• UGI USER
  • Aug 04, 2024
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INDIA ASSURES TAIWAN OF POLICY STABILITY IN SEMICONDUCTOR SECTOR

Relevance:

  • GS 2 – Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests; India and its neighborhood relations.
  • GS 3 – Indigenization of technology and developing new technology.

Why in the news?

  • Taiwanese businesses and government officials are taking a cautious approach towards India’s semiconductor ambitions.
  • The senior officials from the IT Ministry have met with industry executives in Taipei. In response, New Delhi has mobilized officials to Taiwan with a key message of policy stability.
  • Assured them of policy stability, especially concerning: Changes in rules governing imports, Adjustments in customs duties on inputs.

India’s Chip Incentive Plans

India’s chip incentive plans aim to boost all three aspects of the semiconductor ecosystem:

  • Packaging
  • Assembly and testing facilities (referred to as ATMP and OSAT units)
  • Full-scale foundries for chip manufacturing.

Chip Manufacturing Overview:

  • Integrated circuits, or chips, consist of minute electronic circuits (transistors, diodes, capacitors, resistors) on a silicon wafer.
  • Fabs are specialized facilities that print these circuits onto silicon wafers.
  • The fabrication process involves 500 to 1,500 steps and requires inputs like silicon wafers, commodity chemicals, specialty chemicals, clean water, and uninterrupted power supply.

India’s Engagement with Taiwan: Tata Electronics and PSMC of Taiwan

  • Tata Electronics’ first commercial fab in India, located in Dholera, Gujarat, will start operations with technology support from
  • PSMC is a smaller Taiwanese chipmaker specializing in fabricating legacy logic and memory chips.
  • PSMC’s partnership is limited to technology collaboration; it has no equity stake in the operations.
  • It has negotiated a model where they do not need to invest capital, reflecting their cautious stance.
  • There is a possibility that some companies might eventually take equity partnerships in chip joint ventures with Indian companies or establish independent operations in India.

Strategic Importance of Taiwan in Semiconductors

  • Established Leadership: Taiwan is a global leader in semiconductor manufacturing, producing over 90% of the world’s chips. Taiwan is home to leading chipmakers, including TSMC and UMC. TSMC counts Apple and Nvidia among its clients.
  • Advanced Technology: Taiwan is home to TSMC, the largest and most advanced semiconductor foundry, known for cutting-edge technologies like 5nm and 3nm chips.
  • Investment and Infrastructure: Taiwan has a well-established semiconductor infrastructure and investment ecosystem, whereas India is investing $10 billion to create its semiconductor manufacturing capabilities, which will take time to materialize.
  • Supply Chain Integration: Taiwan has a fully integrated semiconductor supply chain, including design, fabrication, and packaging, while India is still building its supply chain and relies heavily on imports for many semiconductor components.
  • Skilled Workforce: Taiwan has a highly skilled workforce specialized in semiconductor technology, whereas India faces challenges in talent acquisition and retention in this complex field.
  • Geopolitical Influence: Taiwan’s semiconductor industry plays a crucial role in U.S.-China relations, making it a strategic asset in geopolitical discussions.
  • Market Demand: Taiwan’s semiconductor products are essential for various high-demand sectors, including automotive and consumer electronics.
  • Research and Development: Taiwan invests heavily in R&D for semiconductor technologies, maintaining its competitive edge.
  • Long-Term Vision: Taiwan has a long-term strategic vision for its semiconductor industry, supported by government policies and incentives.

Challenges from a Taiwanese Perspective:

  • Policy Stability and Regulatory Environment: Taiwanese firms are cautious about investing in India due to concerns over policy stability, especially regarding changes in import rules and customs duties. The administrative structure is seen as cumbersome, requiring streamlining to attract semiconductor investors.
  • Skilled Workforce Shortage: India lacks experienced engineers with expertise in semiconductor manufacturing, which is a major deterrent for Taiwanese firms looking to set up operations in the country.
  • High Tariffs on Imports: The high tariffs on electronics component imports make it less cost-effective for Taiwanese companies to manufacture in India. Rationalizing these tariffs is crucial to making India an attractive investment destination.
  • Lack of Complete Supply Chain: India currently lacks a fully integrated semiconductor supply chain, including IC design, testing, packaging, and material supply. Developing a comprehensive ecosystem is necessary to attract major Taiwanese players.

Strategic Recommendations for growth of Indian Semiconductor sector

  • Streamline Administrative Structures: Simplify and streamline the administrative processes related to semiconductor investments to make it easier for companies to navigate the system.
  • Develop a Complete Supply Chain: Build a comprehensive semiconductor supply chain ecosystem in India, including – IC design facilities, Testing and packaging capabilities, Material supply for chip manufacturing.
  • Improve Infrastructure: Ensure reliable and uninterrupted power supply for semiconductor fabs. Provide adequate clean water resources critical for chip manufacturing. Develop infrastructure like airports and customs facilities near semiconductor hubs.
  • Rationalize Tariffs: Reduce high tariffs on electronics component imports to make manufacturing in India more cost-effective for companies.
  • Develop Skilled Workforce: Invest in training and developing a skilled workforce with expertise in semiconductor manufacturing to address the current shortage of experienced engineers
  • Provide Policy Stability: Offer policy stability, especially regarding rules governing imports and customs duties, to assure Taiwanese firms of a conducive investment environment

Alternative Articles

https://universalinstitutions.com/first-semiconductor-plant-of-india-gujrat/

https://universalinstitutions.com/the-need-to-overhaul-a-semiconductor-scheme/

Source: https://indianexpress.com/article/business/india-assures-taiwan-of-policy-stability-in-semiconductor-sector-9493429/

Mains question

Discuss the strategic importance of Taiwan in India’s semiconductor ambitions and the challenges faced by New Delhi in attracting Taiwanese investments in the semiconductor sector. (Answer in 250 words)