GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Semiconductors and Industry 4.0
Context: The Union Cabinet recently approved a comprehensive program for the development of sustainable semiconductor and display ecosystem in the country.
With an outlay of Rs.76,000 crore (10 billion US dollars), the scheme has incentives for every part of supply chain including electronic components, sub-assemblies, and finished goods.
In total, the Government of India has committed support of Rs. 2,30,000 crore (USD 30 billion) to position India as global hub for electronics manufacturing with semiconductors as the foundational building block.
Significance of the Sector
Semiconductor chips are integral parts of the power train, chassis, safety systems, advanced driver assistance systems, and other parts of automobiles.
They are used more in passenger vehicles compared to commercial vehicles or two-wheelers
The move to electric vehicles has led to increased demand of chips. For example, a Ford Focus typically uses roughly 300 chips, whereas one of Ford’s new electric vehicles can have up to 3,000 chips
With supply of semiconductor chips slowing down, the production in automobile sector is also adversely impacted.
Programme for Development of Semiconductors and Display Manufacturing Ecosystem
The program will usher in a new era in electronics manufacturing by providing a globally competitive incentive package to companies in semiconductors and display manufacturing as well as design.
Pave the way for India’s technological leadership in these areas of strategic importance and economic self-reliance.
Semiconductors and displays are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0.
Semiconductors and display manufacturing is very complex and technology-intensive sector involving huge capital investments, high risk, long gestation and payback periods, and rapid changes in technology, which require significant and sustained investments.
Give an impetus to semiconductor and display manufacturing by facilitating capital support and technological collaborations.
Semi-Conductor Shortage
There was a global shortage of semiconductor chips that had started making its effect felt in the small and medium-sized enterprises (SME) sector in India.
Rise in Covid-19 cases in supplying countries, especially those in Asia, led to disruption of production (shutdown of factories) thereby causing the current shortage.
An atrocious winter storm in Texas shutdown semiconductor factories, and a fire at a plant in Japan caused similar delays.
Also, relatively low margins of Substrate manufacturing have led to its underinvestment and added to the pain of a global chip shortage
Substrates connect chips to the circuit boards that hold them in personal computers and other devices.
Made up of thin copper wire sandwiched in resin, substrates help transmit user instructions to a computer’s chips and relay the answers.
They are necessary because the ultrathin wiring that comes out of chips can’t tolerate a direct soldered connection to a circuit board
Substrate Manufacturing is therefore seen as a backwater of the global chip supply chain.
Supplies of substrates is very tight and small disruption in this underinvested sector is causing big worries to chip manufacturers
The chief executives of Intel and IBM have both said recently that the chip shortage could last two years.
Consequences of chip shortage on automobile sector:
Due to longer lead time — the time between when the order is placed and the shipment is delivered — the automobile sector has been forced to cut down on its production.
The slowing down of production by big automotive players has led to reduction in new orders being placed to MSME vendors (who supply parts)
The MSMEs who are vendors and sub-vendors of the automobile industry are now working just 8 hours instead of the 12 hours they normally do. This has not only affected their earning but is also making them to migrate to other sectors.
While the local MSME industrial sector was slowly coming back to normal after the second wave of Covid-19, the recovery has been hampered by the high price of raw material and low orders.
Conclusion
Coming at a time when the entire world is facing a shortage of semiconductors, analysts say the move could go a long way in establishing the country as a global hub for electronics goods, besides creating jobs and attracting investments from top firms around the world.
Can you answer the following question?
How will the approved program help India boost its semiconductor capabilities? Discuss.
Enumerate the practical challenges despite the fiscal support, and the technological collaborations required to propel India towards becoming a semiconductor hub.
