Indian semiconductor industry – From a chip taker to a chip maker

The Government of India attaches high priority to electronics hardware manufacturing and it is one of the important pillars of both “Make in India” program. So, semiconductor manufacturers have vast opportunities to tap into this new market as long as innovation can keep up with the scaling consumer demand.

Semiconductors are in high demand across the world as there is no microelectronic device that has no semiconductor (also known as chips).

It is estimated that the Indian domestic semiconductor market will grow to be over US$ 110 billion in a few years.

Realising the importance of semiconductors and noting their proliferating demand and the highly vulnerable global supply chain (post Covid-19 pandemic), Government of India has decided to amp up its chip-making with localised manufacturing.

● AI and IoT have sparked a new wave of innovation in the semiconductor industry. And the launching of 5G networks lately, coincides with the growing demand for faster high-performance computing devices. Semiconductor market thus has lots of opportunities to offer for the manufacturers.

semiconductor_TPCI

Some like to call it the ‘brain’ of modern electronics, while others call it the ‘heart.’ Regardless of how they are identified and named, semiconductors (chips) are the tiny circuits that are present in plenty of electronic devices being used throughout the world. Semiconductors go into the making of computers, laptops, smartphones and other mobile communication devices, cars and aircrafts, military systems and other electrical devices and appliances.

The accelerated digitization around the globe along with the rise in OTT content has propelled a demand for electronic devices made of semiconductors. The work-from-home model adopted by many companies across the world during the pandemic further added to the growing demand for computers, laptops, smartphones and other such computing and electrical devices. 

The spurt in demand of such devices drove the global sale of semiconductor chips by 25% in 2021 to a record US$ 583.5 billion. Tapping on to this trend, the semiconductor industry is projected to register US$ 692.5 billion of sales by 2025 & US$ 1 trillion by 2030. 

Semiconductor sector in India

With the advent of 5G, semiconductors consumption in India is expected to cross US$ 80 billion by 2026 and US$ 110 billion by 2030. India’s electronic sector suddenly saw an unprecedented growth and with this growth the demand for computers, laptops, smart phones, and other devices has touched the sky in the last two decades. A government’s official estimate suggests that  a US$ 300 billion of domestic electronic production is likely to need upwards of US$ 58 billion semiconductors by 2026.

The size of the Indian semiconductor market is small when compared with the global market. This is attributed to the fact that India has been entirely dependent on the world for its semiconductors requirement. China, Taiwan, Vietnam and Korea are the major suppliers of semiconductors to India.

Total semiconductor imports by India from the world in the last 5 years
FY 2017 FY2018 FY2019 FY2020 2021
45.53 50.95 49.24 41.65 54.87

Source: ITC Trade map (Values in US $ billion).                                                       

Why does India import semiconductors?

The major reason as to why India is importing semiconductors in large volumes to meet its domestic needs is that in the semiconductor industry the returns are not immediate, they rather trickle over the years. The other reason is that chip making is a technology and capital-intensive industry and needs reliable access to power and water, things that India has often struggled to supply adequately in the past. Hence, the spirit of entrepreneurship in the semiconductor industry had been withheld for so long. 

It is largely for these reasons that Indian industrial giants did not want to lock in their money investing in semiconductors and were happy with perennially importing the semiconductors for meeting the domestic demand.

Top 10 countries exporting semiconductors to India

Exporters FY 2021
China 25.94
Hong Kong 8.50
Viet Nam 3.04
Singapore 2.90
Korea 2.69
USA 1.56
Taipei, Chinese 1.43
Germany 1.41
Japan 1.25
Malaysia 0.82

Source: ITC Trade Map (Values in US$ billion).

India moves towards being self-reliant

Realizing the importance of semiconductors and noting- their proliferating demand and the highly vulnerable global supply chain (post Covid-19 Pandemic), the Government of India has decided to amp up its chip-making with localised manufacturing.

Pursuing this goal of being self-reliant the Government of India has launched a Comprehensive programme for the development of a sustainable semiconductor and display ecosystem with an outlay of Rs.76,000 crore (>10 billion US$). This programme has emphasised that India intends to play a more prominent role in the highly globalised semiconductor supply chain and to make India a global hub for Electronics System Design and Manufacturing. The Ministry of Electronics & Information Technology (MeitY) in December 2021 notified 4 new schemes to reduce India’s dependency on imports and build an ecosystem for the production of semiconductors. These are:

  1. Scheme for setting up of Semiconductor Fabs in India
  2. Scheme for setting up of Display Fabs in India
  3. Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor Assembly, Testing, Marking and Packaging (ATMP) / OSAT facilities in India
  4. Design Linked Incentive (DLI) Scheme

 

The defining feature of the programme is to support all the major stages of semiconductor production: design; specialised fabs for compound semiconductors, silicon photonics and sensors; Assembly, Testing, Marking and Packaging (ATMP) units; display fabs; and semiconductor fabs.

Another move in the right direction is that the programme does not exclusively focus on the leading-edge nodes (28 nm and below). It instead presents an attractive opportunity for lower-cost speciality analog fabs at trailing nodes. The Programme has made India Semiconductor Mission (ISM) the nodal agency which is also likely to inspire confidence in investors. For supporting and encouraging the manufacturing units, Indian Government is also taking initiatives like-

PLI scheme for large scale electronics manufacturing launched by MeitY in FY 2020, has been extended from existing five-year band (FY21-FY25) to six-year (FY21-FY26).

The Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) will help negate the disability for domestic manufacturing of electronic components and semiconductors in order to strengthen the electronics manufacturing ecosystem in the country. It will be applicable to investments in new units and expansion of capacity/ modernization and diversification of existing units.  

In September 2021, the Indian Institute of Technology Indore and the Confederation of Indian MSME in Electronics System Design and Manufacturing (ESDM) and Information Technology (CIMEI), signed a Memorandum of Understanding (MoU) to collaborate and share knowledge and best practices as well as offer technological support for the growth of Indian start-ups and SMEs.

Optimizing the investment

India’s budget for the semiconductors industry – US$ 10 billion – is certainly a reasonable budget to start with. The US$ 10-billion investment by the Government could be optimised by having fabrication plants of different wafer fabs. It is really important for India to have different fabrication plants in the first 5 to 10 years so as to make-up for its late entry into the semiconductor manufacturing sector.

That India has very large, design capabilities is true and we need to leverage that. In its endeavour towards this direction India is pushing to engage with local universities and research institutes with the subjects and is also working with global universities at the same time. For example, in October 2021, Indian Institute of Technology (BHU) Varanasi announced that it is collaborating with Applied Materials India Pvt. Ltd, the Indian subsidiary of materials engineering firm Applied Materials, Inc., to conduct research on semiconductors. Similarly, National Institute of Science and Technology (NIST) Odisha, has recently signed MoU’s for research collaboration in the field of nanoscience, communications, semiconductor technology with the National Taiwan University and University of Electro Communications, Japan.

New investments- Driving India towards self-reliance 

The Government of India has received proposals from five companies to set up electronic chip and display manufacturing plants with investment of US$ 20.5 billion (₹1.53 lakh crore). These include Vedanta Foxconn joint venture, IGSS Ventures and ISMC propose to set up electronic chip manufacturing plants with US$ 13.6 billion investment and have sought support of US$ 5.6 billion from the Centre under the ₹76,000 crore Semicon India Programme. 

Elest, has submitted its proposal for setting up display fab projects with an investment of US$ 6.7 billion and has sought fiscal support of about US$ 2.7 billion from the government. Recently ISMC, a joint venture between Abu Dhabi based Next Orbit Ventures and Israel’s Tower Semiconductor, has signed a Memorandum of Understanding (MoU) with the Karnataka government to set up a semiconductor chip manufacturing plant in the state.

Fads and opportunities 

The semiconductor technologies have enabled researchers to develop everything from bomb detectors to smart glasses and have impacted everything from data centres, smart homes and cities to high-speed networks and the automotive industry. AI and IoT have sparked a new wave of innovation in the semiconductor industry. And the launching of 5G networks lately, coincides with the growing demand for faster high-performance computing devices. Semiconductor market thus has lots of opportunities to offer for the manufacturers.

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