Date: 11/10/2022

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment; Infrastructure: Energy, Ports, Roads, Airports, and Railways etc.

Key Phrases: Semiconductor Chips, The Entity List, Wisconsin Valley Science and Technology Park, Importance of Semiconductor Chips, Semiconductor Industry statistics, Challenges in Semiconductor chip productions.

Context:

• The most advanced modern day silicon chips are about nanometers in dimensions and are shrinking rapidly.
• The fate of nations depends on this infinitesimally small piece of silicon, which can devastate and shape our lives in myriad ways.

Overwhelming dependence on chips

• In the Electronics Sector
  • Apple’s new A16 chip which has over 16 billion transistors is manufactured by Taiwan Semiconductor Manufacturing Company (TSMC).
  • TSMC, the world’s leading manufacturer of chips is one of the suppliers of chips to Apple which has the world’s most expensive and valuable factory.
  • The extensive use of chips in mobile phones and other such devices underscore their importance.
  • The manufacturing of these chips only in a handful of nations such as Taiwan, South Korea, the U.S. among others reiterates the significance of these chips.
• Defence sector
  • Modern warfare equipment’s such as Unmanned Aerial Vehicles (UAVs), precision-guided missiles etc all use silicon chips.
  • One example is Russia which has a combination of some chips stolen, some made indigenously and some imported in the past.
    • Due to lack of sufficient chips it can’t manufacture advanced weapons and thus unable to counter Ukraine's West procured weapons in the recent war.
• Manufacturing sector
  • Manufacturing sectors such as Automobiles depend highly on Silicon chips.
  • Recently, Toyota temporarily shut down production at assembly lines at five domestic group plants in Japan due to the shortage of chips.

Importance of Chips

• Not just the ability to manufacture chips, but also the ability to integrate and synthesize them into complex systems will determine the fate of nations in the coming decades.
• Today, critical sectors such as defence, telecom, electronics and mobility are hugely impacted by the chip shortage.
• If there ever is a natural disaster in South Korea or Taiwan, it could only worsen the crisis.
• The U.S., European Union, Japan, India and China have poured in about $200 billion into the semiconductors sector which will have an impact in future.
• The country with the capability to manufacture these chips quickly will have an edge on others in modern warfare.

Don’t be Foxconned

• India has taken a visionary step to subsidize chip manufacturing through the Production-Linked Incentive scheme.
• India should remain cautious as the chip manufacturers in the past have backed off leading to large economic and ecological losses.
• Foxconn setting up of the Racine County plant is an example of it.
• Therefore India should invest in these facilities with utmost care.

Chip manufacturing is a challenge in India

• Although Indian States are competing with each other to get chip manufacturing investments there are challenges in setting up a chip unit such as
  • Steady electricity
  • Billions of gallons of clean water
• These can’t be provided by any state as most of the states are already facing a water crisis.
• Even LCD panel manufacturing is a dream for the future in such circumstances
  • For example, the proposed Racine plant required about seven million gallons of water per day which is large for a water deficient country like India.
• Chips manufacturing will require even more water.

Way forward

• A chip manufacturing plant costs $15 billion-$20 billion which takes years to recoup profitably even if it runs all year.
• With global supply chains in turmoil due to COVID-19 and the Ukraine war, the chips have become of strategic importance and are even more complicated now.
• Every major economic superpower is using its money and its best minds to win this silicon battle.
• Such scenarios across the globe are bound to impact the lives of citizens in more ways than one.

Conclusion

• Semiconductor chips are extremely critical for almost all the sectors of the economy and thus being entirely dependent on global supply chains is not a good idea and there is an urgent need to manufacture chips locally.
• Although India has started this battle for Semiconductors through initiatives such as PLI, Semiconductor mission etc but it is a long war which India can afford to lose only at its own peril
• India will get there with prudent strategies and sensible leadership in the coming decade, if all goes well.

Source: The Hindu

Mains Question:

Q. “Every major economic superpower is using its money and its best minds to win the silicon battle.”
In context of the statement discuss the importance of Semiconductor chips in various facets of economy. What are the prevailing challenges and causes of the underdeveloped semiconductor Industry in India? Suggest measures to augment semiconductor production locally in India. (250 words).