Learning from the CHIPS Act of the U.S.  

As India sharpens its semiconductor industry focus, it needs a whole-of-government approach  

Updated - August 09, 2023 10:55 am IST

Published - August 09, 2023 12:40 am IST

‘The CHIPS Act is not just about bringing semiconductor manufacturing back to the U.S.’

‘The CHIPS Act is not just about bringing semiconductor manufacturing back to the U.S.’ | Photo Credit: Getty Images

The United States’ Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act) completes one year as a law today (August 9). The Act authorises $52.7 billion over five years to boost American competitiveness, innovation and national security in semiconductors.

While the jury is still out on the long-term effectiveness of the Act, what is important from an Indian perspective is to observe and learn from its implementation. As industrial policy has become a default policy of choice for nation-states, the Act provides a clear window into the capabilities and structures needed to execute such policies. While it may neither be possible nor desirable to replicate specific provisions, we outline four lessons to help India execute its semiconductor strategy better.

The Act involves cooperation and coordination between several arms of the government. Four separate funds have been created for the execution of the Act. The Department of Commerce is the lead agency administering the $50 billion CHIPS for America Fund for accelerating semiconductor manufacturing and research. But there are also allocations for the Department of Defense ($2 billion) for defence-unique technologies, the Department of State ($0.5 billion) to coordinate with foreign partners on semiconductor supply chain security, and the National Science Foundation ($0.2 billion) to promote the growth of the semiconductor workforce. This structure highlights the priority accorded to semiconductors.

On the other hand, India’s semiconductor industrial policy is being managed mainly by the Ministry of Electronics and Information Technology (MeitY). The schemes for manufacturing, assembly, displays and compound semiconductors have been assigned to an independent division called India Semiconductor Mission (ISM) within a non-profit company set up by MeitY. The policy for chip design is being administered by C-DAC, an R&D organisation again under the MeitY. The ISM Committee comprises largely MeitY bureaucrats. While the committee is a good beginning, ensuring that the semiconductor strategy survives beyond government terms requires a whole-of-government approach along the lines of the CHIPS Act.

Companies seeking funding under the CHIPS Act are required to submit workforce development plans. A nodal agency, the National Semiconductor Technology Center (NSTC), has been created to collaborate with industry and educational institutions. This must become a focus area for India as well. A competent semiconductor engineering workforce is India’s quickest route to gaining leverage in the semiconductor industry. Keeping this in mind, MeitY has begun a Chips2 Startup (C2S) programme, collaborating with over 100 universities and colleges. Like the NSTC, C2S aims to scale up workforce expansion by supporting existing quality training programmes. In the Indian case, however, many private training centres prepare chip designers outside the conventional university system.

Hence, it is important for C2S to focus on certifying good programmes of universities or private training institutes rather than running them.

Structuring accountability

The CHIPS Act has also created a CHIPS Program Office (CPO) to lay down the guidelines for assessing the financial viability of a project. The CPO is hiring Investment Principals and Financial Structuring Directors to catalyse private sector investments. While India also has guidelines for assessing the viability of proposals, a lot remains to be done concerning transparency. The government needs to put out regular monthly progress reports on its semiconductor programme. This will help manage expectations and instil reassurance in India’s plans.

The CHIPS Act is not just about bringing semiconductor manufacturing back to the U.S. The Department of Commerce also invests $11 billion focused on future research. For example, the strategy acknowledges that advanced packaging is a leverage point to excel in semiconductors over the next decade. Hence, it envisages a National Advanced Packaging Manufacturing Program (NAPMP) to help the U.S. gain a disproportionate competitive advantage in the future. Packaging was considered a labour-intensive and low-margin component of the supply chain only a few years ago. However, as downscaling transistors becomes difficult, researchers have zoomed in on advanced packaging techniques that combine multiple semiconductors in a multi-dimensional arrangement on a single substrate, all in one package.

In India’s semiconductor strategy, advanced manufacturing and packaging research are not priority areas of focus. This makes sense to the extent that India is currently nowhere in the picture in high-volume chip manufacturing. However, the lesson from the CHIPS Act is that India’s strategy needs to identify and invest in research on future technologies.

In sum, the CHIPS and Science Act is a useful template for industrial policy in semiconductors. The administrative capacity that the U.S. has marshalled together institutionalises the Act in a manner that will ensure its continuity beyond governments. We urge that India’s semiconductor strategists study the positives and drawbacks of this Act deeply. Nothing matters more in industrial policy than effective implementation.

Vishwanath Madhugiri is a CIO of a U.S.-based semiconductor design company. Pranay Kotasthane is chair of the High-tech Geopolitics Programme at the Takshashila Institution. The views expressed are personal 

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