India is entering the global race for semiconductor manufacturing. On the one hand, it is looking to expand its st­ra­tegic alliances in the field of semiconductors and on the other, it is seeking to draw chip manufacturing into the country.

In 2019, the government launched the India Semiconductor Mission (ISM) in line with its Make in India initiative. Si­n­ce then, it has put in place a $10 billion in­centive plan to attract manufacturers to set up new semiconductor fabrication pl­an­ts (fabs) in the country.

Market snapshot

The world is facing a severe semiconductor and chip supply crisis, which hit industries across sectors when the Covid pandemic started in 2020. This crisis has in­tensified over the past couple of years and companies in multiple industries are struggling to meet the rising demand for electronic goods and components. In India too, several companies, from carmakers to el­ectronics goods manufacturers, have be­en forced to curtail production as a result. The shortage has hurt not only businesses but also customers, who are bearing the burden of higher input costs.

These disruptions in the semiconductor industry and electronics system design and manufacturing supply chain have reiterated the importance of diversified and reliable resources. Consequently, govern­me­nts and big corporations worldwide are working strenuously to strengthen the semiconductor and ESDM supply chain.

The India story

According to the government, India will consume semiconductors worth $70 billion-$80 billion to manufacture electronic products worth $300 billion by 2026. New-age demands are opening up major opportunities for Indian industries to tap. They can potentially build material, equi­p­ment and service capabilities, thereby making no­table contributions to the global semiconductor manufacturing supply chain.

India’s semiconductor market, pegged at $119 billion in 2021, will grow at a co­m­pound annual growth rate of 19 per cent to $300 billion by 2026, according to a joint study by the Indian Electronics and Semi­conductor Association and Counter­point Re­search. The study notes that In­dia is poi­sed to be the second-largest market in the wo­rld from the perspective of scale and de­mand growth for semiconductor components across several industries and applications.

Incentives and recent initiatives

The Indian government notified the semiconductor policy in December 2021. Acc­ording to the gazette notification, the government will provide up to 50 per cent of the project cost for two semiconductor and two display fabrication plants in the country. Additional infrastructure support will be provided through the Electronics Ma­nu­facturing Clusters 2.0 scheme, de­ma­nd aggregation, support for research and development, and skill development and training, alongside support offered by the state governments. Support under the scheme will be provided on a pari passu ba­sis for a period of six years.

Recently, the cabinet approved the production-linked incentive (PLI) scheme for semiconductor and display bo­ard production in the country. The sche­me envisages an investment of Rs 760 billion in semiconductor production over the next five to six years. Under the scheme for setting up semiconductor fabs and display fabs in India, the government will ex­tend fiscal support of up to 50 per cent of the project cost on a pari passu basis to applicants who are found eligible and have the technology and capacity to execute such projects. In addition, it will work cl­osely with the state governments to establish high-tech clusters with the requisite infrastructure in terms of land, semiconductor grade water, high quality power, and logistics and research facilities to ap­prove ap­plications for setting up at least two greenfield semiconductor fabs and two display fabs in the country.

In September 2022, the cabinet ap­p­roved changes in the PLI scheme for manufacturing semiconductors. Under the revised terms, the PLI scheme will now provide uniform fiscal support of 50 per cent of the capital expenditure of a project in pari-passu mode for setting up compound semiconductors/silicon photoni­cs/ se­n­so­rs/discrete semiconductor fabs and assembly, testing, marking and packaging (ATMP)/outsourced semiconductor ass­em­b­ly and test (OSAT) facilities. The mo­dification to the initially announced incentive is based on the government’s assessment that mature technology nodes of 45 nanometre (nm) and above will continue to garner high demand, driven by automotive, power and telecom applications. The 45nm and above market segment still constitutes around 50 per cent of the total semiconductor market.

The Union Cabinet also approved a proposal that the Ministry of Electronics and Information Technology take the requisite steps for the modernisation and commercialisation of a semiconductor laboratory. Under the scheme for setting up compound semiconductor/silicon photonics/ sensor (including MEMS) fabs and semiconductor ATMP/OSAT facilities in India, the government will extend fiscal support of 30 per cent of capex to app­ro­ved units. Fifteen such units for compound semiconductors and semiconductor packaging are expected to be established with government support under this scheme. In addition, the design-linked incentive sche­me will extend a product design-linked in­centive of up to 50 per cent of the eligible expenditure, and a product deployme­nt-linked incentive of 4-6 per cent on net sales for five years. This aims to facilitate the growth of 20 such companies, which can achieve a turnover of over Rs 15 billion in the next five years.

Setting up shop

The government’s measures have started gaining traction with stakeholders setting up shop in the country. Recently, the Ma­ha­rashtra government approved the proposal of the joint venture (JV) of the Ve­danta Group and Foxconn for setting up a semiconductor chip and display fabrication manufacturing facility at Talegaon near Pune. The state is expected to receive a total investment of Rs 2.06 trillion, of which the Vedanta-Foxconn JV will invest Rs 1.6 trillion and Rs 400 billion will be generated from other sources.

Also, Vedanta Limited, along with its JV partner Foxconn, has signed an MoU with the Gujarat government to set up a semiconductor unit and display production plants in the state. Vedanta will set up the di­splay manufacturing unit at an investment of Rs 945 billion ($19.5 billion) and separate chip-related production units by investing Rs 600 billion ($7.58 billion). The JV recently selected the Dholera Special In­­vestment Region in Gujarat for setting up the semiconductor and display manufacturing facility, reportedly the first semiconductor manufacturing facility in India.

Upping the R&D game

Stakeholders have also started scaling up their efforts to boost research and development (R&D) in the semiconductor spa­ce. In a bid to promote the semiconductor eco­system in the country, NXP Semi­co­n­ductors inaugurated a new state-of-the-art systems and silicon innovation lab at the NXP Semiconductors Campus in Ma­n­yata Tech Park, Bengalu­ru. Meanwhile, T-Hub has launched the semi­conductor cohort of the Atal Incubation Centre (AIC) T-Hub Foundation programme to foster innovation and entrepreneurship ac­­ross semiconductor start-ups. T-Hub and AIC, along with the Indian Institute of Science (IISc), Bengaluru, and the In­dian Institute of Tech­nology (IIT), Hy­de­rabad, will help start-ups with prototype pre-production concepts of semiconductors and other aspects.

Moreover, IISc and Samsung Semi­con­ductor India Research have joined hands to promote R&D in the field of on-chip electrostatic discharge (ESD) protection. The partnership seeks to build cutting-edge ESD device solutions to protect ultra-high-speed serial interfaces in ad­van­ced integrated circuits and system-on-chip products.

The government too is fully cognisant of the importance of R&D in semiconductors. To this end, the government has es­tablished R&D and incubator centres for semiconductors. Currently, the Semi-Co­n­ductor Laboratory, Mohali; the Galli­um Arsenide Enabling Technology Centre, Hyderabad; and the Society for Inte­grated Circuit Technology and Applied Research, Bengaluru, have facilities for R&D. Additionally, the government has funded the establishment of the Gallium Nitride Ecosystem Enabling Center and Incubator for high-power and high-frequency electronics at IISc. The government has also formed three panels to evaluate proposals received under the ISM and aims to approve the first applications soon. Cur­r­ently, the committees are evaluating the proposals on criteria including the financial viability, technical expertise and fin­ancing capabilities of the partners, among other aspects.

The way forward

While India has a growing semiconductor ecosystem and potential avenues to expand it, other resources such as raw materials, water and energy will be harder to come by. China controls many of the metals and alloys needed. India would either need to import these critical materials or invest in its own mining industry. Recently, India  found 5.9 million tonnes of lithium reserves in Reasi district of Jammu & Kashmir. This may be the seventh-largest deposit of the rare element, accounting for roughly 5.7 per cent of all the reserves in the world. Be­sides, the country holds over 6 per cent of the world’s rare earth re­se­rves, some of which are vital for the production of semiconductors, and Indian co­mpanies have been asking the government to take advantage of this fact. However, ex­panding this industry would require considerable time and investment to keep pace with the de­mand from the electronics industry.

India’s ambitions of becoming a major player in the semiconductor industry will also be hindered by its limited electricity and water capabilities. The country will need to put in place comprehensive policies to address these challenges. Going forward, the industry will require more reforms as well as active government intervention in terms of providing financial aid and ensuring a conducive environment for the fledging semiconductor ecosystem to succeed and thrive in its mission of becoming a gl­obal semiconductor powerhouse.

Anand Kumar Sah