The semiconductor industry stands as the bedrock of modern technology, its components integral to a vast array of devices and systems that underpin our daily lives, from smartphones and laptops to electric vehicles and critical infrastructure. This fundamental role has elevated semiconductors to a position of immense strategic importance in the global geopolitical landscape. The intricate and highly specialized nature of the semiconductor supply chain, coupled with increasing international tensions, has spurred a global re-evaluation of manufacturing dependencies and a drive towards greater self-sufficiency. Within this dynamic environment, India has emerged with ambitious plans to establish itself as a significant player in the semiconductor sector, launching the India Semiconductor Mission with the aim of becoming a global hub for electronics manufacturing and design. This op-ed delves into the multifaceted drivers behind India's semiconductor push, examining the influence of geopolitical factors alongside economic imperatives and inherent challenges, to provide a nuanced and realistic appraisal of its potential.
The global semiconductor supply chain is not solely shaped by economic efficiencies but is profoundly influenced by geopolitical considerations, a reality that has been evident for decades, tracing back to Cold War security concerns. The strategic value of these foundational components means that their trade is often subject to stringent state controls, with nations recognizing that leadership in semiconductor technology translates to broader economic and military advantages. The current global landscape is characterized by significant vulnerabilities stemming from the geographic concentration of manufacturing capabilities, primarily in East Asia. Taiwan, South Korea, Japan, and China collectively host a substantial portion of the supply chain, including fabrication, assembly, testing, packaging, and the production of essential raw materials.This concentration creates inherent risks, as exemplified by past events such as the 1999 earthquake in Taiwan, which caused significant disruptions and price volatility in the memory chip market. The COVID-19 pandemic further exposed these vulnerabilities, with lockdowns and logistical challenges leading to severe semiconductor shortages that impacted industries worldwide, from automotive to consumer electronics. Beyond natural disasters and pandemics, escalating geopolitical tensions, particularly between the United States and China, pose a constant threat to the stability of the global semiconductor supply chain. The US-China trade war, marked by sanctions and export controls, has underscored the fragility of international technology flows and has accelerated China's pursuit of semiconductor self-sufficiency. These tensions have also raised concerns about technology transfer, intellectual property theft, and the potential for using supply chain dependencies as leverage in international disputes. In this environment of heightened strategic competition, the drive for semiconductor self-sufficiency has become a key motivation for many nations, including the United States and China, each implementing measures to bolster their domestic capabilities and reduce reliance on potentially vulnerable foreign entities.
India's response to this evolving global landscape is the India Semiconductor Mission (ISM), launched in December 2021. This initiative signifies a strategic recognition of the critical importance of semiconductors and aims to position India as a global hub for electronics manufacturing and design by building a robust domestic ecosystem. A primary objective of the ISM is to reduce India's reliance on semiconductor imports and strengthen its own supply chain resilience, directly addressing the vulnerabilities highlighted by recent global events. The long-term vision of the mission is ambitious, aspiring for India to become a global leader in semiconductor manufacturing by the year 2047. To achieve these goals, the Indian government has committed a substantial financial outlay of INR 76,000 crore (approximately $9.5 billion initially) to the Semicon India programme. This program offers significant fiscal support, covering up to 50% of the project cost for establishing semiconductor and display fabrication plants, with the level of support varying based on the technology node. Furthermore, the Design Linked Incentive (DLI) Scheme provides financial incentives and infrastructure support to encourage domestic semiconductor design across various stages of development. To ensure focused and efficient implementation, the ISM has been established as an independent business division within the Digital India Corporation, granting it administrative and financial autonomy to formulate and execute long-term strategies. These strategies encompass the development of a sustainable semiconductor design ecosystem, boosting India's presence in the global supply chain for raw materials and equipment, overhauling the design industry, creating centers of excellence, and incentivizing collaborative research and development in areas like the Internet of Things.The entire mission is closely aligned with the government's broader Atmanirbhar Bharat (Self-Reliant India) initiative, underscoring the strategic importance of building domestic capabilities in this critical sector.
The commitment to India's semiconductor ambitions is further underscored by the increasing investment landscape. The India Semiconductor Mission aims to attract over $10 billion in investments.Impressively, over $18 billion has already been committed across five major projects, signaling a growing confidence in India's potential. A significant portion of this comes from foreign direct investment, indicating the influence of both government incentives and the global geopolitical climate. Tata Electronics, in collaboration with Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC), is investing a substantial $11 billion to establish a chip fabrication plant in Gujarat. This joint venture marks a crucial step in building domestic manufacturing capabilities. The US-based chip-making tools supplier, Lam Research, is also investing approximately $1.151 billion (Rs 10,000 crore) in Karnataka, demonstrating a commitment to developing the broader ecosystem, including essential manufacturing equipment. Micron Technology, another US giant, is investing $2.75 billion in a chip packaging and testing plant in Gujarat, highlighting India's potential in the assembly, testing, marking, and packaging (ATMP) segment of the value chain. Tower Semiconductor, in partnership with India's Adani Group, plans to invest $10 billion to build a wafer fabrication plant in Karnataka, further bolstering manufacturing ambitions.Additionally, a consortium including Renesas Electronics (Japan), CG Power (India), and Stars Microelectronics (Thailand) is jointly investing 76 billion rupees in a packaging and testing facility, showcasing the growing international interest and collaborative nature of investments in India. Even companies like Applied Materials, a key player in semiconductor manufacturing equipment, have announced a $400 million investment to establish a new engineering center in India, focusing on research and development. Furthermore, Foxconn, a major Taiwanese contract manufacturer, has expressed keen interest in investing in India's semiconductor manufacturing sector. Alongside these large-scale investments, a vibrant ecosystem of over 100 semiconductor startups is emerging in India, focused on innovation and addressing specific gaps in the supply chain and design sectors.
Despite the growing investment and ambitious plans, India's current semiconductor manufacturing capabilities remain in the nascent stages. The country currently lacks advanced semiconductor fabrication plants capable of producing cutting-edge chips.Although India established its first state-owned semiconductor enterprise, Semiconductor Complex Ltd. (SCL), in 1984, it has yet to achieve a prominent position in the global landscape, with no major Indian manufacturers competing internationally. The planned joint venture between PSMC and Tata Electronics to build India's first 12-inch wafer fab in Gujarat represents a significant step towards addressing this gap, with an initial focus on manufacturing power management integrated circuits, display drivers, microcontrollers, and high-performance computing logic components. Additionally, Foxconn's collaboration with HCL Group to establish a semiconductor outsourced assembly and testing unit will bolster India's capabilities in the back-end of manufacturing. Recognizing the importance of a comprehensive ecosystem, India is also prioritizing the development of advanced chip assembly, testing, and packaging (ATP) facilities to ensure that domestically produced chips can undergo the entire processing cycle within the country.However, the reality remains that India's semiconductor manufacturing capabilities are currently weak, with the nation relying almost entirely on imports to meet its chip demands.The projected substantial growth of the Indian semiconductor market, expected to reach $109 billion by 2030, provides a strong incentive for rapidly scaling up domestic production.
Expert perspectives on India's semiconductor push reveal a consensus that geopolitical factors are indeed playing a significant role. Industry leaders recognize India's unique position, offering a favorable geopolitical landscape alongside skilled talent and cost competitiveness.Utpal Shah, Senior Vice President of Tata Electronics, explicitly stated that many customers view India as a geopolitically advantageous region for manufacturing, indicating a desire for supply chain diversification in a tense global environment. Experts have also observed a sharp increase in semiconductor consumption, anticipating substantial growth driven by advancements in artificial intelligence and other emerging technologies. The projected growth of India's semiconductor demand to over $100 billion by 2030 further underscores the immense economic opportunity. India's ambitious goal of becoming among the top 5 semiconductor manufacturing nations by 2029 reflects a strategic intent to capitalize on this opportunity. Some experts believe the India Semiconductor Mission has already achieved significant success, pointing to the substantial investments approved across the value chain. Others suggest a more pragmatic approach, recommending a focus on developing local design houses to generate demand for domestically manufactured chips and incentivizing mature fabrication plants as an initial step.Ashok Chandak, president of the India Electronics & Semiconductor Association, emphasizes the importance of leveraging geopolitical alliances and India's thriving chip design ecosystem. Some analysts view India's semiconductor boom as a potential challenge to China's dominance, offering a more stable geopolitical climate for manufacturing.The burgeoning demand from sectors like automotive and industrial is also identified as a key driver for semiconductor demand in India.The government's significant incentive package is consistently recognized as a crucial factor in attracting both domestic and international investments.
Despite the optimism and momentum, India faces several key challenges and limitations in developing a robust and self-sufficient semiconductor ecosystem. These include technological gaps that need to be bridged through focused research and development.Workforce development is another critical area, requiring investment in specialized training to meet the demands of semiconductor manufacturing. Persistent supply chain issues, including the lack of a reliable domestic network and cumbersome administrative processes, also need to be addressed.Complex labor laws, environmental regulations, and import/export restrictions can pose hurdles for potential investors.India's current infrastructure base is still insufficient to support large-scale semiconductor manufacturing, particularly in terms of consistent power and water supply, efficient logistics, and dedicated industrial zones.A major hurdle is the significant dependency on imported raw materials, which creates vulnerabilities in the supply chain.The shortage of talent in highly specialized manufacturing roles, such as photolithography and wafer fabrication, needs to be addressed through targeted training programs and potentially attracting international expertise.India also faces intense competition from established semiconductor manufacturing hubs like Taiwan, South Korea, and China, which possess decades of experience, advanced technology, and well-established supply chains.The high initial capital costs associated with setting up semiconductor fabrication plants and the long gestation periods before they become operational present significant financial and strategic challenges. Furthermore, keeping pace with the rapid technological advancements in the semiconductor industry requires continuous and substantial investment in research and development.
Beyond the significant geopolitical tailwinds, several alternative factors are catalyzing growth and interest in India's semiconductor sector. The country's large and rapidly growing domestic market, fueled by increasing smartphone adoption, affordable gadgets, and the overall expansion of India's digital economy, presents a substantial economic opportunity.The rising adoption of electric vehicles in India is also accelerating the demand for specialized semiconductor components like power management chips and sensors. India's large pool of skilled engineers and technicians provides a significant advantage, particularly in semiconductor research and development as well as design. The Indian semiconductor market is projected to experience substantial expansion, reaching an estimated $109 billion by 2030, making it an increasingly attractive destination for investment.The surging sales of electric two-wheelers are further driving the demand for advanced semiconductor solutions in the transportation sector. India already holds a strong position in semiconductor design, with major global chip giants operating significant design centers within the country. Technological advancements in areas such as artificial intelligence, the Internet of Things, and 5G are driving increased demand for innovative and sophisticated semiconductors, creating new opportunities for growth in India. As India develops its manufacturing ecosystem, it has the potential to offer cost-competitive production, making it an attractive option for companies looking to diversify their supply chains and optimize costs.
Comparing India's semiconductor strategy with those of other countries reveals both similarities and distinct differences in their approaches and motivations. Established players like Taiwan, South Korea, and China benefit from decades of experience and well-developed ecosystems.Taiwan, with its manufacturing prowess centered around TSMC, could potentially collaborate with India, leveraging India's strength in design. Singapore's strategy focuses on maintaining its comprehensive semiconductor supply chain and existing foundry manufacturing capabilities within Southeast Asia.Malaysia is concentrating on expanding its established strengths in packaging and testing into broader manufacturing and design activities. India's approach uniquely leverages its large domestic market and strong design capabilities as key attractions for investment and manufacturing development.The United States aims to reduce its reliance on foreign fabrication and restrict China's access to advanced technologies through a combination of domestic incentives and export controls.In contrast, China's strategy is characterized by a strong state-driven approach with massive government subsidies aimed at achieving semiconductor self-sufficiency.The European Union is focused on increasing its share of global semiconductor output through initiatives like the European Chips Act.India's strategy involves offering significant government incentives to attract both domestic and foreign investment across the entire semiconductor value chain. Malaysia has expressed interest in being part of "India's semiconductor story," recognizing the potential for collaboration, particularly in component manufacturing. India is also actively pursuing partnerships with key semiconductor nations like the US, Singapore, Japan, and the EU to facilitate technology transfer, attract investment, and build supply chain resilience.
In conclusion, India's push into the semiconductor sector is driven by a confluence of factors, with geopolitical considerations playing a significant, yet not exclusive, role. The desire for supply chain diversification in a world marked by increasing international tensions and the strategic imperative of securing access to this foundational technology have undoubtedly provided a strong impetus for India's ambitions. However, the immense and growing domestic demand for electronics, India's existing strengths in chip design and skilled engineering talent, and the potential for cost-competitive manufacturing are equally powerful catalysts. While the government's proactive policies and substantial financial incentives have attracted significant investment from global players, India still faces considerable challenges in building a truly robust and self-sufficient semiconductor ecosystem. These hurdles include infrastructure gaps, a shortage of specialized manufacturing expertise, dependence on imported raw materials, and intense competition from established global leaders. India's strategy, characterized by a hybrid approach of attracting foreign investment, initially focusing on mature technologies and assembly/testing, and building international collaborations, reflects a pragmatic path forward. While the hype surrounding India's potential in semiconductors is considerable, a nuanced perspective reveals a long and complex journey ahead. The interplay of geopolitical strategy, economic drivers, and diligent execution will ultimately determine the extent to which India can realize its ambition of becoming a significant player in the global semiconductor landscape.
