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The Union Cabinet’s approval of the second phase of the India Semiconductor Mission marks a shift from creating semiconductor factories to building an innovation landscape in this cutting-edge sector. Having laid the foundations for semiconductor manufacturing, India is now attempting something more ambitious: Integrating chip design, equipment, materials, intellectual property and advanced research into a coherent industrial strategy. A key objective of the Rs 1,27,500 crore outlay announced earlier this week is to facilitate semiconductor design. This is where much of the industry’s value is created. Countries without cutting-edge fabrication plants can occupy pivotal positions in global supply chains through chip architecture, verification, software and intellectual property. The policy is, therefore, prudent in reducing fiscal support for fabrication units and redirecting it to companies that make the raw materials, speciality chemicals and industrial gases needed to produce chips. Subsidies of up to 75 per cent on chip design underline the premium it places on R&D.

India’s immediate goal of an ecosystem capable of manufacturing mature node chips — 28 nm or larger — might appear modest by the standards of market leaders such as South Korea, Taiwan and China, which have gained proficiency in sub-10 nm chip making. However, mature node chips account for around 70 per cent of global semiconductor demand. Electronics, smartphones, power grids and medical devices do not require very small chips. The policy is, therefore, right on India’s comparative advantages. That said, the country must not lose sight of developments in the fast-moving sector. The global chip market has repeatedly been disrupted in the last five years. If the Covid pandemic exposed deficiencies in supply chains, tech rivalries continue to make the semiconductor value chain precarious. Every major power — the US, China, South Korea, Taiwan, the Netherlands, Japan — uses its semiconductor capabilities as strategic leverage. That’s why India’s goal to develop 7nm and 2nm chips in the next five years is significant, even though it’s largely aspirational today.

Building semiconductor capabilities will require much more than financial incentives. Even momentary power interruptions can destroy production batches, logistics must function with clockwork precision, environmental clearances must be rigorous but also predictable, and skilled technicians must be available in large numbers. Indian engineers work on semiconductor design for some of the world’s leading firms, and global outfits have established design centres in Bengaluru, Hyderabad, Pune and Noida. The challenge is to translate this advantage into world-class manufacturing capacity through a judicious mix of market forces and state support. Like its counterparts in Taiwan, South Korea and the US, the Indian government will have to be an enabler and build linkages between academia and industry.