The pandemic underscored the importance of self-reliance, prompting countries to rethink their semiconductor strategies
The microchip shortage resulted from a surge in demand, driven by the digital shift caused by COVID-19, affecting consumer electronics and remote work requirements
Recognising the need to reduce its dependence on imported semiconductors MeitY has unveiled a $10 Bn commitment towards the India Semiconductor Mission (ISM)
The global semiconductor landscape is undergoing a profound transformation, with countries like Taiwan (TSMC), South Korea (Samsung), and the United States (Intel, AMD) dominating the industry.
However, the COVID-19 pandemic exposed vulnerabilities in this global supply chain. Shutdowns and disruptions reverberated across industries, making it clear that diversifying the sources of critical components is imperative.
The pandemic underscored the importance of self-reliance, prompting countries to rethink their semiconductor strategies.
India’s Electronics Consumption Surge
India has witnessed a remarkable surge in electronics consumption in recent years. The Indian semiconductor industry is projected to achieve a market value of $55 Bn by 2026, driven primarily by the demand for semiconductors in smartphones and wearables, automotive parts, and computers and data storage, which together make up over 60% of the market.
However, India’s dependency on imports for these crucial components has exposed its vulnerability to global supply chain disruptions, exemplified during the COVID-19 pandemic.
India’s heavy reliance on semiconductor imports, constituting 95% of its supply from countries like China, Taiwan, South Korea, and Singapore, exposed vulnerabilities during disruptions like the pandemic.
The microchip shortage resulted from a surge in demand, driven by the digital shift caused by COVID-19, affecting consumer electronics and remote work requirements. Concurrently, production disruptions in key manufacturing nations due to lockdowns and labour shortages, especially in Taiwan, a major producer responsible for over 60% of global foundry revenue, severely impacted semiconductor availability.
Additionally, as other industries dependent on microchips slowed production due to the pandemic, it exacerbated the gap between demand and supply. The imbalance led to a scramble among semiconductor producers and suppliers, triggering hoarding and worsening the supply crisis, ultimately impacting electronic production in India.
The effect of semiconductor shortage was highlighted in the year 2022, witnessing a loss of about 170,000 units by Maruti Suzuki India. This crisis underscored the urgent need for India to establish domestic semiconductor production capabilities.
A Step Towards Self-Reliance: India’s $10 Bn Incentive Package
Recognising the need to reduce its dependence on imported semiconductors, the Ministry of Electronics and Information Technology (MeitY) has unveiled a $10 Bn commitment towards the India Semiconductor Mission (ISM).
This move underscores the government’s ambition to establish a presence in the semiconductor sector. The investment encompasses funding, manufacturing incentives, and the Design Linked Incentive (DLI) program, designed to support emerging Fabless startups in creating products for both domestic and international markets.
For instance, Micron Technology has revealed plans to invest upwards of $800 Mn in the establishment of a fresh semiconductor assembly and testing facility in Gujarat, India. This move is poised to bring about a substantial transformation in India’s semiconductor sector, simultaneously leading to the generation of numerous high-tech and construction employment opportunities.
Persisting Challenges
Setting up semiconductor fabs is a daunting task, primarily due to their capital-intensive nature, as the costs involved are substantial, which may dissuade potential investors. However, it’s essential to recognise that these investments are not solely for the present; they serve as the seeds for a high-tech future.
The significant funds channelled into these fabs today will ultimately yield cutting-edge technology and contribute to the emergence of a technologically empowered nation in the years to come.
Moreover, semiconductor fabs demand critical resources such as clean water, uninterrupted power, and specialised human expertise.
These prerequisites are not mere immediate necessities but rather the foundational building blocks of a technologically advanced future. The infrastructure investments made today will continue to underpin India’s semiconductor industry for an extended period, ensuring its growth and sustainability.
Nonetheless, India faces tough competition from well-established global players in East Asia, who boast decades of experience and robust supply chains. Competing with these industry giants necessitates a long-term commitment rather than being a short-term challenge.
To thrive in this competitive landscape, India must strategically invest in semiconductor R&D and manufacturing capabilities while nurturing a supportive ecosystem for innovation and growth.
India’s Collaborative Approach
India has taken significant steps to bolster its semiconductor industry by entering into Memorandums of Understanding (MoUs) with international consortia such as IGSS Ventures, ISMC, and Vedanta Foxconn.
These agreements mark a pivotal move towards establishing semiconductor fabrication facilities (fabs) within the country. To further incentivise and facilitate this endeavour, the Indian government has committed to providing substantial fiscal support, covering up to 50% of the project costs for these fabs.
This strategic partnership with international consortia underscores India’s determination to develop a robust semiconductor manufacturing ecosystem. The government’s commitment to offering financial support demonstrates its recognition of the capital-intensive nature of semiconductor fabs and its dedication to creating an attractive investment landscape for this high-tech sector.
These developments are poised to play a pivotal role in India’s journey towards achieving self-sufficiency and competitiveness in the semiconductor industry, marking a significant milestone in the country’s technological advancement.
Building The Fab Niche
Several strategic locations have been earmarked for the establishment of chip fabrication units in India, with a particular focus on states like Karnataka, Tamil Nadu, Telangana, and Gujarat. These states have been selected for their advantageous attributes, which make them well-suited for semiconductor manufacturing.
These locations were chosen because of their existing infrastructure, which can expedite semiconductor fab setup and reduce initial costs. They also nurture thriving semiconductor ecosystems, encouraging collaboration and innovation.
This ecosystem includes research institutions, educational centres, and specialised companies, which are crucial for long-term semiconductor manufacturing growth.
Furthermore, these regions offer an abundance of skilled talent, including engineers and researchers, essential for fab success. These sites aren’t just for current factories but are seen as seeds for future technological ecosystems, expected to attract more investments, talent, and research initiatives.
The Road Ahead: India’s Ambitious Goals
India’s foray into semiconductor manufacturing holds significant promise for various sectors, including automotive, telecom, and medical devices. While the initial focus is on meeting current demands, the broader objective is to prepare for the future.
This ambitious vision not only aims to boost electronics manufacturing and employment but also aims to insulate India from global supply shocks, marking a pivotal step towards technological self-reliance.
Driving this transformative initiative is a coalition of key players, including the Ministry of Electronics and IT, India Semiconductor Mission, ISA, IGSS Ventures, and the Vedanta-Foxconn JV. The successful collaboration among these entities will play a decisive role in the execution of India’s semiconductor plans.
Furthermore, talent development is a core focus area, with the government planning to train 85,000 engineers and skilled workers to support the semiconductor ecosystem. Programs like “Chips to Startup” facilitate technical education, emphasising that this investment in human capital is not merely for the present but lays the foundation for India’s technological future.
In parallel, India is fostering innovation and research through initiatives such as the Semiconductor Laboratory (SCL), Institute of Semiconductors Technology (IST), and Centers of Excellence.
These efforts are not solely aimed at immediate outcomes; they are sowing the seeds for future breakthroughs. Additionally, strengthening the supply chain by domestically manufacturing semiconductor materials like silicon wafers, gases, and chemicals is enhancing self-reliance and securing the supply chain for India’s technological future.
This comprehensive approach aligns with India’s broader vision of Make in India and Atmanirbhar Bharat), which has the potential to attract significant investments and drive economic growth.
Furthermore, geopolitical tensions and China’s dominant position in the global electronics supply chain have spurred India’s strategic efforts to reduce its reliance on imports. Establishing semiconductor fabs within the country not only enhances India’s leverage and bargaining power in the supply chain but also bolsters national security by granting control over critical technology.
The push for self-reliance in semiconductor production aligns with India’s broader economic and geopolitical objectives. India’s proactive approach to partnering with like-minded nations in initiatives like the Supply Chain Resilient Initiative (SCRI) and joining the Indo-Pacific Economic Framework (IPEF) underscores its commitment to diversify supply chains away from China.
By making ‘chipmaking’ a national priority and collaborating with global players, India aims to position itself as a reliable and self-sufficient destination in semiconductor manufacturing, contributing to both economic growth and strategic autonomy.
To Conclude
Investing in India’s semiconductor fab plans isn’t merely a financial transaction. It’s a stake in India’s technological future. It’s a bet on a nation that is determined to rise as a semiconductor superpower.
As India navigates the challenges and invests in the ecosystem, it’s building a foundation for a future where it’s not just a consumer of technology but a creator and innovator.
The journey ahead is marked by challenges, but it’s also filled with immense opportunities. India’s path to semiconductor self-sufficiency is a testament to its unwavering commitment to technological empowerment, economic growth, and environmental sustainability.
