Semiconductors

1. Meaning, materials and economic importance

A semiconductor is a material whose electrical conductivity can be controlled through doping, temperature, light or applied electric fields. Doping means introducing carefully selected impurities into a semiconductor crystal. This controllability allows semiconductor devices to act as switches, amplifiers and sensors. Integrated circuits combine large numbers of electronic components on a small chip. Their uses extend from mobile phones and computers to vehicles, telecom networks, industrial machinery, defence systems and medical equipment.

Silicon dominates the industry because of its favourable physical properties, abundance and well-developed processing technology. However, abundant silica does not automatically give a country a competitive chip industry: electronics require exceptionally pure materials, precision equipment and sophisticated manufacturing capabilities. Silicon carbide and gallium nitride are particularly useful in power electronics and selected high-frequency applications.

Chip requirements differ by use. Leading-edge logic supports demanding computing applications, while mature-node chips remain essential for automobiles, appliances and industrial control. A country therefore needs a diversified semiconductor ecosystem rather than only the smallest advertised process node.

• A chip is a manufactured device; a semiconductor is the material or material class enabling its operation.
• Process-node labels such as 28 nanometres identify technology generations and should not be read as a universal measurement of every transistor feature.

2. The value chain and its global geography

The semiconductor value chain begins with research, chip architecture and circuit design. Design firms use electronic design automation software and reusable intellectual-property blocks. Fabrication then builds circuits on wafers through repeated deposition, lithography, etching and other operations. After wafer testing, individual dies are separated, packaged and tested again. Advanced packaging can integrate several dies into a single system, making this stage increasingly important.

Fabless firms design chips but outsource fabrication. Foundries manufacture chips for customers, while integrated device manufacturers combine design and manufacturing. Outsourced semiconductor assembly and test firms specialise in downstream operations. Consequently, strong design capabilities do not necessarily imply domestic fabrication capacity.

Taiwan is central to contract fabrication, while South Korea is a major producer of memory chips and also undertakes foundry production. The United States is prominent in design, software and equipment. Japan supplies important materials and equipment; the Netherlands is critical for advanced lithography systems. China has substantial manufacturing and assembly operations, while Malaysia and Singapore are significant production nodes. This international specialisation makes trade restrictions and regional disruptions globally consequential.

3. Locational factors: why semiconductor clusters develop

Semiconductor fabrication is a capital-intensive, technology-intensive industry whose location depends more on infrastructure and accumulated capabilities than proximity to mineral deposits. Fabs require continuous, high-quality electricity: interruptions and voltage fluctuations can damage work in progress. They also need dependable water supplies and systems that produce ultrapure water. Water availability must be assessed alongside competing agricultural, domestic and ecological needs.

Access to engineers, technicians, research institutions and experienced managers encourages agglomeration. Suppliers of specialty chemicals, industrial gases, clean-room services and precision components benefit from proximity to manufacturing plants. Design centres may cluster around universities and software industries, whereas fabrication requires large serviced sites and stringent contamination control.

High-value, low-weight products favour reliable air cargo, secure handling and predictable customs clearance. Ports and road corridors remain important for equipment, construction inputs and materials. Political stability, intellectual-property protection and long-term policy credibility also influence investment. Earthquakes, droughts, floods and geopolitical tensions create concentration risks, making geographical diversification an important corporate and national strategy.

• Agglomeration economies include shared skills, specialised suppliers and knowledge spillovers.
• Bulk raw-material availability alone is a poor predictor of semiconductor industrial location.

4. India's semiconductor geography and policy framework

India's established strength is chip design and related engineering services. Bengaluru and Hyderabad are major centres, supported by skilled workers, technology companies and research institutions. The National Capital Region, Pune and Chennai also participate in this ecosystem. The Semiconductor Laboratory at Mohali represents a longstanding public-sector capability, but it should not be equated with the scale of the largest global commercial foundries.

The Union government approved a ₹76,000-crore semiconductor and display ecosystem programme in December 2021. The India Semiconductor Mission, under the Ministry of Electronics and Information Technology framework, supports ecosystem development. Modified schemes provide fiscal support of 50 per cent of project cost for approved semiconductor fabs and display fabs. Eligible compound-semiconductor, sensor, discrete-semiconductor and assembly, testing, marking and packaging projects receive support linked to capital expenditure. Design Linked Incentive support addresses chip-design development and deployment.

Important projects include the Micron assembly and testing project at Sanand, approved in 2023, and three units approved in February 2024: the Tata Electronics–PSMC fabrication project at Dholera, Tata's assembly and testing unit at Jagiroad, and the CG Power-led unit at Sanand. Approval, construction, trial production and commercial operation are distinct stages and must not be treated as interchangeable.

5. Regional development, employment and transport linkages

Semiconductor investment can strengthen India's electronics manufacturing by linking chip production with mobile devices, automotive electronics, telecommunications and industrial equipment. Gujarat's emerging cluster benefits from industrial estates, transport infrastructure and policy support. The Jagiroad project provides an example of extending a high-technology manufacturing activity beyond India's established metropolitan technology centres.

Employment effects include engineers and technicians within plants, construction workers during project development, and indirect jobs in logistics, utilities and supplier industries. However, fabrication is highly automated and capital-intensive; investment value should not be mechanically converted into expectations of mass direct employment. Training must cover process engineering, equipment maintenance, clean-room operations and quality assurance, not only software development.

Industrial corridors, airports, ports and dependable road access connect manufacturing sites to global suppliers and customers. Nearby housing, healthcare, schools and urban services influence the ability to attract skilled workers. Regional gains become more durable when local firms enter supply chains and educational institutions develop relevant programmes, rather than when a plant remains an isolated investment enclave.

6. Strategic importance and sustainability challenges

The semiconductor shortages associated with the COVID-19 period demonstrated how disruptions in a specialised supply chain can affect automobile production and many other industries. Dependence on a limited number of production locations is therefore an economic-security concern. Nevertheless, complete national self-sufficiency is difficult because equipment, software, materials and intellectual property remain internationally distributed.

India faces high upfront costs, rapid technological change, long qualification cycles and the challenge of attaining commercially viable yields. Yield is the proportion of usable chips obtained from production and is central to cost competitiveness. Incentives can reduce investment risk but cannot substitute for process expertise, reliable infrastructure, supplier development and customer relationships.

Environmental planning must address water demand, chemical handling, wastewater treatment, electricity consumption and greenhouse-gas emissions, including emissions from certain process gases. Water recycling, gas abatement and cleaner power can reduce impacts. For examination purposes, semiconductors illustrate the interaction of industrial geography, human capital, international trade, strategic autonomy and resource management.

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