Editorial: Semiconductor lessons

Global warming could come in the way of India realising its ambition of becoming a chip-making hub

India’s ambitious plan to emerge as a global manufacturing hub for semiconductors faces trouble from an unexpected quarter: climate change. The latest report by Moody’s, a global rating firm, has warned that climate change can damage manufacturing facilities, disrupt supply chains and lead to significant financial losses over the next few decades. The risks posed by global warming could deter investments in the industry and come in the way of India realising its ambition of becoming a chip-making hub. It is not just India but Taiwan, home to over 90% of the most advanced semiconductor manufacturing capacity, too is threatened by erratic weather patterns. Building semiconductors domestically is important for India’s vision to emerge as an electronics manufacturing hub and eventually reduce its imports from foreign countries, especially China – which remains the number one destination for the sector. Semiconductors have an all-pervading impact across sectors like automobiles, smartphones, laptops, tablets, consumer durables, gaming consoles and other electronic products. Promoting semiconductor fabs through a set of attractive incentives has become a geopolitical priority now. Though India traditionally had a strong base for the semiconductor design industry, hardware manufacturing has remained elusive. Semiconductors are among the most important commodities in the global market now and any break in supply will result in other production lines, such as cars and computers, coming to a halt. As the West tries to distance itself from China owing to evolving geopolitical tensions, India has pitched itself as a trusted alternative for electronics manufacturing.

Moody’s warning echoes the Intergovernmental Panel on Climate Change (IPCC) report in predicting that costs related to flooding, water stress and sea-level rise could escalate significantly over the next few decades. According to Moody’s risk management solutions, the costs of flooding are expected to rise by around 30%, sea level rise by 60% and heat stress by 150% by 2050 under a moderate climate change scenario. India has identified electronics and chip manufacturing as a key driver of economic growth. Now it must ensure it incentivises production that not only withstands climate change but also does not cause more damage to climate. However, India’s semiconductor programme has the advantage of being concentrated in greenfield centres with planned drainage systems. Developed as a part of the government’s Smart City Programme, these townships should find ways to prevent disruption during extreme rainfall events. The message from the Moody’s report is that India will not only have to handhold the semiconductor industry but also invest in climate-resilient infrastructure and nudge fab units to adopt environmentally sustainable practices. In December 2021, the Centre rolled out a $10-billion red carpet to woo chipmakers to help the country become self-sufficient and also a global supplier of chips at a time when the demand-supply gap is widening by the day, disrupting the supply chain and increasing the overall manufacturing costs.