India's plan to develop semiconductor ecosystem set in motion

In September 2021, flustered by the government’s lack of clarity on its policy for chipmakers, Israel-based chipmaker Tower Semiconductor had threatened to pull the plug on its plan to set up a facility in India. 

The company had been in consultations with the government for several years. In a letter, Tower Semiconductor had called for Prime Minister Narendra Modi’s intervention to fast-track a government proposal for chip manufacturing. It also wrote to the government six months after the latter started inviting chipmakers to India.

The company had also stated that any delay on the government’s part would mean that it would be unable to "stay active in the project in the near future". The company was the technology partner of a consortium formed by Abu Dhabi-based Next Orbit Ventures to set up a chip plant in Gujarat’s Dholera.

About three months later, the government unveiled a $10 billion production-linked incentive scheme to attract semiconductor and display manufacturers, which seems to be bearing fruit. 

In the past decade and a half, India had tried unsuccessfully on several occasions to attract chipmakers.

Therefore, the current response shows the companies’ confidence in the government’s ability to provide the right infrastructure and incentives to build a semiconductor ecosystem. 

The government has received proposals worth $20.5 billion from five companies for setting up semiconductor and display fabrication units. 

Vedanta was the first one to hop on. A joint venture of Vedanta and Foxconn, a consortium led by Abu Dhabi-based Next Orbit Ventures and IGSS Ventures of Singapore are the three companies that submitted applications for semiconductor plants.

The applications have been received for setting up 28 nm to 65 nm fabs with a projected investment of $13.6 billion. They have sought support from the Centre to the tune of $5.6 billion.

The Next Orbit Ventures-led consortium’s technology partner remains Tower Semiconductor, which was recently acquired by Intel for $5.4 billion.

This time, the government is being seen as more welcoming of chipmakers than before.

Vedanta and Elest, a subsidiary of gold jewellery retailer Rajesh Exports, have submitted proposals worth $6.7 billion to manufacture display fabs. They have sought incentives of $2.7 billion 

The duty of the government does not just end with the creation of a successful atmosphere for the semiconductor industry. It has larger problems to tackle.

Making chips is an electricity and water-intensive affair that creates hazardous waste. The manufacturing process also involves toxic gases and chemicals that are responsible for greenhouse gas emissions.

Greenpeace estimates that the world’s largest chipmaker TSMC alone uses 4.8% of Taiwan’s electricity annually. This is expected to rise to 7.2% this year as production at new plants begins in TSMC’s home country.   

When Taiwan was hit by a drought last year, TSMC ordered water from trucks to ensure no disruption to its manufacturing. When the government prioritised the supply of water to chipmakers, this led to tensions between the companies and the farmers. 

Environmental impact is something that India should keep in mind as it fosters a semiconductor ecosystem. The semiconductor market of India is estimated to touch $63 billion by 2026 compared to the $15 billion in 2020.