The 6th Largest Economy’s Move to Become the Hub of Semiconductor Manufacturing: Potential Opportunity or Still a Far Cry?

  • Published | 17 December 2021

Semiconductor Manufacturing in IndiaAn electric integrated circuit that happens to control the flow of current flowing through an electronic device is a pivotal component for the functioning of electronic devices. The chip that is used in almost every electronic device that we use during our daily lives, from laptops, smartphones, to cars, refrigerators, and game consoles has been gaining attention lately: mainly because it has started to witness a widening gap in the supply chain, a problem which has only been exacerbated with the advent of COVID-19 pandemic.

The skyrocketed demand for the chipsets amid growing investments in the cloud technologies, better standard of living around the world and growing penetration of digital devices are some of the primary factors responsible for the increasing supply chain gaps. Additionally, the U.S.-China Tech War, the negligence of Intel Corporation toward its 14 nm chipsets, combined with the diminishing microchip prices for the past few years have become the major reasons for the stagnating growth of semiconductor chipset production.

According to past trends with this technology, these shortages are cyclical and may occur every once in a while. The pandemic, however, threw everything out of whack. As a result, many developed nations like South Korea, United States, China have started focusing on earmarking funds for the production of semiconductor chipsets.

India’s Past Performance & prevalent industry scenario in electronic production

India, the 6th largest economy in the world, has also started to direct its focus on augmenting its production of semiconductor chipsets. Being the second largest mobile manufacturer in the world, India also happens to boast the largest consumer base in the world with more than 1.2 billion people of the population being avid consumers of such products on a day-to-day basis. According to some estimates from the National Investment Promotion & Facilitation Agency, India has been witnessing a rapid growth in the Electronics Systems Design & Manufacturing market.

The rising semiconductor chipset consumption across the country has started to become another factor, why the government is putting emphasis on the growth of the market. According to government estimates, India registered a growth of 31.49% in exports of Electronic Goods worth USD 1146.63 billion for August 2021 over and above the estimate of USD 872.04 billion for August 2020. Imports have been on the right track as well. In 2020, India spent more than USD 15 billion on electronics, with a major chunk of products imported from China. Moreover, due to the increasing focus on "Atmanirbhar Bharat," the government has begun to emphasize domestic production in order to meet public demand. The Indian economy registered a growth of about 2.61 times over five years— from USD 29 billion in 2014 to USD 75.7 billion in 2019-2020. The growing reliance on digital transactions after demonetization has augmented the demand for digital devices as well. The pandemic just poured the fuel over the fire for the factor, thus contributing to skyrocketing demand for electronic components. With increasing investments in electronic component manufacturing, declining trust in Chinese products, and declining fertility rates in China, which are contributing to higher social security pressure, India is positioned to become the factory of the world in the near future.

Investment opportunities and upcoming plans

The growing number of investments in electronic manufacturing in India is indicative of the fact that the Indian government is now laying due focus on the missing-middle segment of the country, the “Manufacturing Sector.” Since it is one of the few countries to have leapfrogged from the agriculture sector to the service sector, India has been having a lot of trouble becoming a manufacturing hub for any major equipment, let alone digital components. However, the plan laid down by the Congress government the National Manufacturing Policy, later renamed as the “Make in India” under the present government speaks a lot of the growing reliance on the manufacturing sector, which has started to witness a growing influx of FDI from the outside world.

The Indian government’s initiatives of Production Linked Scheme include the allocation of a promising USD 5.39 billion into the large-scale electronics manufacturing and 25% in incentives offered across the capital expenditure of the semiconductor manufacturers expenses related to plant & machinery, utilities, and technologies are all demonstrating a growing focus on semiconductor manufacturing.

In case this wasn't enough, the Indian government announced on 15th December, 2021 that it would provide more than USD 10.25 billion for making India into a hub for semiconductor manufacturing. The scheme primarily focuses on semiconductor development and display manufacturing. It is not only anticipated to augment the support for silicon semiconductor fabrication plant but would also provide extended support for display labs, silicon photonics, semiconductor design and packaging, commercialization, and various other aspects of the business as well. The plan initially focused on the Semiconductor Laboratory (SCL) located in Mohali, Punjab. The scheme includes developing semiconductor and display fabrication facilities all across India and is expected to provided extended of more at most 50% of the project cost for the applicants meeting the eligibility criteria and possess the desired technology and capacities for undertaking such capital-intensive projects. Additionally, the government of India is expected to work with the state governments to create High-Tech Clusters, which will include all of the requisite infrastructures. Such as the land area, semiconductor grade water, high power logistics, and research ecosystem for approving applications, thus setting up more than two greenfield semiconductors and display fabrication plants and across the country. In addition to this, the governmental scheme also comprises norms for establishing compound semiconductors and sensors (such as Micro Electro Mechanical Systems) plants across India under which, the government is projected to provide incentives worth 30% of the capital expenditure. Moreover, the Union Cabinet Ministry stated that the Ministry of Electronics and IT has been authorized to take crucial steps towards modernizing and commercializing semiconductors.

 The designing ecosystem is where India is outperforming some of its counterparts as the country possesses more than 24,000 design engineers. More than 50% of capital incentives for semiconductor and display plant establishment are provided by the four largest economies in the world. While India does not match the incentives, it provides a promising one, which is sufficient to attract foreign investors because of the post-production market.

Back in 1990s, India was believed to be a great place for financial software, but not so much for developing semiconductors. However, fast forward in 2021, India has started to become the hottest markets for the domain. During the last few years, India has designed over 2000 integrated circuits and chips. Furthermore, rising FDI inflows are expected to bolster upcoming investments for the country, generating more opportunities for the market.

Factors that may affect the growth of the market

India may have a promising future in terms of the semiconductor industry; however, there are some factors that may hinder its growth, such as restrictive labor laws that prevent companies from entering the country, robust energy consumption which is still a far cry for the country, deteriorating relations with China (which is still a major supplier of pivotal raw material for the semiconductors), limited raw material production capabilities, water scarcity, and market volatility, making it difficult for investors to remain stable amid. All of these factors have been pivotal pain points or bottlenecks that India has yet to work on, which, if given due attention, may bolster the future of India in becoming a major industrial and manufacturing hub for the development of semiconductor chipsets.

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