India has many hurdles to clear to become a major chip maker

• India will only have five semiconductor plants by 2029.
• India’s potential for growth in this sector is bolstered by several factors – a skilled workforce, government support, increasing market demand, and a strategically advantageous geopolitical position.
• India aims to expand the electronics sector to an impressive $500b by the end of the decade, a significant increase from current $155b.
• India can only produce chips at a 28nm process, thereby questioning its emergence as a top-tier competitor in the global arena.
• Country must prioritise the establishment of an environment conducive to sustained investment and innovation.

India stands at a critical juncture in its aspiration to become a significant player in the global semiconductor manufacturing landscape.

Historically dominated by a select few nations—most notably the United States, South Korea, Taiwan, and China—this industry has seen substantial shifts in recent years.

Companies like Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung have dominated the market through significant investments in cutting-edge technology and research and development. Meanwhile, US firms, such as Intel and NVIDIA, maintain leadership positions due to their intellectual property and design capabilities.

The past decade has witnessed an exponential surge in demand for semiconductors, outpacing supply and precipitating a global semiconductor crisis.

The situation has compelled countries to reevaluate their manufacturing strategies, recognising the need for self-reliance, particularly in light of geopolitical tensions.

Government strategy

According to Vision Research Reports, India’s semiconductor market size reached $34.32 billion in 2023 and is projected to touch $214.81 billion by 2033.

India’s potential for growth in this sector is bolstered by several factors: a skilled workforce, government support, increasing market demand, and a strategically advantageous geopolitical position.

The Indian government is actively working to attract leading technology firms through subsidy schemes, resulting in the approval and construction of five semiconductor units. This initiative marks a significant momentum in establishing India as a global semiconductor hub.

A key component of the government’s strategy includes upgrading the semiconductor laboratory in Mohali, which is anticipated to receive an enhancement once the proposal is submitted to the Cabinet.

Additionally, the rapid development of Micron’s high-end semiconductor fabrication plant in Sanand, Gujarat—the first of its kind in India—exemplifies the country’s transformative potential in this sector.

With operations expected to commence by late 2024, this facility is poised to be a cornerstone in bolstering India’s semiconductor production capabilities.

Modi’s ambitious vision

Prime Minister Narendra Modi has articulated an ambitious vision for India’s technological future, aiming to expand the electronics sector to an impressive $500 billion by the end of the decade, a significant increase from the current $155 billion.

His administration is keenly courting chip manufacturers, drawing from successful international strategies, as evidenced by Apple Inc.’s commitment to assemble $14 billion worth of iPhones in India.

The Indian government has already sanctioned investments exceeding $15 billion in semiconductor initiatives, underscoring its commitment to this vital sector.

Notable collaborations with companies such as Tata Group and Micron Technology highlight India’s proactive engagement in semiconductor manufacturing.

Yet, this journey is not without challenges.

Ajit Manocha, President and CEO of SEMI, indicates that to meet the ambitious target of attaining a $1 trillion semiconductor market valuation by 2030, approximately 150 new fabrication plants will be indispensable.

Niche opportunities

Reports from the Information Technology and Innovation Foundation (ITIF) suggest that India might only establish five chip fabs by 2029, producing chips at a 28nm process, thereby questioning its emergence as a top-tier competitor in the global arena.

Despite these hurdles—such as the need for high capital investment, technological expertise, and navigating complex supply chains—India has the capability to evolve into a semiconductor manufacturing powerhouse.

By addressing these challenges, fostering collaborations, and focusing on niche opportunities, India can not only reap significant economic benefits but also enhance its technological sovereignty.

As the digital age continues to evolve, successful navigation of this landscape will be pivotal for India’s standing on the global stage.

Recent planned investments by leading companies such as Intel, Samsung, and TSMC in Arizona have significantly outpaced India’s aspirations for semiconductor fabrication.

The substantial establishment of five new fabrication plants or fabs in Arizona illustrates a formidable commitment to advanced manufacturing capabilities, particularly in producing smaller, more efficient semiconductor processes.

Complex manufacturing processes

In contrast, the Information Technology and Innovation Foundation (ITIF) has assessed that India’s potential to build comparable fabs by 2029 remains limited.

“The intricacy of chip making cannot be overstated; it is among the most complex manufacturing processes. Unlike the relatively straightforward assembly of mobile phones—which can be accomplished with semi-skilled labour—chip manufacturing demands a high level of sophistication, precision, and expertise,” an industry expert told TechChannel News.

The complexity, he said underscores the importance of creating a robust semiconductor ecosystem in India, one that encompasses not only fabrication but also research and development, assembly, testing, and a network of suppliers.

For India to evolve into a formidable player in the semiconductor industry, he said the country must prioritise the establishment of an environment conducive to sustained investment and innovation.

“This includes fostering a comprehensive ecosystem that actively participates in all stages of production and maintains rigorous standards in cost competitiveness and technological advancement.”

Currently, he said that India’s limitations are evident; the country can produce chips only down to 28nm, thereby positioning itself on the periphery of the emerging artificial intelligence boom.

Furthermore, the expert said that India must address several “foundational challenges”.

Light at tunnel end

“Continuous access to essential resources such as water, gases, and electricity is crucial for the operation of fabs, which must run 24/7 to avoid prohibitive costs that arise from poor capacity utilisation,” expert said.

Additionally, he said that the development of skilled manpower remains a significant hurdle, as the construction of fabrication plants constitutes only the initial step toward establishing a thriving semiconductor industry.

Despite these challenges, he said that India’s integrated circuit design capabilities present a noteworthy strength.

To harness its potential in the global semiconductor value chain, experts emphasise the need for the government to uphold sound investment policies and cultivate a stable regulatory environment.

While India aspires to enhance its position in the semiconductor industry, comparisons with the technological prowess of the United States and China reveal considerable gaps.

The consensus among industry experts is that India is approximately 10 to 15 years behind established fab-producing nations.

“Nonetheless, there remains a potential for India to emerge as a significant player on the world stage, provided that conducive policies are implemented and relations with Western nations are leveraged to counterbalance competition from China,” experts said.

India’s strategic advantages

1. Skilled workforce: India boasts a large pool of engineers and technical professionals, a legacy of its strong emphasis on STEM (Science, Technology, Engineering, and Mathematics) education. With institutions of higher learning producing thousands of graduates each year, India has the potential to cultivate a skilled workforce that can be employed in various aspects of semiconductor design, manufacturing, and research.
2. Government initiatives: The Indian government has recognised the importance of semiconductors in the global supply chain and has initiated several programs to boost domestic production. The “Production Linked Incentive” (PLI) scheme is designed to incentiviwe companies to establish semiconductor fabrication plants in India, offering financial benefits for investments made in the sector. Furthermore, efforts are underway to create an ecosystem that supports research and development in semiconductor technology.
3. Market potential: India is one of the fastest-growing markets for electronics, driven by a youthful population and increasing digital adoption. As the demand for electronic devices rises, the need for semiconductors will surge, presenting an opportunity for domestic manufacturing. If India can establish itself in this industry, it could not only cater to its local market but also export semiconductors to other countries.
4. Geopolitical considerations: The rise of geopolitical tensions has underscored the importance of having a resilient and diversified supply chain. Nations are becoming increasingly wary of over-reliance on a few dominant suppliers. India’s strategic location and democratic governance model make it an attractive alternative for companies looking to diversify their manufacturing bases, especially in the context of U.S.-China relations.

Challenges to overcome

1. High Capital Investment: Semiconductor fabrication plants require substantial upfront investment, often in the billions of dollars. The cost of setting up a state-of-the-art fab is prohibitive, and attracting foreign direct investment (FDI) remains essential. While government initiatives can provide some support, the scale of investment necessary is still daunting.
2. Technological expertise: The semiconductor manufacturing process is highly complex and requires advanced technology and expertise. India lacks the sophisticated infrastructure and long-standing experience that other nations possess. Building this capability will take time and will necessitate collaboration with established global players in the industry.
3. Supply chain issues: The semiconductor ecosystem is intricate, involving a myriad of suppliers for raw materials, components, and equipment. India needs to develop not just fabrication capabilities but also the entire supply chain to support semiconductor manufacturing, from material sourcing to logistics and distribution.
4. Regulatory hurdles: Although the Indian government has launched several initiatives, bureaucratic inefficiencies and regulatory challenges could pose obstacles to prompt execution and operational efficiency within the semiconductor sector.
5. R&D investment: To compete on a global scale, India must increase investments in research and development. Innovation drives the semiconductor industry, and without a robust R&D framework, India risks falling behind in the competition for advanced semiconductor technologies.

Strategic opportunities

1. Partnerships and collaborations: India can benefit significantly from partnerships with established semiconductor companies and research institutions. Collaborative efforts can help transfer technology, build expertise, and create an integrated ecosystem conducive to semiconductor development.
2. Regional ecosystems: States such as Karnataka, Telangana, and Tamil Nadu are already emerging as tech hubs in India. By concentrating semiconductor manufacturing efforts in these regions, India could create a regional ecosystem that attracts investment, talent, and infrastructure development.
3. Focus on niche markets: Instead of trying to compete in all areas of semiconductor manufacturing, India could focus on niche markets where it has advantages, such as low-power semiconductor designs for IoT devices, automotive electronics, and other emerging technologies. This targeted approach may yield quicker wins and build a foundation for broader capabilities in the future.
4. Sustainability initiatives: With the global pivot toward sustainability and green technologies, India could harness its manufacturing capabilities to produce energy-efficient semiconductors. Such a focus would not only meet domestic needs but could also position India as a leader in sustainable semiconductor solutions globally.

If India can address these challenges effectively, the country has the potential to emerge as a powerhouse in semiconductor manufacturing. There are several strategic opportunities that can be leveraged.

With a rapidly growing consumer market and increasing demand for electronic devices, India offers significant opportunities for semiconductor companies.

By tapping into this vast market potential, India can become a key player in the global semiconductor industry and achieve trillion-dollar growth milestones.