TESLA and Tatas have signed a strategic deal that will see the Tatas supply semiconductor chips for all of Elon Musk’s global operations. This is part of Musk’s strategy to integrate into India in diverse areas apart from automobile manufacturing. It will also in many ways give it a considerable heft in the ‘Make in India’ matrix and fulfil a key prerequisite of the Government for anyone wanting to avail of incentives.
Musk is expected to announce this and other major investments in India during his visit to India when he will also meet Prime Minister Narendra Modi. The Musk move and the manufacturing announcement in February are the first moves in creating a world-class semiconductor hub in India.
No overnight event
But this has not been an overnight event. The roadmap was laid close to three years back Government announced the PLI scheme for semiconductors. While the scheme was open, nothing concrete was happening till February 29 this year when the Government approved three projects whose combined investment will be close to Rs 1.25 lakh crore. The three projects are Tata-PSMC chip foundry is Rs 91,000 crore, the Tata OSAT facility Rs 27,000 crore, and the CG Power-Renesas, Rs 7,600 crore.
Tata Electronics Private Limited (TEPL) is setting up a Rs 91,000-crore semiconductor fabrication facility at the Dholera Special Investment Region (DSIR) and a Rs 27,000-crore Outsourced Semiconductor Assembly and Test (OSAT) facility at Morigaon in Assam.
Two seismic events were the triggers – Covid-19 that disrupted all of the world’s supply chain from China and Taiwan, and the second was the Ukraine war which again put huge pressure on supply chains.
The icing on the cake was China’s belligerence and its disputes with the West, Europe and India. It made almost everyone realise that in many ways they were hostage to the Chinese manufacturing behemoth. And with the mainland, threatening to attack Taiwan and assimilate into the other country, there were fears in the West that if indeed that happened, it would further choke the supply lines.
US Senate hearing
A case Point is a US Senate hearing where the American Commerce Secretary Gina Raimondo said, “I talked to all the national defence contractors recently, who are working overtime on the Ukraine replenishment issue and their biggest pain-point is chips. There are 250 chips or more in every Javelin [missile] launching system…’’ What it translated into for the US establishment was that chips were all over the place, and a breach in the supply line could mean a strategic disaster. Realising they were too dependent on Taiwan and China, the US packaged a $52-billion programme to bring top guns to manufacture in America.
Realising that without incentives, ‘Make in India’ would not be enough to get top chip manufacturers, the Government announced a $10- billion PLI scheme for semiconductor manufacturing industry.
An exciting odyssey
What is exciting about this odyssey? The Economic Times is perceptive in its analysis: “While the US, South Korea and Japan aim to increase their manufacturing capacity mostly of advanced chips just as the US impedes China’s innovation in advanced chips by blocking the export of chipmaking tools, India, a beginner, is focusing on legacy chips. And that serves it well…. ….Legacy chips account for nearly 95 per cent of the total semiconductor consumption because cutting-edge chips are used in highly advanced technological processes.
It’s the legacy chips that drive the everyday world, from weapon systems to smartphones. Even the US and Japan want to incentivise the making of legacy chips along with a focus on advanced chips. If India is able to create a sizable capacity in making mature or legacy chips, which don’t require too much innovation, it can not only achieve self-reliance but can also turn into a reliable supplier to bigger countries which would prefer to focus on advanced chips.’’
It’s a sensible strategy that can lead slowly, but surely to India becoming a global powerhouse in semiconductor business.
