The Singapore leg of the Prime Minister’s visit was marked by agreements on semiconductors, digital technologies, health and skill development. The PM and his newly elected Singaporean counterpart Lawrence Wong witnessed the exchange of the Memorandum of Understanding on an India-Singapore Semiconductor Ecosystem Partnership.

India’s push for chips

Given the critical importance of semiconductor chips in virtually everything from missiles to mobile phones and from cars to computers, the pact with Singapore has great geo-strategic and geo-economic importance.

Supply disruptions during the Covid-19 pandemic and the geopolitical tensions arising out of China’s aggressive moves in the Taiwan Strait and the South China Sea have brought great urgency to India’s efforts to develop its own semiconductor ecosystem. The global chip industry is dominated by companies from a very small number of countries, and India is a late entrant into this high-tech and expensive race.

The India Semiconductor Mission was launched in 2021 with a Rs 76,000 crore chip incentive scheme, under which the central government offered half the plant’s capital expenditure costs as subsidy. In February, the Cabinet approved semiconductor-related projects adding up to investments of about Rs 1.26 lakh crore.

That same month, the government announced a partnership between the Tata Group and Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC) to set up a semiconductor fabrication plant. The Cabinet has so far approved five semiconductor units, including four assembly units, under the incentive scheme.

Singapore’s chip story

Singapore has a well-developed semiconductor industry, the outcome of an early start and the vision of its first Prime Minister Lee Kuan Yew.

The story, according to Chris Miller’s Chip War: The Fight for the World’s Most Critical Technology (2022), goes that LKY told US President Richard Nixon in 1973 that he was counting on exports to create employment for his people — thereafter, the government of Singapore supported Texas Instruments and National Semiconductors in building assembly facilities in the city state.

By the early 1980s, the electronics industry was already accounting for 7% of Singapore’s GNP and a quarter of its manufacturing jobs, Miller notes.

Today, Singapore contributes around 10% of the global semiconductor output, along with 5% of the global wafer fabrication capacity (silicon wafer is a circular piece of ultra pure silicon, usually 8-12 inches in diameter, out of which chips are carved) and 20% of semiconductor equipment production.

Nine of the world’s top 15 semiconductor firms have set up shop in Singapore, and the semiconductor sector contributes significantly to the country’s economic growth. Singapore has players in all segments of the semiconductor value chain: integrated circuit (IC) design, assembly, packaging and testing; wafer fabrication, and equipment/ raw material production.

Some important lessons

In the 1960s and 70s, American chip makers, looking for lower labour costs and a sufficiently skilled workforce, started to offshore parts of their production process to countries in South-east Asia.

What worked especially for Singapore were infrastructure and connectivity, stable business conditions, a critical mass of leading companies based in the country covering the full value chain from design to testing, and suitable human capital.

Semiconductor plants in Singapore are clustered in four wafer fabrication parks spread over 374 hectares, where the government offers customised infrastructure solutions to investors.

To develop talent, Singapore’s universities offer majors on microelectronics and IC design, and collaborate with semiconductor companies in doctoral research by their employees.

Singapore is now seeing the benefits of the global focus on de-risking and improving supply chain resilience, as it appears to be a safe bet in the era of sharpening US-China rivalry.

* In 2022, Taiwan’s United Microelectronics Corporation announced an investment of $5 billion for a semiconductor fab in Singapore that is expected to begin operations this year.

* In September 2023, GlobalFoundries inaugurated a $4 billion fabrication plant in Singapore that is capable of manufacturing specialty chips at the advanced “28 nm” node technology.

* In June 2024, NXP Semiconductors and TSMC-backed Vanguard International Semiconductor Corp announced a $7.8 billion joint venture for a plant that will make 40 to 130 nm chips for the automotive, industrial, consumer, and mobile market segments. Production is expected to start in 2027.

Challenges, opportunities

In the view from New Delhi, Singapore’s semiconductor industry is limited to “mature-node chips” (process node technology of 28 nm or more), which are used in appliances, cars, and industrial equipment. It is not equipped to make high-end logic chips like the ones used in the AI sector (process nodes of 7 nm and smaller, requiring specialised production methods).

As the costs of production increase, semiconductor companies are seeking to diversify some low-cost and labour-intensive operations out of Singapore. For example, Utac, a semiconductor test and assembly services provider, has moved some of its more manual and technologically dated operations to Thailand. Also, Singapore does not appear keen on following the path of countries who are offering incentives to attract semiconductor investments.

As several countries including India work on building domestic semiconductor sectors, the industry in Singapore may come under pressure, especially with the increasing cost of production and the limited resources of land and labour in the country.

From New Delhi’s perspective, there is scope for collaboration with Singapore in talent development, and knowledge-sharing about best practices in managing semiconductor industrial parks (called Wafer Fab Parks in Singapore).

India’s abundant land and competitive labour costs could encourage semiconductor companies in Singapore to look at the country for their expansion plans. There is also scope for India to engage and collaborate with semiconductor equipment and material manufacturers in Singapore to develop its own semiconductor manufacturing ecosystem.