India's Growth in Semiconductor Industry: Deep Analysis

India, one of the fastest emerging economies, is on its ambitious journey to become a global semiconductor manufacturing hub. With the vast talent pool, remarkable government support, an increasing number of chip design startups, and the involvement of foreign players, India continues to promote “AtmaNirbharta,” a self-reliance campaign to reduce its semiconductor import burden and strengthen domestic manufacturing capabilities.

According to the Indian Brand Equity Foundation, IBEF, the country is expected to be the home of over 200 semiconductor design and embedded software startups and companies, showcasing a burgeoning market potential for India to disrupt the global chip-making industry.?

A joint report by Counterpoint Research and the India Electronics & Semiconductor Association (IESA) valued India’s semiconductor industry at US$ 22.7 billion in 2019. The domestic market of semiconductors in 2022 surpassed US$27 billion, with over 90% import volume from countries like Taiwan, China, South Korea, and the United States. Global economies like the EU and America are also registering high dependence on the import of semiconductors and related products, particularly from China and Taiwan.?

According to a recent report by Counterpoint Research, the Indian semiconductor industry is expected to witness stellar growth in the coming years and is likely to surpass the projected valuation of US$64 billion by 2026. The report also says that the domestic telecom stack and industrial applications will be responsible for 66% of the total value.?

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Indian Semiconductor Market Overview

A crystalline-based material, the semiconductor is primarily made up of silicon, tin, gallium, germanium, and other elements. These small chips facilitate electricity conductivity among the insulator and conductors. Semiconductors are used in a variety of electronic devices, including cloud servers, mobile phones, and cloud servers.?

These devices are critical for modern autos, defense systems, and industrial automation. Considering their strategic and economic importance, only a few countries have successfully developed chip-making capabilities while others are on their journey to reduce significant import burden and achieve self-reliance.?

The Taiwan Semiconductor Manufacturing Company, TSMC of Taiwan, and Samsung of South Korea are two major players responsible for up to 70% of global supply. As of FY 2021, India was the world’s 19th largest exporter of semiconductor devices, with an annual export value of US$160 million. In comparison, it remained the ninth largest importer of semiconductors, with an annual import worth US$ 2.17 billion.?

Existing Semiconductor Market Size in India?

Owing to their capability to provide computational power to modern electronic devices, including consumer electronics like smartphones and laptops, defense systems, and industrial automation, the size of the global semiconductor market is expected to grow exponentially.?

The global chip-making industry is currently valued at US$ 500 to US$ 600 billion, which is responsible for catering to the demand of the global electronic industry, which is valued at around US$ 3 trillion. In 2021, India’s electronics consumption was estimated at US$400 billion, supporting the domestic chip manufacturing market, valued at around US$ 50 to US$ 60 billion.?

In the last two years, domestic electric consumption and the transition towards electronic and modern mobility solutions have risen, which has pushed domestic chip consumption to US$ 8.25 billion.?

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Government of India Incentive Schemes & Initiatives

In 2021, when global semiconductor scarcity was noticed, including in India, the Government of India introduced its Product Linked Incentives (PLI) Scheme with a budget allocation of US$ 10 billion. Under this flagship program by the Government of India, it was aimed to set up over 20 semiconductor design, component manufacturing, and display fabrication units across the country in the next six years.?

The center also claimed to cover up to 50% or half of the semiconductor manufacturing project costs on the pari-passu arrangement, while 2.5% of the sanctioned budget was earmarked to assist cutting-edge research & development, employee training and skill development.?

The ISM CEO Amitesh Kumar Sinha, in the recently organized webinar by Invest India and India Semiconductor Mission, said that over 70% of the semiconductor manufacturing project costs are being incentivized by Central and State Governments, where the center is funding up to 50% of manufacturing costs while remaining are incentivized by state governments.?

According to Bloomberg, the Government of India has re-opened the application process for its US$ 10 billion incentive scheme. Previously, Prime Minister of India, Sh Narendra Modi, gave only 45 days for companies to apply for this financial aid. The sources also claim that the center now plans to accept applications until its budget under the PLI scheme is exhausted.?

India’s semiconductor industry employs over 55,000 design engineers collectively responsible for overseeing diverse engineering functions. With the efficient and accessible availability of the PLI scheme, the Government of India aims to promote value-added chip-design research and attract foreign players to establish their semiconductor design and development facilities in India.?

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Key Growth Enablers of India’s Semiconductor Industry?

With the increasing demand for consumer electronics and the indispensable use of emerging technologies like artificial intelligence (AI), machine learning (ML), and the Internet of Things (IoT), the global semiconductor industry has seen remarkable growth in recent years. India, one of the biggest markets and fastest-growing economies, is a promising player in the global semiconductor industry.?

According to numerous reports, the Indian semiconductor industry is expected to surpass 64 billion by 2026, while the Government of India has aimed to double this growth by 2030, achieving the domestic chip-making industry valuation at US$ 110 billion and securing at least a 10% share in the global semiconductor market.

India and the USA have formed a strategic partnership through the Critical and Emerging Technology (iCET) initiative, launched in January 2023, to accelerate this growth trajectory. Moreover, the Semiconductor Industry Association (SIA) and India Electronics Semiconductor Association (IESA) have mutually agreed to build close relationships to strengthen India’s chip manufacturing industry. This critical agreement aims to strengthen India’s global position by streamlining and enhancing each phase of semiconductor production, including design, fabrication, and assembly.?

India’s robust financial support of US$ 30 billion for chip-making and related industries has also proliferated the domestic semiconductor market and its competitiveness on the global stage. This financial support includes US$ 10 billion for semiconductor and display manufacturing units, US$ 7 billion for electronics, and US$ 13 billion for other sectors, including solar photovoltaic cells, electric and modern automobiles, and white goods.?

The consumer electronics and related sectors are expected to lead the strong demand for semiconductors, giving a substantial push to the domestic semiconductor industry. India’s emerging standing in this sector has also attracted multinational companies to diversify their global supply chain and reduce their dependence on primary manufacturing units.?

The Design Linked Incentive (DLI), Chips to Startups (C2S), and Scheme for Promotion of Electronic Components and Semiconductors (SPECS) are also making a positive impact on India’s semiconductor industry.?

Moreover, the Government of India has launched several skill development programs like SANKALP, Skill Acquisition and Knowledge Awareness for Livelihood Promotion, which aims to train around 10 million people in various sectors, including ESDM, and PMKVY, Pradhan Mantri Kaushal Vikash Yojana, under NSDC.?

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Major Investment in Indian Semiconductor Industry?

The joint venture between Vedanta and Foxconn has decided to set up their semiconductor and display manufacturing facilities in Dholera Special Investment Area. They also plan to collaborate with Europe-based chip maker STMicroelectronics as a technology partner for their proposed manufacturing plant.?

Vedanta-Foxconn will develop India’s first semiconductor production plant in Ahmedabad, Gujarat, comprising a display fab unit, semiconductor assembly, and testing unit, where Foxconn will bring cutting-edge technology, and Vedanta provide robust financial support.?The proposed investment is said to be valued at over US$ 20 billion.?(Recent Update - Foxconn Technology Group has pulled out of its joint venture with Vedanta Ltd)

Previously, ISMC proposed to set up a US$ 3 billion semiconductor fab in Karnataka, which is likely to be operational in the next four to five years. India’s first chip manufacturer, Polymatech, has officially commenced the production and sales of its chips and successfully developed the capability to produce 400,000 chips regularly.?

The Ministry of Electronics and Information Technology has also announced plans to upgrade its semiconductor laboratory in Mohali with an allocated budget of around US$ 1.25 billion. Micron Technology has proposed to invest US$ 800 million to build its semiconductor assembly and testing facility in Gujarat, India.?

Road Ahead?

India’s semiconductor industry is constantly witnessing positive influence not only by the Central and State Governments of India but also by domestic and foreign players like ISMC and Next Orbit Investments. With massive investment, favorable global market conductions, international collaboration, constant government support, and a strong focus on value-added technology advancement, India is on its growth stage to emerge as a global semiconductor manufacturing hub.?

As India continues to take critical initiatives, attract foreign players, and support semiconductor and related industries, it is likely to become a leading player in the chip design and manufacturing industry.?

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