India’s Potential in Semiconductor Manufacturing: Opportunities and Challenges
Introduction: Semiconductors?are the bedrock of digital economy, powering everything from smartphones to advance defense systems. with the increasing geopolitical tensions, supply chain disruptions and growing demand for electronic devices, the global semiconductor industry is experiencing unprecedented challenges and opportunities. India. a nation with large talent pool, a burgeoning technology ecosystem and its current strategic geopositioning , has emerged as a contender in the race to become a significant player in semiconductor manufacturing industry. This paper examines India's potential in the semiconductor sector, highlighting opportunities, government initiatives, challenges and road ahead.
Global Semiconductor Market and the Need for Diversification:
The global semiconductor market is projected to reach over $1 trillion by 2030, driven by innovations in artificial intelligence (AI), 5G networks, electric vehicles (EVs), and the Internet of Things (IoT). Traditionally, countries like Taiwan, South Korea, and the United States have dominated the semiconductor supply chain, with Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung accounting for a significant share of global chip production. However, the COVID-19 pandemic and geopolitical tensions, especially between the U.S. and China, have revealed vulnerabilities in the concentrated nature of semiconductor manufacturing.
To mitigate risks associated with over-reliance on a few players, countries are seeking to diversify their semiconductor supply chains. This has opened a window of opportunity for emerging economies, including India, to position themselves as alternative semiconductor hubs.
Structure:
The semiconductor market is structured into four different markets based on the functionality of the semiconductors as follows:
Revenue: (source - Statista)
The below data from Statista shows growth potential of Semiconductor by 2030
India's Advantages in Semiconductor Manufacturing:
Skilled Talent Pool : India's greatest asset is its vast pool of highly skilled engineers and IT professionals. With over 1.5 million engineering graduates each year and a workforce adept in software development and electronics, India has the talent necessary to support a growing semiconductor industry. Additionally, India's robust educational institutions, such as the Indian Institutes of Technology (IITs) and other research institutions, have the potential to contribute to semiconductor R&D and innovation.
Growing Demand for Electronics: India is one of the largest consumers of electronic goods, with a population of over 1.4 billion people. As the demand for smartphones, laptops, smart devices, and electric vehicles surges, India presents a large and growing domestic market for semiconductors. This internal demand makes the country an attractive location for semiconductor manufacturing, as it offers a guaranteed consumer base.
Strategic Geopolitical Positioning: India's geopolitical importance is another factor that can contribute to its success in semiconductor manufacturing. As global power dynamics shift and tensions between major economies intensify, India has positioned itself as a neutral and reliable partner. Its participation in key international alliances such as the Quad (India, the U.S., Japan, and Australia) could pave the way for strategic partnerships in semiconductor technology and manufacturing.
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Government Initiatives and Incentives: Indian government has recognized the importance of semiconductors in achieving its vision of becoming a global technology leader. Several policy initiatives and incentive schemes have been introduced to attract investments in the semiconductor sector:Production Linked Incentive (PLI) Scheme. In December 2021, the Indian government announced a $10 billion PLI scheme specifically for the semiconductor and display manufacturing industries. This initiative provides financial incentives to companies investing in setting up semiconductor fabrication units (fabs) and related infrastructure.
Semicon India Program: Launched as part of the Digital India initiative, the Semicon India program focuses on creating an ecosystem for semiconductor design, manufacturing, and research. It aims to support startups and R&D centres working on advanced semiconductor technologies.National Policy on Electronics (NPE) 2019. The NPE 2019 aims to position India as a global hub for electronics manufacturing. It includes provisions for promoting semiconductor fabs, chip design units, and related industries through various incentives and tax benefits.
Proximity to Global Markets: India's geographical proximity to major electronics manufacturing hubs in Southeast Asia, such as Vietnam, Malaysia, and Singapore, offers logistical advantages. Additionally, with China facing increasing scrutiny and export restrictions from the West, India can potentially serve as an alternative hub for semiconductor production, allowing for seamless integration into global supply chains.
Challenges Facing India's Semiconductor Ambitions:
Lack of Established Infrastructure: One of the most significant challenges India faces is the lack of a mature semiconductor manufacturing infrastructure. Unlike Taiwan or South Korea, India does not currently have operational semiconductor fabs capable of producing cutting-edge chips. Setting up semiconductor manufacturing facilities is highly capital-intensive, with the cost of establishing a single fab estimated to be between $5 to $10 billion. This includes the costs of acquiring advanced equipment, ensuring a stable power supply, and maintaining ultra-clean environments necessary for chip fabrication.
Supply Chain Constraints: Semiconductor manufacturing requires access to a complex supply chain of raw materials, specialized chemicals, and components. India lacks a well-developed semiconductor supply chain ecosystem, particularly in areas such as silicon wafer production, photolithography, and advanced packaging technologies. Developing this ecosystem will be essential for India to become self-reliant in semiconductor production.
Technological Gaps: While India has excelled in software development and IT services, semiconductor manufacturing requires expertise in hardware design, nanotechnology, and material sciences. Currently, there is a skills gap in the areas of chip design, fabrication, and packaging technologies. Building this technical expertise will require significant investment in R&D, training, and collaboration with global semiconductor leaders.
Energy and Water Requirements: Semiconductor fabs consume vast amounts of energy and water, both of which are areas of concern in India. Reliable access to uninterrupted power and large quantities of ultra-pure water are critical for semiconductor manufacturing. India's energy infrastructure, while improving, still faces challenges in terms of reliability and sustainability. Similarly, water scarcity in many parts of the country could pose a significant hurdle in establishing fabs.
Strategic Pathways to Realize India's Semiconductor Ambitions: For India to unlock its potential in the semiconductor industry, a multi-pronged strategy will be necessary:
Public-Private Partnerships: India's success in the semiconductor space will require collaboration between the government, private sector, and academia. Public-private partnerships (PPPs) can be instrumental in addressing infrastructure, skill development, and R&D challenges. These partnerships could involve both domestic players and foreign multinational companies with expertise in semiconductor technologies.
International Collaborations: Building international partnerships with semiconductor powerhouses like Taiwan, South Korea, and the United States will be crucial for India to leapfrog its technological gaps. Collaborative efforts in R&D, technology transfer, and joint ventures can accelerate India's semiconductor development. The U.S.-India Initiative on Critical and Emerging Technologies (iCET) is an example of such an initiative that can enhance India’s capabilities in the semiconductor space.
Strengthening the Education System: India's educational institutions need to develop specialized courses and programs in semiconductor technology, materials science, and nanotechnology. This will require collaboration between universities and semiconductor companies to ensure that the workforce is equipped with the necessary skills to support chip design and manufacturing.
Focus on Sustainability: Given the environmental challenges posed by semiconductor manufacturing, India should focus on sustainable practices from the outset. Investments in renewable energy, water recycling, and waste management will be critical in ensuring that semiconductor fabs are both economically viable and environmentally responsible.
In summary India has the potential to become a major player in the global semiconductor manufacturing industry. With a large domestic market, a talented workforce, and strategic government initiatives, the country is well-positioned to capitalize on the growing demand for semiconductors. However, significant challenges remain, including infrastructure limitations, supply chain constraints, and technological gaps. By fostering public-private partnerships, building international collaborations, and focusing on sustainability, India can realize its semiconductor ambitions and become a key player in the global semiconductor landscape.