India rolled out its mega multi-billion-dollar capital support and production-linked incentive (PLI) In November 2021 to push manufacturing of semiconductors. This was at a time when the global supply chain disruption led to shortage of chips across industries. Importance of semiconductors can be gauged by the fact that 169 industries were impacted due to its shortage last year.
The USD 10 billion production-linked incentive scheme aims to encourage setting up of over 20 semiconductor design, components manufacturing and display fabrication units in India over the next six years. As per the Ministry of Electronics and Information Technology, an estimated USD 20 billion will be direct investment during this time period. The government also said that it would provide about 50 per cent of the cost for setting up two semiconductors as well as two display fabrication units, R&D centres, skill development centres amongst others.
The country currently imports all its semiconductors demand valued at about USD 24 billion. This is projected to quadruple to USD 100 billion by 2025. The chips are imported from Taiwan, Singapore, Hong Kong, Thailand and Vietnam. As per a study by Deloitte, computer sales surged by over 50 per cent in early 2021 while chip purchases for cloud computing data centres went up by 30 per cent.
Semiconductors are small and powerful elements that are the principal reason for functioning of vast number of devices including smart phones, cloud servers to modern cars, industrial automation, critical infrastructure and defence systems. As per the Government of India, the semiconductor market will be driven by wireless communications, consumer electronics and automotive electronics with 24 per cent, 23 per cent and 20 per cent of the market share respectively by 2030. India accounts for five per cent of global semiconductor demand. According to the India Electronics and Semiconductor Association (IESA), semiconductor consumption in India was worth USD 21 billion in 2019, growing at the rate of 15.1 percent.
India’s electronics sector received FDI worth USD 3 billion in the last two decades and the government has permitted 100 per cent FDI under automatic route for electronics sector.
Semiconductor Manufacturing
Comprising of chip design, fabrication, and assembly and testing, Semi-Conductor Manufacturing is a complex process. Integrated device manufacturers like Intel do all three. A modularized value chain also exists with specialists such as ARM, Nvidia, Qualcomm, Apple involved in chip design only and foundries such as Taiwan Semiconductor Manufacturing Company Ltd doing the chip fabrication (wafer processing). Package, assembly and testing are labour-intensive process that is outsourced to low-cost manufacturing locations.
Taiwan’s Dominance
One of the leading exporters of electronics, Taiwan controls more than 60 per cent of global market share of semiconductor chips utilized in mobile phones, cars, CCTV cameras, computers and other high-technology products. Chip manufacturing entails a reliable and stable electricity supply. Highly industrialised Taiwan also has reserves of abundant water supply, robust transport infrastructure as well as skilled manpower. Setting up of Semiconductor Wafer Fabrication (FAB) unit is a capital-intensive proposition. The investment required to set up a FAB can range from USD 3 billion to 6 billion, depending on the technology node and wafer capacity of the FAB. Coupled with public policies like tax benefits, government funding and public infrastructure like construction of major science and industrial parks, Taiwan created an ecosystem for flourishing of semiconductor industry.
Qualcomm designs the most-advanced smartphone chips globally harnessing sophisticated software and top-quality engineers. Taiwan Semiconductor Manufacturing Co. has stayed out of design and has outsourced the same to clients.
The Taiwanese semiconductor industry began in 1974. Leading global manufacturer TSMS came out with fabless foundry model in 1987. It is estimated that TSMC itself consumes over 7 per cent of Taiwan’s total power output, which in recent times has also switched to renewable energy.
According to reports in December 2021, India and Taiwan also began negotiations for a free-trade agreement and setting up a semiconductor manufacturing hub in India. The two regions have increased cooperation in the domains of trade, investment and industry, with the volume of bilateral trade growing six-fold from USD 1.19 billion in 2001 to USD 7.05 billion in 2018. India is Taiwan’s 14th largest export destination and 18th largest source of imports. It is also estimated that over one hundred companies function in India with total investments of about USD 2 billion in diverse domains.
India’s Eureka Moment
In the past, India has failed to get the much-touted fabrication manufacturing, entailing investments of USD 5-10 billion. However, the coronavirus pandemic has led India to explore the ‘China plus one’ strategy, which is expected to facilitate greater investments into India.
Furthermore, India’s Atmanirbhar Bharat vision and the rapidly growing electronics market will provide a thrust to companies manufacturing in India. It is anticipated that domestic production of electronics will more than quadruple to USD 400 billion by 2025, from USD 75 billion now. With over 900 million smart phones in use, the augmenting era of connected cars, the digital India mission, semiconductor manufacturing will lower geopolitical risks and induce greater self-sufficiency.
The country’s endeavour at semiconductor manufacturing on a large scale will be its third time in two decades. In 2017, it waived custom duty and sought expression of interest in 2020. However, these efforts did not receive much response.
With India’s manufacturing gaining steam, significant power generation rise in the last decade, the time may be ripe for this one last ditch. It is also being seen as a way for the nation to ascend the economic value chain from simple labour-intensive assembly to high-tech manufacturing.
It is anticipated that Semiconductor Manufacturing Company (TSMC) and the United Microelectronics Corporation (UMC) may commence manufacturing in India. One of the largest Indian conglomerates, Vedanta had expressed interest to invest up to USD 8 billion to set up a sophisticated chip and display manufacturing ecosystem. Tata group is also in talks with three states to invest up to USD 300 million to set up a semiconductor assembly.
India’s Vision
The ministry of electronics and information technology in November 2021 came out with Volume-I of Vision Document on ‘Increasing India’s Electronics Exports and Share in GVCs’. It envisions increasing exports and improving India’s share global supply chains “Local Goes Global”. The strategy also suggested short-term (1-4 years) and long-term (5-10 years) strategies to increase electronics exports from India, shift electronics manufacturing ecosystem investments as well as expand exports by increasing competitiveness and scale.
India Semiconductor Mission will coordinate with various applicant companies who have also reached out to various states to provide access to world class infrastructure. The ministry will work closely with the state governments to establish high-tech clusters with 300 – 500 acres of developed land, 100 KVA Power, 50 MLD Water, availability of natural gas and common facility centres for testing and certification.
Currently, India’s facilities are the Semi-Conductor Laboratory (SCL) Mohali, Gallium Arsenide Enabling Technology Centre (GAETEC), Hyderabad; and Society for Integrated Circuit Technology and Applied Research (SITAR), Bengaluru.
Testing Success – Mobile Manufacturing
The success of ‘Make in India’ in recent years is demonstrated by the manufacturing of mobile handsets jumping to over 260 million units in 2020, from just 50 million in 2014. Unfortunately, this was not true indigenization as heavy reliance had been on international suppliers for components such as chips. India can set up high-tech manufacturing by collaborating with Taiwan to attain self-sufficiency and avoid supply chain bottlenecks in the future.
Latest Developments
The Union government’s Semicon India Programme, set up to build the semiconductor and display ecosystem in the country, has generated large scale interest among companies with proposals of more than INR 1.53 lakh crore received in the first round which closed on 15th of February. Vedanta Foxconn JV, IGSS Ventures and ISMC confirmed on setting up electronic chip manufacturing plants with USD 13.6 billion investment. SPEL Semiconductor Ltd., HCL, Syrma Technology, and Valenkani Electronics have registered under the Scheme for Semiconductor Packaging and Ruttonsha International Rectifier Ltd. has registered under the Scheme for Compound Semiconductor.
As part of the strategic planning, the union government has set up an empowered committee for manufacturing in high technology areas, headed by the Minister of Commerce and Industry, and reputed people from the Indian industry, including Tata Sons chairman N Chandrasekaran, Bharat Forge Chairman Baba Kalyani, Mahindra Group managing director and CEO Pawan Goenka, Zoho Corp CEO Sidhar Vembu, and semiconductor expert Anshuman Tripathi.
Growth stage investor Next Orbit Ventures has planned to invest USD 100 million in a semiconductor fabrication project based in Gujarat.
At the state level, government of Telangana has planned to launch T works, India’s largest prototyping center, in Hyderabad for the purpose of acting as a prototyping center for semiconductors. Other states such as Uttar Pradesh, Tamil Nadu and Maharashtra have also been bullish about their semiconductor dreams.
As per the India Cellular and Electronics Association, India’s semiconductor industry is capable of gaining a sizeable share of the global market by becoming a hub for laptops and tablets, which will provide a manufacturing value of USD 100 billion and create 500,000 jobs.
Other Geographical Areas
The European Commission has unveiled a public-private semiconductor alliance for augmenting its share of global chip production to 20 per cent by 2030. South Korea is also providing incentives for alluring USD 450 billion investments by 2030.