Opinion Message from Moody’s: Government must handhold semi-conductor industry

In December 2021, the Centre launched the Semicon India Programme with an outlay of Rs 76,000 crore for the development of a semiconductor manufacturing ecosystem in India. The scheme was modified a year later to increase incentives to the industry. Experts have rightly pointed out that the government’s plan to make India a semi-conductor hub would require not just financial backing but also investments in talent development. Now a report by the global rating firm, Moody’s, has underlined another challenge. Climate change can damage manufacturing facilities, disrupt supply chains and lead to significant financial losses. The report warns that 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. India is not the only country that faces such a challenge. Taiwan, the current leader in semi-conductor manufacturing, is also threatened by erratic weather patterns.

Today, silicon chips have become as essential as oil reserves. They enable advances in computation and are embedded in smartphones and defence equipment. They are also integral to clean energy appliances and machines such as electric vehicles, solar arrays and wind turbines. Here lies a paradox. The industry’s environmental footprint is large. Chip fabrication plants — fabs — consume large amounts of water and generate hazardous waste. The sector is amongst the top GHG emitters today. In face of pressure from investors, however, a section of the industry is taking steps to clean up its act. Two years ago, the world’s largest chip maker, Taiwan’s Semiconductor Manufacturing Company, which supplies to Apple, amongst others, pledged to reach net zero emissions by 2050.

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Samsung, Intel and several companies in Europe have reportedly started conducting GHG audits. India’s fledgling semi-conductor sector could find itself challenged by these outfits. At the same time, units in India have the advantage of starting from a relatively clean slate. They can learn from the experience of companies in other parts of the world and incorporate global best practices at the outset.

Moody’s echoes IPCC reports in saying that costs related to flooding, water stress and sea-level could escalate significantly by 2050. India’s Semicon programme does have the advantage of being concentrated in greenfield centres that do not have the crippling legacy of poorly planned drainage systems. Planned as a part of the government’s Smart City Programme, these townships should find ways to prevent disruption during extreme rainfall events. The government has been positioning Dholera in Ahmedabad as a chip-making hub. It should be alert to heat-related stresses in the region that, by all accounts, are likely to be aggravated because of climate change. The message from the Moody’s report is clear: Government will have to handhold industry, invest in climate-resilient infrastructure and nudge fab units to adopt sustainable practices.