which is about 99 percent lower than Rajan’s estimate for the $10-billion chip package.

To manage the running costs and return on initial investment, could be charged a nominal fee by the training fab, which could be offset through higher-study bank loans or even direct support from the Centre or state governments, according to the ICEA proposal.

For instance, considering an intake of 10,000 students per year, each student could be charged a fee of $12,000,which is supported by a central/state government subsidy of $9,000 leaving the student with an out-of-pocket expense of $3,000, for which he or she could even take out a higher study loan. The government’s partial support for student fees will amount to just $90 million for the initial five years, as per the industry body’s estimates.

The idea is that this refurbished chip manufacturing facility starts paying for its operations eventually. The initial fab is expected to have a capacity of 60,000 wafers annually. Assuming a 50 percent yield due to trainee operation, the facility could generate approximately $90 million per year at a selling price of $3,000 per commercial-grade wafer.

To be sure, silicon wafer fabrication is one of the most technologically challenging parts of the semiconductor supply chain and each wafer typically produces 300-400 chips.

A fab is the first stage of the chip manufacturing process that happens in a factory set-up, after it is designed on software. At the fab, silicon is etched with complex circuit patterns. Then the wafers are taken to another facility where they are cut into chips, assembled, tested and packaged. “With this targeted approach we will be conserving large resources which are getting frittered away in substantially sub-optimal academic courses in semiconductors,” says the ICEA proposal.

“Based on these projections, the running cost of the fab unit along with technical manpower intake could be more than compensated. The fab establishment needs to be funded by the Govt. of India,” it adds.

The demand for semiconductor manufacturing workers is such that six top chipmaking companies from Taiwan, the country that produces more than 60 percent of the world's chips, went scouting for talent to other Southeast Asian countries last year, according to a Rest of World report. And yet, they could hire only 316 candidates.

Job postings for semiconductor technical roles in the European Union and United States rose at a compound annual growth rate of more than 75 percent from 2018 to 2022, according to a McKinsey report.

If the semiconductor sector does not become more attractive, the resulting talent gap for engineers will greatly wider: more than 100,000 each in the US and Europe and upward of 200,000 in Asia–Pacific (excluding China).

Major disparities exist among countries in the Asia–Pacific region. For instance, India is a potential net exporter of engineering talent, while others, such as Japan and South Korea, face severe shortages. And since the number of new graduates hasn’t kept pace with job openings, the industry faces increasing demand for talent.

Moneycontrol reported earlier this month that the Tata Group, which is setting up a semiconductor foundry and a chip packaging plant in India, is looking to attract top talent from Taiwan.

The company has listed seven roles for which it is looking to hire people, including equipment engineers, yield engineers and automation engineers. It is also recruiting diploma-holding technicians to perform electrical and mechanical troubleshooting.

The conglomerate's fab in Gujarat and chip packaging plant in Assam are expected to create 47,000 skilled jobs.