Core Potential
The global semiconductor situation is changing dramatically, and India is soon to emerge as a rising contender. India has been a high-tech semiconductor design center for decades with an enormous share of the world’s chip designing fraternity. The vision, however, for the Indian semiconductor industry now extends way beyond design, and it is envisioned to build a full eco-system of manufacturing, Assembling, Testing, and Packaging (ATP). This transformative shift is driven by a mix of drivers like growing local demand for electronics, geopolitical drivers of supply chain security, and aggressive government initiatives. Appreciation of this evolving context puts challenging terrain along with limitless opportunities on the center stage that are defining the trajectory of the semiconductor industry in India.
Local demand for semiconductors in India is one of the key drivers for growth. India’s burgeoning digital economy, increasing middle class, and increasing discretionary incomes are propelling industry consumption of electronic devices. From smartphones and consumer electronics through automotive electronics (especially with Electric Vehicle or EV innovation), telecommunications infrastructure (like 5G rollout), and industrial automation, the need for chips is broadening. Industry estimates are placing India’s market for semiconductor consumption at $52 billion by 2024-25 and may jump to $103-110 billion by 2030 with a high compound annual growth rate. Such robust domestic demand is a natural market for indigenously produced semiconductors, and it is a pleasing stimulus to invest in the semiconductor industry in India.
Seizing the strategic strength of semiconductors, the Indian government has kicked off a number of ambitious initiatives to establish an indigenous and competitive semiconductor industry in India. The lead program, the India Semiconductor Mission (ISM), launched in December 2021 with a heavy budgetary allocation, will work towards building a sustainable semiconductor and display ecosystem along the value chain – design, fabrication, and ATP units. Large schemes under ISM are highly beneficial from the financial point of view, i.e., to the tune of 50% of the cost of projects for setting up silicon-based semiconductor wafer fabrication units and display fabs and compound semiconductors, sensor, and ATMP/OSAT plants. A few projects have already been approved by the government under this scheme, i.e., those of Tata Electronics, CG Power, and Micron Technology, which are milestones in the semiconductor industry in India. Apart from these, schemes like Production Linked Incentive (PLI) for large scale electronics and “Chips to Startup” (C2S) programme for talent creation are further reinforcing the ecosystem.
With these positive trends notwithstanding, Indian semiconductor industry is faced with extremely many grim challenges. The largest amongst them is the enormous capital investment and technological complexity of establishing advanced fabrication facilities (fabs). Equipping an advanced fab may cost billions of dollars alone, and the constant requirement to stay up-to-date with rapidly changing technology nodes (e.g., shrinking chips) requires high recurring R&D costs. As a new player, India will have to contend with well-established semiconductor clusters in Taiwan, South Korea, China, and the USA, all of which have spent decades nurturing their advanced ecosystems and benefiting from economies of scale. It is not just good incentives but also a robust and reliable support environment that is required to attract foreign giants to invest so much in such a huge way. Inadequately developed indigenous supply chain for raw material and equipment of strategic value is another major challenge of the semiconductor industry in India.
The production of semiconductors is very equipment- and material-intensive, using highly sophisticated inputs like silicon wafers, high-purity gases, speciality chemicals, and ultrapure water, and highly advanced manufacturing equipment. India is presently very import-dependent on most of these strategic inputs. Development of a local supply base of semiconductor-grade equipment and materials will involve massive investment in upstream industries, R&D, and training personnel in order to assure quality and reduce reliance on foreign supply chains, which may fall prey to geopolitics or natural disasters. Second, the lack of skilled semiconductor manufacturing hands continues to remain a chronic issue with the ‘semiconductor industry in India’.
While India is rich in engineering human capital and is also well-equipped in chip design, highly qualified personnel for high-complexity fabrication technologies, advanced packaging, and equipment engineering are in short supply. To meet this, the government, industry, and academia are joining hands to design personalized courses, training, and research programs to build an industry-ready pool of talent that can fuel and power the country’s semiconductor dreams. The likes of Skill India Semiconductor Program (SISP) hope to train scores of engineers in chip designing, manufacturing, and testing. Despite these failures, the Indian semiconductor industry has enormous potential.
Apart from servicing national requirements, India is capable of competitively placing itself in some segments of the global value chain, such as design services, outsourced semiconductor assembly and test (OSAT), and even niche production of advanced nodes or compound semiconductors. International pressure to diversify supply chains, due to geopolitical shifts, is offering India a window of opportunity to lure investment and be a certain alternative production center. In addition, India’s strong IT services sector and increasing capability to make electronics can be a good synergy with an accessible market as well as the skilled human capital for the new semiconductor industry in India. Increased indigenous innovation spearheaded by startups and the government can also facilitate the development of application-specific integrated circuits (ASICs) and other customized chip solutions aligned more suitably to the unique needs of the Indian market. Overall, the Indian semiconductor industry is at the crossroads, poised on the cusp of a gigantic growth and transformation.
While staggering challenges of capital outlays, supply chain setup, and talent acquisition are present, the robust domestic demand, government support in the form of initiatives like the India Semiconductor Mission, and global attempts at supply chain diversification provide opportunities that are inexorable. The journey to becoming a seamless part of the world semiconductor ecosystem will be that of continuous investment, strategic partnerships, consistent technology innovation, and single-minded focus on building a strong, well-established, skilled talent pool. The successful evolution of the semiconductor industry in India will not merely make it economically robust but also a world technology leadership champion.
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