According to estimates by McKinsey, the global semiconductor (or chip) industry revenue is poised to reach $1 trillion by 2030, propelled by the rising demand from the automotive, computation and data storage, and wireless sectors. Meanwhile, the Semiconductor Industry Association states that global semiconductor sales have risen 23.2 per cent year on year in the third quarter of 2024 to $166 billion. These tiny circuits are witnessing significant demand due to their presence across multiple devices, ranging from consumer electronics and automobiles to modern defence and aerospace systems.
Simultaneously, over the past couple of years, the chip war between the US and China has been intensifying, driven by national security concerns and protectionism. Consequently, the US and its allies (such as the Netherlands and Japan) have imposed several curbs on the export of chip-making machines to China. Further, the Covid pandemic highlighted the critical need to reduce supply chain dependencies on China, previously the world’s leading semiconductor hub. This shift presented India with a pivotal opportunity to capitalise on this techno-nationalist wave and make its mark on the global semiconductor landscape.
Building a resilient semiconductor supply chain
Rising to the occasion in March 2024, the foundation stone of the Tata Electronics Private Limited-Powerchip Semiconductor Manufacturing Corp. unit, India’s first commercial semiconductor fabrication facility, was laid at Dholera (Gujarat) with an investment of Rs 910 billion. Despite being a latecomer in the international semiconductors space, India is working to transition from being a chip importer to a globally renowned chip-maker.
The Indian government has set aside a total outlay of Rs 760 billion under the India Semiconductor Mission (ISM), providing the required fiscal support needed for the industry’s growth and expansion. The mission encompasses four schemes to promote the sector: for setting up domestic semiconductor fabs; for setting up display fabs; for developing compound semiconductors/silicon photonics/sensors, as well as semiconductor assembly, testing, marking and packaging (ATMP)/outsourced semiconductor assembly and test (OSAT) facilities; and the design-linked incentive scheme. The government is expected to launch the next phase of ISM, focusing on new semiconductor hubs such as Noida (Uttar Pradesh), with significant funds earmarked for this initiative. The $10 billion assistance under the production-linked incentive scheme for semiconductors, coupled with a substantial 355 per cent increase in the allocation for the Modified Programme for the Development of Semiconductors and Display Manufacturing Ecosystem in India under Union Budget 2024 is another step in the right direction. Moreover, the budget has exempted import duty on 25 minerals, including gallium, germanium and copper, which are needed for semiconductor production.
The government also aims to train 85,000 students to design semiconductor chips within five years at the Centre for Development of Advanced Computing’s ChipIN Centre, which is equipped with the most advanced tools for the entire chip design cycle. The government has successfully auctioned 14 blocks under the amended Mines and Minerals (Development and Regulation) Act, 1957, and is reportedly planning to auction up to 20 critical mineral blocks for deeper exploration under the new licence regime. Moreover, to encourage private sector participation in mining, the government has launched the Scheme for Partial Reimbursement of Exploration Expenses for Holders of Exploration Licences on June 24, 2024. It offers 50 per cent reimbursement on mining expenses accrued while exploring critical minerals, with a maximum cap of Rs 0.2 billion.
India’s partnership with the US to strengthen the global semiconductor supply chain is another strategic endeavour. Similarly, its collaboration with Singapore for semiconductor cluster development and talent cultivation underscores India’s commitment to this ambitious goal. The Indian government is also considering applying for licences to explore the Pacific Ocean for deep-sea minerals.
As a result, these schemes have led the union cabinet to approve several semiconductor foundries across the country, in addition to the Dholera project. These include Micron Technology’s ATMP unit in Sanand (Gujarat) with a total proposed investment of $2.75 billion; Tata Semiconductor Assembly and Test’s ATMP unit in Morigaon (Assam) with an investment of Rs 270 billion; CG Power-Renesas Electronics Corporation-Stars Microelectronics ATMP plant in Sanand with an investment of Rs 76 billion; and Kaynes Semicon’s OSAT facility in Sanand with an investment of Rs 33.07 billion.
Other projects in the pipeline include the Adani Group-Tower Semiconductor’s proposed $10 billion joint semiconductor fab facility in Panvel (Maharashtra); Suchi Semicon’s OSAT facility in Surat (Gujarat) with an investment of $100 million; Foxconn-HCL Group’s OSAT joint venture in Noida (Uttar Pradesh) with an investment of Rs 4.24 billion; ASIP Technologies-APACT’s OSAT and ATMP unit in Hyderabad (Telangana) with an investment of Rs 8.9 billion; and the Hiranandani Group’s proposed ATMP unit in Noida with an investment of Rs 25 billion. Artificial intelligence (AI) is also spurring a new innovation wave in the sector, with NVIDIA being in initial discussions with India to jointly develop an AI chip tailored to meet the country’s unique needs.
Further, estimates predict India’s semiconductor industry to cross $100 billion in revenues by 2030 on the back of government support and the mounting demand to build digital infrastructure.
Challenges to becoming a global semiconductor superpower
While India’s goals for the semiconductor space are commendable, it needs to overcome some initial hiccups. Firstly, as evident from the previously discussed investments, the semiconductor industry is highly capital-intensive. For instance, according to the World Trade Organization’s (WTO) Global Value Chain [GVC] Development Report, 2023, the cost of building a bleeding-edge semiconductor fab has amplified from $200 million in 1983 to $20 billion in the early 2020s.
Another major entry barrier is the geographic division of labour, which has led to regional concentration within the GVC over the years. While American firms have traditionally focused on integrated circuit designs, semiconductor companies in East Asia have focused on wafer fabrication, accounting for about 80 per cent of the global wafer fabrication between 2018 and 2023, as per the WTO findings. Given the internationalisation of the division of labour and the fragmentation of the industry, mastering the semiconductor value chain is an uphill task, even for established players such as the US, which is a global player. For India, still in the nascent stages of its chip industry, this task is even more daunting.
The scarcity of critical raw materials needed to produce semiconductors and the reliance on other countries to meet its domestic needs is another bottleneck for the Indian semiconductor industry. In 2023-24 the country’s electronics, telecom and electrical product imports soared to $89.8 billion, with China and Hong Kong accounting for 56 per cent of India’s total imports in critical areas. For example, in 2023, China exported silicon wafers amounting to $318 million, registering a 91.2 per cent year-on-year spike. This is hardly a surprise, given China’s mineral monopoly – which currently constitutes around 98 per cent, 48 per cent and 60 per cent of the global gallium, antimony and germanium production respectively. Even in the Pacific Ocean, with the successful trial of its Kaituo 2 (Pioneer 2) vehicle, China is already showing off its muscles. Paradoxically though, the country has now started imposing export restrictions on key semiconductor metals such as gallium, antimony and germanium. To make matters more complicated, the Institute for Energy Economics and Financial Analysis projects India’s demand for critical minerals to more than double by 2030. While the government is taking measures to bolster indigenous mining capabilities, an analysis from S&P Global suggests that the journey from the discovery of minerals to its production ranges globally between 10 and 29 years.
Lastly, while the Indian government is working to bridge the talent and infrastructure gap in semiconductor design, it still has a long way to go. A recent BCG study states that the country houses 19 per cent of the world’s chip designers and 7 per cent of chip design facilities, compared to China (28 per cent of chip designers and 12 per cent of design facilities) and the US (32 per cent of chip designers and 27 per cent of design facilities). Incorporating semiconductor design courses in more academic institutions is the need of the hour.
Conclusion
India must overcome several obstacles to leapfrog in the global semiconductor rat race. That said, the government and the industry have acknowledged these challenges and are taking steps to address them. The industry, for its part, is focusing on the ATMP segment of the chip GVC (as seen in recent cabinet approvals). According to some experts, this strategy mirrors the approach taken by Korea, Taiwan and Singapore when they were setting up their own chip industry. Further, forming foreign collaborations and exploring the integration of AI into chips is another strategic move to leverage the technical expertise of companies such as NVIDIA and PSMC before India is ready to fill China’s shoes. Meanwhile, the government has implemented numerous measures, such as friendshoring, creating infrastructure and offering attractive incentives, to create a conducive ecosystem for the industry to burgeon. However, developing talent and infrastructure, reducing dependence on China for critical imports, and mastering different stages of the value chain will take time. S
