Explained: Why A Centre-Backed Project To Incentivise Semiconductor Production Was Urgently Needed

Ask a high school student in India whether he or she likes electronics. You are more likely to get an answer in the affirmative than in the negative. But ask him or her 'what is electronics?', and you are likely to get a plethora of answers which are likely to include mobiles to televisions to perhaps much more fancy items.

Now ask yourself: 'Why electronics?' What led to the invention of so many gadgets which tend to get classified under the general umbrella of electronics? Add further a question - how does 'electronics' distinguish itself from 'electrical'?

Some, if not many of you, may have an answer and without worrying about whether it is perfect or not, I have mine too. The purpose of electronics in my opinion is threefold - what I call as SCC - Storage, Communication and Computation. 'Electrical' items on the other hand are more about energy, converting one form of energy into another.

The ‘electronic’ components that could go into such gadgets for ‘SCC’ need to have a basic property - the flow of current for applied voltage (potential difference) should be much more controllable than a simple, linear relationship as existed in resistors or even in non-linear yet ‘symmetric’ ones like capacitors and inductors.

There upon started the quest for electronic components - early diodes and triodes were based on electron flow in tubes filled with gases at low pressure or in vacuum tubes driven by principles of thermionic emissions, details of which are beyond the scope of this article.

Then came the semiconductor revolution - semiconductors are those elements in your periodic table (or a combination of those) whose conducting properties can be manipulated by various means, predominantly by adding foreign material. Silicon happened to be one of the key materials.

The first semiconductor devices were diodes. One of the first forms of semiconductor diodes were the ‘crystal detectors’ patented by Indian scientist Jagadish Chandra Bose in 1901. Transistors followed and there is a successive long history of failed and successful efforts.

What were these "devices" used for? To make a variety of gadgets like radios, calculators and so on. At some point, instead of separately connecting different individual devices (or components) to make a gadget, Monolithic Integrated Circuits (ICs) were conceived where many components - multiple transistors of various kinds, resistors etc., could be made on a single block of material. Once again silicon was the most common.

ICs or more commonly known as semiconductor chips are now key elements in almost every electronic gadget - they continue to serve one or many of those key functions - storage, communication and computation. In any electronic gadget you will find one or many ICs, connected together along with possibly other components.

To put it in numbers, over the last 50 years, IC market has grown into a $500 billion+ industry by revenue and is expected to cross a trillion sometime this decade or early next decade.

There are predominantly three kinds of companies in this space, note that the process of manufacturing a chip is by "fabrication" and hence I use the word 'fab' both for the process of manufacturing them as well as the facilities that do it - the latter is also called semiconductor foundry.

a) Fabless companies which design the chip, but do not "fab" them. Examples are Qualcomm, Mediatek etc

b) Companies that only do the 'fab' part, also known as pure play foundries - examples are TSMC, UMC, GlobalFoundries, Tower semiconductor etc

c) Companies which do both, also known as Integrated Device Manufactures or IDMs - examples are Intel, Samsung, Texas Instruments etc

Note that among C-type companies, some also accept contract orders from fabless companies or other IDMs to make chips - Samsung is a good example. Further, these companies need a lot more other companies upstream and downstream for the supply chain to be complete.

Companies that make the tools needed for a fab, chemicals and other raw materials are some examples of those that come upstream. Companies that do testing, packaging etc., come downstream.

So what are the "inputs" to a fab? Unprocessed wafers (typically silicon), in most cases are supplied by another company and so is the "design" (or layout) of the chip to be fabricated. The semiconductor chip designing is a sub-ecosystem within the larger semiconductor ecosystem needing companies that specialize in various aspects like design automation, verification and so on.

All semiconductor fabs need not be silicon-based. There are compound semiconductor-based fabs, and so also there are fabs for other specific purposes, some of which may not even be fully semiconductor based. For the purpose of brevity, I will leave it to the reader to read about Display fabs, Micro-electromechanical Systems (MEMS) fabs Silicon Photonics devices etc.

Now, having said all of the above, let us get into the significance of the announcement made by the Centre today.

While over the last 50 years, companies in many countries made great progress in the chip industry, India lagged behind for the most part.

At present, India is close to zero in terms of fabricating commercial chips on its soil. On the design front too, though there are some companies that cater to domestic needs, what is much more common in India is a branch or a support center of a global semiconductor design company. A more curious reader can also read up about "Semiconductor Intellectual Property" (IP) and who owns most of them.

The fabs in particular, have historically been supported by government incentives in many countries. India too has tried it in the past - for example with 25 per cent incentives, perhaps even 40 per cent incentives, but the attempts did not take off.

The latest announcement from the government of India is a significant step in addressing the lack of semiconductor ecosystem in India. I could go on and on, and may write a more detailed analysis of the policy and my take on which companies may go for what.

However for today, trust me, Minister Ashwini Vaishnaw did a teacher-like great job explaining it - watch from the 4:50 min mark in this video and hey if you are a high school or college/University student, do not for sure miss the job creation and training part.