Where would India be without PM Narendra Modi’s big plans? In his Independence Day address, he told his “young friends” that they would be “shocked” to learn that some 50-60 years ago, the idea of building microchips in India was stalled, delayed and shelved. No matter, Modi to the rescue – a ‘Made in India’ chip would be available by the end of this year.
That’s great, but India began manufacturing chips in 1984. It was a difficult journey, interrupted by suspected sabotage that burned down India’s sole semiconductor plant in Mohali, Punjab in 1989 and set us back a decade. But the fact is that all those rockets and satellites going up carry radiation-hardened Indian-manufactured chips, and have done so for years. These may not be cutting–edge 3-5 nanometer (nm) chips like the ones that power iPhones – nor will the upcoming Tata-PSMC chips be – but they are chips “manufactured in Bharat, by the people of Bharat” as Modi put it.
What he didn’t mention is that, since 1985, when Texas Instruments set up a design centre in Bengaluru, India has been a major player in the complex art of chip design. As Pranay Kotasthane and Abhiram Manchi point out in their book When the Chips are Down, every major global semiconductor firm relies on Indian designers who comprise 20 per cent of all chip designers. Indian labs design 3,000 chips every year. In fact, India was ahead of China in chip design and patent generation, according to a 2012 study. Although much of the intellectual property is held by global firms, fabless startups like Saankhya Labs, Signalchip, and Morphing Machines have also prospered.
The question then is: why has India taken so long to manufacture advanced chips, at least the mainstream 28 nm chips — which have widespread applications in automotive, industry and the Internet of Things (IoT) — that Tata-PSMC will start producing?
It’s a complex story, but here’s the quick version.
US control, but India-China find a way out
After the US invented the integrated circuit in 1958, many countries attempted to get into chip manufacturing. The US was the centre of innovation, winning Nobel Prizes and constructing the ecosystem that would produce computers, PCs, smartphones, and all such products that use chips.
Export-oriented economies like Taiwan, Singapore, and South Korea, which were focused on US markets, also chipped in. Taiwan’s TSMC became the world’s largest and most advanced chip manufacturer (or “foundry”), the preferred outsourcing partner for “fabless” chip companies like Apple and Nvidia. Europe, with its automobile and consumer electronics industries and links to the US, also participated, although it never really caught up in fabs. But it did dominate important niches like research. The UK-based Arm is a leader in chip design and the Dutch firm ASML has a near-monopoly in building the expensive lithography machines used to make the most advanced chips.
India, China, and the Soviet Union got left behind in this story. Big reason? Geopolitics. The US simply didn’t want others to develop these technologies (remember the 1989 Mohali fire?). But there were commercial reasons as well. Moore’s law famously states that the number of transistors on a chip will double every two years. Equally daunting is Rock’s law, which states that the capital costs of setting up a chip factory would double every four years. This made it impossible for all but a few firms to build chips profitably, especially wherever domestic demand didn’t justify the expense. The combination of innovation speed and cost spiral, plus the US’ determination to prevent rivals from mastering these technologies, made chip manufacturing a no-go for these countries.
Yet all these countries succeeded in other ways. India focused on chip design. China saw its chip manufacturing take off after it had integrated into global markets, starting with SMIC, which was set up in 2000 as a foundry and whose production found a ready market in China’s electronics sector.
Also read: Tariffs, chips, and China — how Trump’s trade playbook affects India
The boom happened and the Modi govt slept
Now the question is, why did India not at least emulate China? One, India had already adopted a services-led approach. China had huge demand from its electronics industries, while Indian chip demand was relatively low. Two, Indian imports of semiconductors rose gradually — from $1.8 billion (2013-14) to $2.3 billion (2017-18). And then, over the next six years, it rose ten times to $24.7 billion (2023-24) due to the explosion in demand for smartphones, cars, IoT and other electronics. The sales opportunity for domestic chip plants had finally arrived.
On top of this came the Trump administration’s 2019 restrictions on Huawei and pressure on ASML not to export to China. Joe Biden’s CHIPS Act put further restrictions on China. From 2020, Covid disruptions caused a severe chip shortage, reminding all countries that the supply interruptions could endanger economic security.
It’s this increase in global risk that convinced the Modi government to throw money at the problem, including a 70 per cent capital subsidy for Micron to build a semiconductor assembly and testing plant in Sanand, Gujarat. The central subsidy of 25 per cent offered by the UPA and the Modi government until 2021 was doubled under the India Semiconductor Mission. It was this increased subsidy, plus rising domestic demand, that made the difference.
There are valid questions as well. Is a 70 per cent subsidy for a Rs 91,000 crore project good use of taxpayer money, especially when the industry cost benchmark for an equivalent 28 nm fabrication plant is one-tenth this amount? Some make a compelling case that India should prioritise building on its strengths in design; the government’s initiative is too restrictive.
PM Modi’s one trick is the ahistorical claim — to say anything, and blame past governments. But if he implies that Dr Manmohan Singh should have used a time machine to predict the 2021 chip crisis – he should explain what he was doing for seven years after China announced its $22 billion ‘Big Fund’ for the semiconductor industry, simply carrying on UPA-era policies.
Amitabh Dubey is a Congress member. He tweets @dubeyamitabh. Views are personal.
(Edited by Prashant)