India-Taiwan Semiconductor Deal

 “India and Taiwan have started negotiations for a free-trade agreement and setting up a semiconductor manufacturing hub in an Indian city, signalling their resolve to further expand the two-way economic engagement.”

                                                         -BusinessToday.In 

Our laptops, they run on semiconductors. Common household utilities like refrigerators are powered by semiconductors as well. Semiconductors are required for the operation of our automobiles, digital cameras, televisions, LED bulbs, airplanes, and so on.

It is nothing new to state that these little chips known as semi-conductors fuel our daily life. It has massive usage as of today. The demand for semi-conductor chips was down in 2018 and 2019, but it began to rise in 2020. As the demand for the chips scaled up, it became more and more scanty at the same time.

Picture credit: Freepik

Why is there a shortage of semiconductor chips?

The year 2020 was devastated by the covid-19 pandemic, which forced everyone to withdraw socially. Factories were also being shuttered, and as a result, chip manufacture was also being forced to shut down. Everything was moved to an online mode at that time. As all activities transferred to internet platforms, the need for electronic gadgets grew.

The pandemic was the root cause of the disrupted demand patterns of the semi-conductor chips. Because everything was converted into online mode there was an increased demand for consumer electronics like laptops, smartphones etc.

Moreover, the demand for cars went down during the first quarter of 2020, then again in the second half of the year 2020, the demand for buying cars exploded. People believed that it is safe to have their own transport facility than to travel by any public means of transport. This had a huge impact on the automobile sector.

When automobile manufacturers wanted to acquire more number of semi-conductor chips at that time, they realised that there wasn't enough capacity because it had already been saved up for other industries, such as consumer products. As a result, there is a chip scarcity in the automobile industry, and production of new automobiles has been reduced.

This isn't the only reason, though. Because many US corporations do business with Chinese companies, the strained relationship between the US and China is also an issue. The US government, for example, has placed Huawei on a no-fly list because of its ties with American chipmakers. As a result of the chip scarcity, numerous major businesses, including Apple, Sony, and others, have reduced their smartphone production.

What is done to fulfil this shortage?

Semiconductor chips are in low supply all across the world, and India is no exception. India has spoken with Taiwan about filling a semi-conductor deficit as Taiwan is a prominent player in the worldwide chip manufacturing industry.

Taiwan may invest 7.5 billion dollars in India to build a semi-conductor manufacturing plant. This factory will produce chips for a variety of other industries, reducing chip shortage. After the United States, this will be Taiwan's second such facility in a foreign country.

The current chip shortage has underlined the necessity for semi-conductor chips to be manufactured domestically. This will help India satisfy its rising demand and lessen its reliance on imported chips.

According to sources, the government has already proposed several locations for the facility. The massive project could be implemented by a Taiwan semiconductor manufacturing company and United Electronics Corporation.

Picture credit: Freepik

Some of the industry estimates:

TSMC (Taiwan Semiconductor Manufacturing Company) produces 50% of all semiconductors in the world. The government has authorized a proposal worth Rs.76000 crores to proliferate the semi-conductor chip production. This initiative is estimated to result in the creation of 35,000 high-end specialized jobs, 1 lakh indirect job possibilities, and $23 billion in investment.

This program is meant to help counterpoise the high costs of setting up a semi-conductor manufacturing facility. The government is anticipated to cover half of the costs of establishing a fabricator. This could also help to reduce the project's unpredictability.

What are some of the prerequisites for establishing a semiconductor manufacturing facility in India?

Large investments, gallons of water for manufacturing, uninterruptible electrical supply, high running costs, and a need for high-end technology will be required for semiconductor fabrication units. It is estimated that making of 100 chips will require 8000 litres of ultra-pure water.

Picture credit: Freepik

The semiconductor plant will be built in India to help the sector compete worldwide by establishing India as a global centre for Electronics System Design and Manufacturing (ESDM).

India has finally realised that it has been entirely reliant on foreign supply networks, which is not a prudent strategy. With its agreement with Taiwan, India intends to become a major electronic manufacturing hub, creating more jobs in the country. It will increase self-sufficiency by establishing an ecosystem that spans design through fabrication and packaging to testing. The Indian government must work quickly to connect allied industries in India in order to develop a chip manufacturing ecosystem.