Once India's chip ambition got burnt. Now it's being revived

Prime Minister Narendra Modi on Friday used his 79th Independence Day address from the Red Fort to declare that “by the end of this very year, a Made in India chip, built in India by the people of India, will arrive in the market". He underlined India’s renewed focus on semiconductor manufacturing, while pointing to decades of missed opportunities in the sector. “When we talk about different dimensions of technology, I want to draw your attention. Let me take semiconductors as an example… files related to semiconductors started moving 50–60 years ago… but the idea was stalled, delayed, and blocked,” PM Modi said at Red Fort. “The very idea of semiconductors was aborted before it could take shape. Today, decades later, many countries have mastered semiconductors and established their strength in the world”, he said. The Prime Minister said his government had “freed ourselves from this burden” and was advancing semiconductor work “in mission mode.” He announced that “six different semiconductor units are coming up on the ground” and that “four new units have already been given the green signal.”

The remarks come days after the Union Cabinet approved four new semiconductor projects under the India Semiconductor Mission (ISM), with total investments of around Rs 4,600 crore.

Very few know that India's first semiconductor, also called chip, manufacturing unit in Mohali came up years before the world's biggest chipmaker TSMC was set up. But several issues plagued India's semiconductor aspirations including a suspicious fire at the Mohali unit which still makes chips but solely for the government's space and military uses and of capacity that goes decades back.

How India's chip pioneer failed to take off
The idea for an indigenous chip fabrication unit and research centre was mooted in 1976, and Semi-Conductor Laboratory (SCL) started manufacturing in 1984 from a 51-acre facility at Mohali, Punjab. Three years before today's global chip leader Taiwan Semiconductor Manufacturing Company (TSMC) set up shop, India had its own fabrication facility in 1984. That was a big head start for India.

Today, TSMC makes 54% of the world’s semiconductor chips, while SCL is just managing to stay afloat while supplying only to the government. TSMC clocked $60 billion in revenue in 2022, and SCL just $5 million. Had it not been for a mysterious fire that destroyed the SCL facility at Mohali in 1989, India would have become a global leader in semiconductors. No one knows if the fire was an accident or an act of sabotage. The fire stopped India's progress in chip making. It took nearly a decade for SCL to restart operations in 1997. In 2010, an Israeli company, Tower Semiconductors, helped SCL build a 180-nm chip. Since then, SCL has little more to boast of while the world has moved on to sub-10 nm chips, the most advanced at present.

In its nearly four decades of existence, SCL has had little to flaunt as its capabilities beyond defence and space sectors, which depend on SCL for chips meant for strategic uses. It has stuck to 180nm chips over the years due to lack of government attention. It has been facing even basic challenges a public sector unit faces in India. Innovation would have required huge investment as well as partnerships with industry leaders. SCL has seen three management changes — from the Department of Electronics under which it started in 1984 to the Department of Space in 2006. In February 2022, it was brought under the Ministry of Electronics and Information Technology (MeitY). The mounting losses of SCL have been due to the inefficient functioning and alarmingly low levels of capacity utilisation, as per experts. Lack of marketing efforts and non-existent customer support meant the SCL’s capacity utilisation hit an abysmal 10%.

However, under its plan to make India a semiconductor manufacturing hub, the government has now turned its focus on SCL. The government has earmarked about $1 billion for the modernisation of the facility. The $1 billion fund is part of the government’s $10 billion semiconductor incentive package to set up a semiconductor chip fabrication ecosystem in the country. The government has received nine bids, from companies including the Tata Group and Tower Semiconductor, for the overhaul of SCL, ET had reported in February, based on information from people aware of the matter.

As per the ministry of electronics and information technology officials, the goal is to bring the technology of the facility on a par with industry standards of legacy nodes of 65 and 40 nm to start with, before aiming for more cutting-edge nodes.

Why is India so keen to make chips?
In recent years, India has made a concerted effort to establish its semiconductor industry, recognizing the growing importance of semiconductor manufacturing in the global economy. Semiconductors are critical components that power everything from credit cards to smartphones to fridges to cars to missiles to aeroplanes. Their demand is expected to continue soaring in the coming decades. India’s push to develop this sector stems from several factors, including the desire to reduce dependency on imports, boost technological self-reliance, create jobs, and foster innovation. Chip manufacturing capacity also translates into great strategic edge and leverage over other countries.

A year after the government brought the PLI scheme for chip manufacturing in 2021 to attract foreign investments, it came up with the Design Linked Incentive (DLI) scheme, primarily to provide subsidies to domestic companies in chip design. The government is now planning the second phase of the India Semiconductor Mission which will focus on getting all component companies, raw material suppliers, etc. to India.

Tata-Powerchip Semiconductor Corp’s semiconductor fabrication unit (fab) at Dholera, the Tata group’s outsourced semiconductor assembly and test (OSAT) unit in Assam, and the CG Power-Renesas Group combine’s OSAT unit at Sanand place India on two different points in the semiconductor value chain: fabrication and OSAT. American company Micron is already building its OSAT plant at Sanand in Gujarat. Another American semiconductor company, AMD, has inaugurated in Bengaluru its largest global design centre. India already has a large pool of talent for chip design, another point in the chip value chain.

This big start to chip-making in India shows the country's urgency to make the most of the supply chains shifting away from China and Taiwan which China threatens to annexe.

Modi's comments on chips during his Independence Day speech come days after the Union Cabinet approved four semiconductor projects worth Rs 4,594 crore under the India Semiconductor Mission, taking the total number of approved chip manufacturing facilities in India to 10. The latest approvals push up the projected investments in semiconductor projects to about Rs 1.6 lakh crore across six states.