India and US have just signed an MoU on jointly developing an ecosystem for semiconductor technology. This follows India’s Rs 76,000-crore incentive scheme for semiconductors and the display manufacturing ecosystem. Will the MoU directly help in furthering the aim of this incentive scheme? Rishi Raj explains
The India-US MoU
The memorandum of understanding (MoU) basically paves the way for creating a semiconductor sub-committee under the commercial dialogue between the US department of commerce and the ministry of electronics and information technology (MeitY) and the ministry of commerce.
According to commerce and industry minister Piyush Goyal, one aim of the MoU is to establish a semiconductor supply chain. It will also aim at diversifying and friend-shoring (sourcing of material from countries with similar social and political values) the supply chain, facilitating clean technology cooperation, inclusive digital growth, talent development, and post-pandemic economic recovery.
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The MoU and India’s semiconductor scheme
India’sRs 76,000-crore incentive scheme provides 50% fiscal support for development of semiconductors and display manufacturing ecosystem across all technology nodes for setting up of semiconductor fabs.
If one looks in terms of tangible outcomes of the MoU on the scheme, there won’t be any because semiconductor design as well as fabrication is led by private industry and governments can only help in creating an enabling atmosphere. However, it would certainly help in sending the right signals to the chip manufacturing industry, that India has the right enabling framework in place. India has talent, expertise and gets orders in chip design, but these then flow outside the country for fabrication. Thus, India misses out on manufacturing.
Progress on the incentive scheme
Semiconductors are key to a wide range of manufacturing—from mobile phones to automobiles. The geopolitical tensions after the Covid-19 pandemic made it clear that their manufacturing must be spread across centres rather than being concentrated in some areas.
After the incentive was announced, Vedanta
What are the challenges ahead?
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While the incentive scheme is fine and the MoU with US creates the right kind of environment, it’s too early to conclude that India will soon emerge as a destination for chip manufacturing.
The big challenge would be to ensure that the foundries—the epicentre for chip fabrication—which get set up are global in nature and are able to get global orders. Ultimately, it is the relocation of global units into the country that would determine the success. Any unit which is not assured of large-scale orders runs the risk of low capacity utilisation. The minimum investment which goes into a foundry which is global in nature is around $2-3 billion.
Will the Indo-US MoU help here? Not directly, but it will signal suppliers to shift base to India. For instance, last year in October, Cristiano R Amon, president and CEO, Qualcomm, had said if the company’s suppliers set up bases in India, it would use their fabs. Amon had also said the US, Europe, and India should work together on developing a geographically diversified and resilient semiconductor supply chain and see that there’s no duplication in creating a viable ecosystem.
* Rs 76,000 cr incentives for semiconductors & display production
* $2-3 bn minimum investment in a global foundry for chip production
* Rs 1.54 tn Vedanta-Foxconn joint venture for unit in Gujarat
* 2 projects in Karnataka & TN awaiting approval