It is a truth universally acknowledged that a nation of reasonable size and prosperity must be in want of a semiconductor industry. India is no exception to the global rush to subsidize chip fabrication; the government set aside US$10 billion for new facilities in 2022 and it has plans to double that amount.
There are expectations that money would provide a return soon. Last week, Indian Prime Minister Narendra Modi promised that the country would soon have a “significant share” in a market worth more than US$1 trillion.
“Our journey began late, but nothing can stop us now. India is now moving from the back-end to becoming a full-stack semiconductor nation,” he said.
There have certainly been some successes. Modi was presented with the first “made in India” chips after his speech, but the government’s ambition should be tempered with reality — particularly when it is spending billions that the harassed Indian Ministry of Finance can barely spare from other priorities.
The chips shown to Modi give us a clue as to what might work swiftly. They were developed by a special laboratory that is a part of India’s space program, and designed for the harsh conditions of space — or, not incidentally, for missiles. They are cheap, functional and robust.
However, they are not cutting-edge: They are based on 180-nanometer technologies that are decades old, the same sort that were used in Intel Corp’s Pentium-IIIs at the turn of the century. (For context, Taiwan Semiconductor Manufacturing Company Co, TSMC, is expected to go into mass production for 2-nanometer chips later this year.)
That is not a criticism. If these get the job done efficiently, then it is safer and more effective to use a mature, proven technology. Nor does it mean India lacks the capability to produce more advanced microprocessors.
Last month, the minister for information technology said that 28-nanometer chips would begin to be produced next year at CG Power & Industrial Solutions Ltd’s factory in Gujarat. Nine other new plants, with Taiwanese, Japanese, American or Israeli partners, are in various stages of completion.
As the government pulls together more money for the next stage of its semiconductor mission, it should be cautious. The 28-nanometer chips are not exactly new either: TSMC built its first dedicated foundry using that technology in 2011, but they are more than modern enough to meet most requirements.
Advanced processors — which US export controls described in 2022 as being those “smaller” than 16 nanometers — are used in artificial intelligence data centers, mobile phones and a few other such applications. They are where the big profits are for most global chipmakers.
Profit is not the purpose of India’s semiconductor mission. It is to ensure that other parts of the country’s manufacturing base — automobiles, household electronics — do not suffer if the supply of semiconductors is suddenly cut off.
The government is spending billions to bolster economic security, not to earn dividends from cutting-edge products that, so far, only East Asian companies seem capable of producing at scale.
Therefore, it is worrying that officials are claiming that “we already have a clear road map to enable companies to manufacture 7-nanometer and above chips within the next five to seven years.” Even if that timeline is possible, it might not be the right choice.
There is a space on the global supply chain that India can and will fill: Mature designs that provide security and support a wider manufacturing ecosystem. The government should not let high-end dreams divert its attention or resources from what is actually needed.
The private sector has already spoken on this subject. Attempts to lure the most advanced chipmakers — TSMC or Intel — to India have not worked. Partly that is because the government has less cash to hand out, and its subsidy system is designed to share risk with companies and not minimize it.
It is also because there are a limited number of top-of-the-line plants that can be built at any time, and C-suites think they are better located elsewhere.
If India wants to move up the value chain, it needs to show it has mastered the basics. There is hard work to be done first: Demonstrating the scale at which legacy chips can be made here, building up an experienced and reliable workforce, developing the innovation, design and testing hubs that would attract the pickiest manufacturers. That is honest work, and if it succeeds, it would be enough to be proud of. India does not need to stop dreaming about high-end semiconductors. It just should not chase them.
Mihir Sharma is a Bloomberg Opinion columnist. A senior fellow at the Observer Research Foundation in New Delhi, he is author of Restart: The Last Chance for the Indian Economy.
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