A New Push to Semiconductor Ecosystem in India

The global semiconductor industry finds itself at a pivotal geopolitical juncture, with the United States and India strengthening strategic collaborations to counterbalance China’s technological supremacy. Initiatives such as the Indo-U.S. Critical and Emerging Technology Partnership (iCET) and the CHIPS Act highlight significant investments by both nations to establish resilient semiconductor ecosystems.

These efforts prioritize the development of critical technologies, skilled talent, and secure supply chains. For India, the Semiconductor Mission presents a groundbreaking opportunity to localize electronics manufacturing, address talent gaps, and position itself as a reliable global partner in cutting-edge technological innovation.

Current Status of India’s Semiconductor Sector

Market Size:
The Indian semiconductor market was valued at $26.3 billion in 2022 and is projected to grow at a CAGR of 26.3%, reaching $271.9 billion by 2032.

Import-Export Trends:
India’s semiconductor imports still far exceed exports, but export figures have shown growth, rising from $0.21 billion in 2017 to $0.52 billion in 2022.
Although the pandemic disrupted global trade, India’s semiconductor sector demonstrated a strong recovery in 2021, driven by efforts to integrate into the global semiconductor value chain.

Government Initiatives:

• India Semiconductor Mission (ISM): Focuses on creating a comprehensive semiconductor ecosystem, offering fiscal incentives covering 50% of project costs for fabs and display manufacturing units.
• Semicon India Programme (2021): Allocated ₹76,000 crore ($9.2 billion) to accelerate semiconductor manufacturing and research and development efforts.
• International Collaborations: Signed MoUs with the European Commission and Japan to enhance supply chain resilience and foster global ecosystem partnerships.

Why Investing in Semiconductors is Crucial for India

• Strategic Importance in Geopolitics:
  India’s ambitions for self-reliance and its key role in global geopolitics make semiconductor production a priority.
• The US-China tech rivalry underscores the importance of achieving semiconductor independence.
• According to the World Semiconductor Trade Statistics (WSTS), the global semiconductor market is projected to grow to $1 trillion by 2030, with India’s consumption expected to surpass $100 billion by 2026, driven by growth in electronics and automotive industries.

Boost to Domestic Manufacturing under Atma Nirbhar Bharat:

• Semiconductors form the backbone of electronics manufacturing, which is pivotal to India’s “Make in India” and “Atma Nirbhar Bharat” missions.
• India aims to capture 10% of the global semiconductor market by 2030.
• Domestic production can curb India’s reliance on imports, which currently cost the country $24 billion annually.
• The Semiconductor Mission, with an investment of $10 billion, seeks to position India as a global hub for chip production, supporting sectors like mobile manufacturing and 5G.
• Notable developments include Tata Electronics’ partnership with Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC) to establish India’s first AI-enabled semiconductor fab in Gujarat.

Economic Growth and Job Creation:

• Semiconductor manufacturing has the potential to significantly boost India’s GDP and create millions of jobs across industries.
• Projects like Vedanta-Foxconn’s proposed fabs are expected to generate 1 lakh direct jobs in the coming years.
• A robust semiconductor ecosystem can stimulate India’s startup ecosystem, especially in hardware development.
• Small and Medium Enterprises (MSMEs), contributing 30% to India’s GDP, can benefit from affordable chips, enhancing their competitiveness.
• Startups like Saankhya Labs, which innovate in semiconductor design, showcase India’s potential for indigenous chip development.

Ensuring Supply Chain Resilience:

• The global chip shortage during the COVID-19 pandemic exposed vulnerabilities in India’s electronics and automotive sectors.
• By investing in domestic production, India can reduce dependence on global supply chains and avoid disruptions.
• For instance, the global automotive industry faced $110 billion in losses in 2021 due to chip shortages, with Indian manufacturers experiencing production delays.

Strengthening Technological Sovereignty:

• Semiconductors are integral to technologies like AI, IoT, and quantum computing, which are crucial for technological sovereignty.
• Countries like the US and EU are making significant investments to reduce dependency on Chinese supply chains.
• India’s Digital India RISC-V program and partnerships with companies like Micron Technology, which is setting up a $2.75 billion facility in Gujarat, highlight its push for self-reliance.

Promoting Green Technology and Renewable Energy:

• Semiconductors play a critical role in green technologies like solar panels, electric vehicles (EVs), and smart grids.
• Domestic production will help India achieve its renewable energy goals, including its target of 500 GW of non-fossil fuel capacity by 2030.
• Chips are essential for technologies like solar inverters and EV batteries, which are key to India’s energy transition.
• The use of power semiconductors in renewable energy markets is projected to grow at a CAGR of 8%-10% by 2027.

Enhancing National Security and Cyber security:

• Semiconductors are vital for advanced defence systems, including missiles, drones, and secure communication networks.
• Dependence on foreign chips increases risks of espionage and cyber vulnerabilities.
• India’s DRDO is leading initiatives to develop indigenous chips for strategic sectors, enhancing self-reliance in defence electronics.
• A Bangalore-based firm, commissioned by DRDO, is developing an indigenous receiver chip for secure navigation and communication systems.

Key Issues Hindering the Progress of India’s Semiconductor Sector

High Capital Costs and Limited Financial Backing:

• Semiconductor manufacturing requires massive capital investments, with fabs costing upwards of $10 billion each, creating significant barriers for India.
• For instance, Micron Technology’s facility in Gujarat received $2.75 billion in funding but requires consistent financial commitment over the next decade to sustain operations.
• Globally, countries like the US have allocated $53 billion under the CHIPS Act, dwarfing India’s budget.

Lack of Skilled Workforce:

• Semiconductor fabrication demands highly specialized expertise in areas like nanotechnology, material science, and process engineering, which India currently lacks at scale.
• While India has a strong semiconductor design workforce (20% of the global share), fabrication and packaging talent remains minimal.
• The semiconductor industry faces a potential skill gap of 250,000 to 300,000 professionals by 2027, which is a significant concern.

Weak Infrastructure and High Energy Demand:

• Semiconductor fabs require advanced infrastructure, including uninterrupted power, water, and cleanroom environments, which are limited in India.
• A single fab can consume as much electricity annually as a small city and up to 10 million gallons of ultrapure water daily.
• For example, the Vedanta-Foxconn project faced delays due to inadequate water and power supply chains.
• In contrast, Taiwan provides renewable energy support to its semiconductor hubs, ensuring operational efficiency.

Insufficient R&D Ecosystem:

• India’s semiconductor ambitions are hindered by the lack of a robust R&D ecosystem to develop indigenous chip technology.
• Most of India’s semiconductor capabilities are focused on chip design, leaving manufacturing and material research reliant on imports.
• According to a McKinsey report (2023), India invests only 0.65% of its GDP in R&D compared to South Korea’s 4.8%.
• The absence of foundational research partnerships and university-industry collaboration further slows innovation.

Geopolitical Dependencies on Imports:

• India is heavily dependent on imports for semiconductor equipment and raw materials like silicon wafers, making its supply chain vulnerable to global disruptions.
• Over 75% of the world’s semiconductor production is concentrated in East Asia, with China being a dominant supplier of raw materials.
• The ongoing US-China tech war exposed these vulnerabilities, with India’s electronics manufacturing suffering delays and increased costs.
• In 2022, India imported semiconductors worth $24 billion, highlighting its import dependence.

Long Gestation Period and Low ROI:

• The semiconductor industry operates on a long gestation cycle, with fabs taking 4–5 years to become operational and even longer to achieve profitability.
• Investors often hesitate due to the high initial costs and slow returns. For instance, the US-based Intel took nearly a decade to recover its fab investments, even with government support.
• In India, startups and MSMEs find it particularly challenging to invest in such long-term projects without sustained subsidies and market guarantees.

Limited Role of Private Sector in Fabrication:

• While India’s private sector is strong in software and design, its role in semiconductor fabrication is minimal due to high costs and technical barriers.
• Most semiconductor initiatives are government-led, with limited private investment in fab infrastructure.
• For instance, companies like Infosys and Wipro dominate chip design but have no presence in fabrication.
• In contrast, Taiwan’s semiconductor success stems from private giants like TSMC, which have driven the industry with government support.

Fragmented Approach Across States:

• India’s federal structure leads to fragmented policies, with states competing rather than collaborating on semiconductor investments.
• States like Gujarat, Karnataka, and Tamil Nadu offer competing incentives, overshadowing other states and hindering unified semiconductor hubs.
• In contrast, China coordinates semiconductor development at a national level, ensuring seamless integration of resources across regions.

Low Focus on Advanced Nodes:

• India’s semiconductor ambitions currently focus on legacy and mature nodes (28nm and above), which are insufficient for advanced technologies like AI, quantum computing, and 5G.
• Global demand is shifting toward advanced nodes like 5nm and 3nm, with TSMC and Samsung leading this market.
• Without investments in advanced node capabilities, India risks being limited to low-value segments of the semiconductor market

Measures India Can Adopt to Strengthen Its Semiconductor Ecosystem

Enhancing Financial Incentives and De-Risking Investments:

India should offer enhanced financial incentives, including tax breaks, subsidies, and low-interest loans, to attract semiconductor investors and ensure the long-term sustainability of projects.

A dedicated Semiconductor Development Fund could help mitigate the risks associated with the long gestation period of fabs.

India can take inspiration from the US CHIPS Act ($52 billion) and implement a similar model to provide financial stability to the industry.

Building a Skilled Workforce Through Specialized Training:

Developing a skilled workforce in semiconductor design and fabrication is critical.

India can establish specialized training centers in collaboration with global leaders like TSMC and Samsung.

Programs such as the India Semiconductor Mission’s plan to train 85,000 professionals should be expanded and aligned with industry requirements.

Scholarships in nanotechnology and VLSI design through IITs and NITs could address immediate skill shortages.

Fostering Public-Private Partnerships (PPPs):

• Strengthening public-private partnerships can enhance innovation and scale in India’s semiconductor ecosystem.
• Private companies can focus on chip design and innovation, while the government can manage large-scale fabrication facilities.
• A collaborative model, akin to TSMC’s public-private synergy, could streamline investments and operations.
• Partnerships like Vedanta-Fox conn are promising but require clearer frameworks to avoid delays in execution.

Investing in Semiconductor R&D Ecosystem:

• India needs to establish R&D centres dedicated to materials innovation, chip design, and advanced nodes.
• Government grants and private funding should be allocated to create semiconductor research hubs in collaboration with academic institutions.
• Programs like Digital India RISC-V (DIR-V) can serve as a foundation for developing indigenous chips.

Improving Infrastructure for Fabs:

• Infrastructure challenges, such as uninterrupted power supply, ultra-pure water availability, and clean room environments, must be addressed to support fabs.
• Industrial clusters near semiconductor hubs, particularly in states like Gujarat and Karnataka, should be developed.
• Fast-tracking renewable energy projects for fabs, similar to TSMC’s solar-powered facilities, can help lower operational costs.
• Government-backed infrastructure projects, such as dedicated semiconductor parks, should be prioritized.

Strengthening the Supply Chain for Raw Materials:

• India should focus on developing an indigenous supply chain for critical semiconductor materials like silicon wafers and rare earth elements.
• Strategic partnerships with countries like Australia and Japan for sourcing rare earth materials can reduce dependence on China.
• Investments in local production facilities for silicon wafers and chemicals would enhance supply chain resilience.
• For example, India’s recent MoU with the International Energy Agency (IEA) on critical minerals could be tailored for semiconductor needs.

Promoting Advanced Node Development:

• To stay competitive in cutting-edge technologies like AI, quantum computing, and 5G, India must invest in advanced nodes (below 10nm).
• Establishing advanced research labs for smaller nodes, with robust government funding, is essential for entering high-value global markets.

Creating a Semiconductor Export Hub:

• India should leverage its strategic location and cost-effective labor to position itself as a global semiconductor export hub.
• Incentives should be provided to attract global players to set up chip packaging, testing, and design facilities in India.
• Free trade agreements with technology-importing nations could ensure preferential access to global markets.

Simplifying Regulatory Approvals and Bureaucratic Processes:

• India needs to streamline its regulatory framework to make it more attractive to global semiconductor investors.
• Setting up a single-window clearance system for semiconductor projects can reduce delays and improve investor confidence.
• For instance, bureaucratic inefficiencies that delayed the Vedanta-Fox conn project must be resolved through more transparent and efficient processes.

Establishing a National Semiconductor Task Force:

• A National Semiconductor Task Force should be created to harmonize state and central efforts and streamline policy implementation.

Encouraging Domestic IP Development:

• India must promote the creation of indigenous semiconductor intellectual property (IP) by supporting startups and research institutions.
• Initiatives like the “Chip-to-Startup” program should be expanded to focus on IP creation for industries like automotive and IoT.
• Providing subsidies or grants to incentivize patent filings can help boost India’s global ranking in semiconductor IP development.

India’s semiconductor mission has the potential to position the country as a global technology hub. The realization of this ambitious vision will depend on sustained government support, private sector investments, and cutting-edge technological innovations. Establishing a robust semiconductor ecosystem will not only enhance India’s digital economy but also bolster its strategic standing in the global technology arena.

The End of the Blog: A New Push to Semiconductor Ecosystem in India