India’s Semiconductor Aspirations

This editorial is based on the article “Securing India’s Semiconductor Future,” published in The Hindu Business Line on 18/09/2024. The piece discusses India’s strategic initiative to develop a domestic semiconductor industry to lessen import dependency and enhance national security, supported by the Semiconductor Mission and the PLI scheme. Despite ongoing challenges such as high investment costs and resource management, this endeavour is essential for establishing India’s position in the global electronics value chain.

• For Prelims: Semiconductor ecosystem, Semiconductor Mission, Production-Linked Incentive (PLI) scheme, Semicon India Programme, Design Linked Incentive (DLI) scheme, 5G, artificial intelligence, quantum computing, Special Economic Zones.
• For Mains: Current status of the semiconductor industry in India, key challenges in achieving India’s semiconductor goals.

India is strategically advancing towards building a domestic semiconductor ecosystem to lessen its dependence on imports and address global supply chain risks. Launched in 2021, the Semiconductor Mission features a USD 10 billion investment. This initiative is vital for national security, particularly in critical areas such as defense and telecommunications. The Covid-19 pandemic and recent geopolitical tensions have underscored the risks associated with relying heavily on foreign semiconductor sources, especially from Taiwan, Japan, and South Korea.

Although India has advanced through initiatives such as the Production-Linked Incentive (PLI) scheme, considerable challenges persist. Setting up semiconductor fabs demands substantial capital investments and presents challenges in resource management, especially concerning water usage. Despite these obstacles, India’s commitment to the semiconductor sector represents a long-term strategic effort to secure a place in the global electronics value chain and strengthen technological self-reliance.

Current Status of the Semiconductor Industry in India

Market Overview:

• 2022 Market Size: USD 26.3 billion
• Projected Growth: Expected to reach USD 271.9 billion by 2032, with a compound annual growth rate (CAGR) of 26.3%.

Import-Export Scenario:

• Imports:
  • 2021: USD 5.36 billion
  • India remains a net importer, though efforts are ongoing to decrease this reliance.
• Exports:
  • 2022: USD 0.52 billion (the highest recorded to date).

Government Initiatives:

• India Semiconductor Mission (ISM): A specialized division within the Digital India Corporation focused on developing a robust semiconductor and display ecosystem.
  • Provides fiscal support covering 50% of project costs for semiconductor and display fabs.
• Semicon India Programme: Launched in December 2021 with a budget of ₹76,000 crore (USD 9.2 billion) to enhance semiconductor and display manufacturing.
  • FY24 budget increased to ₹6,903 crore (USD 833.7 million) to further support development.
• International Collaborations:
  • MoU with the European Commission: Aims to strengthen semiconductor ecosystems under the EU-India Trade and Technology Council.
  • MoC with Japan: Seeks to enhance semiconductor supply chain resilience between the two countries.

Significance of Semiconductors for India

Economic Growth and Industrial Development: Semiconductors play a vital role in driving India’s economic progress, especially within the electronics manufacturing sector.

• The global semiconductor market is anticipated to hit USD 1 trillion by 2030, with India aiming to secure a substantial share.
• The USD 10 billion Semiconductor Mission launched by the government in 2021 is projected to create 35,000 high-quality jobs and indirectly support 100,000 more positions.
• Effective implementation of this mission could elevate India’s electronics manufacturing sector to USD 300 billion by 2026.

National Security and Strategic Autonomy

Semiconductors play a crucial role in national security and strategic autonomy, particularly within defense and telecommunications.

• These small electronic components are essential for powering everything from smartphones and computers to advanced military systems and critical infrastructure.
• Building domestic semiconductor capabilities will enable India to maintain a reliable supply for crucial defense technologies and secure communication networks.

Technological Self-Reliance and Innovation

Building a strong semiconductor ecosystem can greatly boost India’s technological self-reliance.

• India currently imports around 65-70% of its electronic components, predominantly from China.
• Efforts such as the Design Linked Incentive (DLI) scheme are designed to promote domestic innovation and decrease import dependency.
• This initiative is particularly important for advancing emerging technologies like 5G, artificial

Global Supply Chain Integration and Job Creation

Global Supply Chain Integration: India’s semiconductor initiatives are focused on establishing the country as a significant player in the global electronics supply chain.

• Currently, India accounts for only about 3% of the global electronics manufacturing value chain.
• Government policies, such as the Production-Linked Incentives (PLI) scheme, aim to attract international companies and integrate India into global supply networks.

Job Creation and Skill Development: While the semiconductor industry requires substantial investment, it holds great potential for creating high-quality jobs and advancing skill development in India.

• The industry can drive the development of a skilled workforce in cutting-edge technologies.
• The need for specialized skills in areas such as chip design, nanofabrication, and advanced packaging is expected to enhance STEM education and research at Indian institutions.

Key Roadblocks in India’s Semiconductor Ambitions

Infrastructure Challenges: India’s expansive geography and uneven development present significant hurdles for the semiconductor industry.

• Issues such as unreliable power supply, water scarcity, and inadequate transportation infrastructure can obstruct the setup and operation of semiconductor manufacturing facilities.
• For instance, the 2024 heatwave led to power shortages in several regions, impacting industrial operations, including semiconductor production.

Talent Gap: The semiconductor sector demands highly skilled professionals with expertise in areas like chip design, manufacturing, and testing.

• Despite a large engineering talent pool, India faces a shortage of semiconductor specialists.
  • A recent study estimates a shortfall of 250,000 to 300,000 semiconductor professionals by 2027.
• This gap could impede the development of a robust semiconductor ecosystem and limit India’s attractiveness to global semiconductor manufacturers.

High Manufacturing Costs: Semiconductor manufacturing is capital-intensive, with high operational costs.

• The expense of establishing and running semiconductor fabs in India is notably higher than in established hubs like Taiwan, South Korea, and the United States.
  • The semiconductor manufacturing price index rose by 4.9% in 2021 and by another 2.4% in 2022.
• This cost disparity could make India less appealing to global semiconductor companies, affecting investment levels.

Global Supply Chain Dynamics: The semiconductor industry relies heavily on a global supply chain.

• Disruptions, such as geopolitical tensions or natural disasters, can significantly impact India’s semiconductor goals.
  • The Russia-Ukraine conflict, affecting neon supply critical for chip manufacturing, exemplifies this vulnerability.
• Securing a reliable supply of raw materials, components, and technology is essential for India’s semiconductor sector success.

Environmental Concerns: Semiconductor manufacturing is energy-intensive and can have environmental impacts, including water usage and greenhouse gas emissions.

• The industry accounts for 31% of global greenhouse gas emissions, with the increasing use of electronic chips further intensifying this problem.
• The production of smart meters and other electronics requires substantial electricity and fossil fuels.

• Addressing environmental concerns while promoting sustainable development poses additional challenges for the semiconductor industry in India.

Competition from Other Emerging Markets: India faces competition from other emerging markets such as Vietnam, Malaysia, and Indonesia, which are also vying for semiconductor investments.

• Malaysia, for example, has successfully attracted major semiconductor companies like Infineon.
• These countries may offer more favorable incentives, better infrastructure, and skilled talent pools, making them more attractive to global semiconductor firms.

Steps India Can Take to Achieve Semiconductor Goals

Enhance Semiconductor Education and Training: India should expand and upgrade semiconductor engineering programs in universities and technical institutes.

• Partnerships with global semiconductor firms could help develop industry-relevant curricula and provide hands-on training.
• For instance, the Indian Institute of Science (IISc) in Bangalore could collaborate with Taiwan Semiconductor Manufacturing Company to create a specialized semiconductor fabrication program with a state-of-the-art clean room facility.

• Enhance Domestic Chip Design Expertise: Investing in chip design capabilities, utilizing current software expertise, is essential.
• Establish dedicated chip design centers in tech hubs like Bangalore, Hyderabad, and Pune, offering infrastructure and incentives for startups and established firms.
• The success of the Shakti processor developed by IIT Madras demonstrates India’s potential. Expanding such initiatives could lead to the development of India-specific chip designs.

Create a Robust Semiconductor Supply Chain: Building a comprehensive semiconductor supply chain within India is essential.

• Attract investments in various segments, from raw material production to advanced packaging.
• Establish Special Economic Zones (SEZs) for semiconductor ecosystem development, providing tax breaks and streamlined regulations to attract global players.

Establish a Sovereign Semiconductor Fund: Create a dedicated sovereign fund for semiconductor investments.

• This fund would provide long-term capital for projects, reducing reliance on foreign investments.
• Similar approaches in South Korea have successfully supported the development of a robust semiconductor industry.

Implement a “Chip Diplomacy” Strategy: Leverage India’s geopolitical position and market size to negotiate technology transfers and partnerships.

• Offer preferential market access or strategic partnerships in exchange for semiconductor technology and expertise.
• For example, India could work with Japan to establish a joint semiconductor research center focused on advanced packaging technologies.

Develop a “Green Semiconductor” Initiative: Position India as a leader in environmentally sustainable semiconductor manufacturing.

• Focus on technologies that reduce water usage, lower energy consumption, and minimize chemical waste.
• Partner with companies like Applied Materials to set up a pilot fab using recycled water and renewable energy sources.

Establish a National Semiconductor Commons: Create a shared infrastructure model for semiconductor research and prototyping.

• Provide access to expensive equipment and facilities for startups and institutions.
• Establish a national network of nanofabrication facilities similar to the National Nanotechnology Infrastructure Network (NNIN) in the US.
• This model would foster innovation and collaboration among academia, industry, and government.

Conclusion

To realize its semiconductor ambitions, India must enhance education and training, develop a robust domestic supply chain, and pursue strategic international collaborations. By addressing infrastructure and talent gaps and promoting sustainable practices, India can secure its place as a key player in the global semiconductor industry and achieve technological self-reliance.

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