"Challenges and Strategies for Establishing a Semiconductor Fab in India"

Semiconductor fabrication, or fab, is a crucial endeavor for India considering the growing market and strategic reasons. India's dependence on semiconductor imports makes it vulnerable to coercion, highlighting the need to establish a fab. The government's 2022 Semiconductor Mission is commendable, but uncertainty remains regarding India's ability to successfully establish a fab. Previous attempts faced challenges, with the 2007 Special Incentive Package yielding no response and the 2012 Modified SIP showing more promise but ultimately failing to mobilize resources.

The semiconductor industry is characterized by rapid technological advancements and increasing complexity and costs. China, despite starting late, rapidly developed its fab industry through substantial government support and the acquisition of loss-making fabs worldwide. China's chip production grew significantly, and it gained a strategic advantage in chip-making due to its dominance in rare earths, essential for chip production. The United States and its allies have restricted the transfer of fab-related technology to China, but their efforts may be insufficient to reverse China's rise in the industry.

Investing in a semiconductor fab is highly risky and requires substantial recovery of investment before the technology becomes obsolete. Economic viability necessitates significant production volumes to meet global demand, making it challenging to rely solely on the domestic market. Semiconductors benefit from a small freight-to-price ratio and zero custom duty under the Information Technology Agreement, making production in a single location with global sales more attractive. As a result, companies are not interested in setting up greenfield fabs in India.

Establishing a fab involves developing an ecosystem for chip manufacturing, including training personnel, ensuring the availability of chemicals, gases, and clean water, and mastering the art of chip-making. Choosing the type of fab, such as logic/processor, memory, or analog fab, also poses challenges. Logic chips are strategically important and technologically advanced, while analog chips have lower strategic value. Memory fabs require the most advanced feature nodes.

India can learn from China's experience in the semiconductor industry. Acquiring existing fabs has advantages, such as lower costs, established technology, supply chain ecosystems, and an existing product line and market. This approach would enable India to build the fab ecosystem, train human resources, and allocate saved funds for advanced R&D in fab technologies. Another strategy is setting up Assembly, Testing, Packaging, and Marking (ATMP) facilities, which would help develop the fab ecosystem before establishing a full-fledged fab. China has successfully established over 100 ATMPs.

By implementing effective strategies and learning from China's experience, India can enhance its chances of establishing a successful semiconductor fab and reducing its dependence on semiconductor imports.