India emerging as major player in the semiconductor manufacturing industry

Indian semiconductor industry in 2022 was US USD 27 Billion, with over 90% being imported, and therefore a significant external dependence for Indian chip consumers. This is very similar to other key markets like the USA and the EU who have high dependence on imports primarily from Taiwan and China where there is a major concentration of semiconductor manufacturing.

With supply side concentration, the semiconductor crisis over the past two years severely disrupted the manufacturing of smartphones, personal computers, automobiles, and consumer electronics –products and segments impacting economic well-being of individuals as well as the GDPs of nations.

With this in perspective, the Government of India announced a US USD 10 billion program for the development of semiconductors and display manufacturing ecosystem in India covering both manufacturing and design with an objective of attracting investments in semiconductor manufacturing and design to position India as a major hub for semiconductors. The package incentivises by providing fiscal support of 50% of project costs through a pari-pasu arrangement, thereby enabling a significantly de-risked model for semiconductor companies.

On the demand side, growth of the semiconductor industry in India is expected to be driven by the increasing semiconductor content across consumer electronics and automobiles including EVs and, increasing demand for smartphones as the number of smartphones in India is projected to reach a billion by 2026. Further, the rollout of 5G and increasing adoption of IoT devices would accelerate the adoption of smart devices.

With these, the Indian semiconductor market is expected to reach USD 55 Billion by 2026, growing a CAGR of 20% CAGR during the period 2022-2026. In addition, the global demand for semiconductors is envisaged to grow exponentially with advancement in technology. The establishment of a strong manufacturing and design base for semiconductors with enable India to address not only the growing domestic market with a very resilient model but also support global requirements competing with the traditional supply sources on a level playing field.

But India is not alone. The USA and the EU are planning to accelerate their semiconductor production in addition to semiconductor design through policy initiatives such as the CHIPS Act to cater to increasing demand and reduce import dependency. Under the CHIPS Act, the US government is providing incentives to set up semiconductor fabs that could be operational in the next 3-4 years.

This provides a major opportunity for India as increased global semiconductor production will require last mile support in the form of assembly, testing, marking, and packaging (ATMP) for successful integration into end use applications. India can leverage the opportunity by setting up Outsourced Semiconductor Assembly and Test (OSAT) facilities and integrating with the global semiconductor value chains. These value chain dimensions are covered in India’s semiconductor program.

While the manufacturing ecosystem for India is new and emerging, the R&D landscape is one where over the years many major semiconductor enterprises have set up large R&D bases in India to leverage the talent of India’s engineers and researchers. Currently, India employs a total of 55,000 design engineers primarily involved in engineering support functions. With the Design Linked Incentive scheme, the government intends to encourage transition into value added research in chip designing in the country.

This is expected to generate 250,000 new jobs in the semiconductor industry across R&D, manufacturing, and other enabling sectors. To fulfil this talent pipeline and to create a comprehensive R&D ecosystem in India, there is strong need for skill development and re-skilling a host of technicians, engineers, and researchers in areas such as material science, system-on-chip (SoC), system modeling, electromagnetics, plasma chemistry, lithography, microelectronics, silicon processing, smart factory automation specialists, and chip designing.

As India embarks on this journey, there are some key considerations for organizations to plan and address, including high capital requirements, long gestation periods and potential competition from expansions / footprint in established manufacturing countries.
The opportunity for India to emerge as a major player in semiconductors and enhance its participation in the global value chain, with both demand and supply side trends being attractive, cannot be better timed and needs to be captivated.

Semiconductor manufacturing will not only elevate India’s position in the global manufacturing and value chain ecosystem but also provide a significant opportunity to create jobs, boost economic growth and establish India as a leading player in the global technology market and become a global hub for chip technology in the next decades.