Silver lining for India

The global semiconductor market is projected to grow from $340 billion in 2015 to $650
billion in 2025, with a CAGR of 6.7%. Taiwan is the world’s largest manufacturer of
semiconductors, with a market share of over 50 percent.

2. The Indian semiconductor industry offers high growth potential areas as the industries
which source semiconductors as inputs are themselves witnessing high demand. Now with
the concept of 5G and artificial intelligene picking up momentum, would further increase the
demand for intelligent computing, thereby creating sustainable demand for semiconductors.
Today, India’s semiconductor demand stands at around $24 billion and is expected to reach
$100 billion by 2025. With no local manufacturing, India meets its semiconductor demand is
entirely met through imports. A developing country like India can’t depend on few countries
for this vital product. The European Commission has unveiled a public-private semiconductor
alliance to increase its share of global chip production to 20% by 2030. South Korea has also
offered incentives to attract $450 billion investments by 2030.

3. The computer chip industry is an immensely complex chain that forms a half trillion-
dollar (Rs 37.4 lakh crore) ecosystem with thousands of companies globally. Yet only a
handful of facilities build these chips, used from mobile phones to satellites. India should
have had its own semiconductor fabrication(fab) decades ago. In 1987, India was just two
years behind the latest chip manufacturing technology. Today, we are 12 generations behind.
Our semiconductor dream has been sabotaged by red tape, lack of infrastructure, bureaucratic
lethargy, corruption, and a lack of visionary leadership. We have missed the bus several
times, for no reasons. India entirely depends on imports by spending $24 billions every year.

4. As India seeks to become an ‘Aatmanirbhar’, $5 trillion economy, where can it fit in this
picture? Much of the fab and post-fab work is done in facilities in East and Southeast Asia.
Without its own fab, India depends on US, Taiwan, and Southeast Asian countries to make its
chips, including those used in critical areas such as defense, space, railways, and finance.
The demand for semiconductors in India is valued at over US$10 billion.

Government gets activated

5. According to Economic Survey, 2021-22, government intervention to boost

semiconductors and display manufacturing ecosystem in the country has come at a time when
the global economy is facing an acute shortage of semiconductors due to severe disruptions in
supply chains. The government expects investments of around Rs 1.7 lakh crore and 1.35
lakh jobs to be created in the next four years under the incentive scheme for semiconductors
approved by the government. In December 2021, the Indian government announced a
funding of Rs 2,30,000 crore ($30.7 billion) towards semiconductor manufacturing, aiming to
position India as a global hub for electronics manufacturing. Now, semiconductor experts are
upbeat. The Government of India has allowed 100 per cent Foreign Direct Investment (FDI)
under the automatic route in Electronics Systems Design.

6. The government recently also released a vision document for the electronics sector which
envisages that the domestic electronic production has potential to reach around Rs 22 lakh
crore by 2026. Electronics is recognised as a 'meta-resource' across the world. Electronics
industry is the world's largest and fastest growing industry and is increasingly finding
applications in all sectors of the economy. With its impact in developing infrastructure,
raising productivity, increasing efficiency in delivery of services, and enabling social
transformation, it is accepted as a key enabler in the country's economic development.

7. In furtherance of the vision of Aatmanirbhar Bharat and positioning India as the global
hub for Electronics System Design and Manufacturing, the government approved the
comprehensive program for the development of sustainable semiconductor and display
ecosystem in the country with an outlay of Rs.76,000 crore. The programme will usher in a
new era in electronics manufacturing by providing a globally competitive incentive package
to companies in semiconductors and display manufacturing as well as design. This shall pave
the way for India’s technological leadership in these areas of strategic importance and
economic self-reliance.

8. Semiconductors and displays are the foundation of modern electronics driving the next
phase of digital transformation under Industry 4.0. Semiconductors and display
manufacturing is very complex and technology-intensive sector involving huge capital
investments, high risk, long gestation and payback periods, and rapid changes in technology,
which require significant and sustained investments. The programme will give an impetus to
semiconductors and display manufacturing by facilitating capital support and technological
collaborations.

Government’s recent initiatives

 Semiconductor Fabs and Display Fabs

9. The government also notified its policy to provide up to 50% of the cost for setting up two
semiconductors and two display fabrication units, R&D centres, skill development centres and
others.The government shall extend financal support of up to 50% of project cost to applicants
who are found eligible and have the technology as well as capacity to execute such highly
capital and resource intensive projects.

10. Government of India will work closely with the State Governments to establish High-
Tech Clusters with requisite infrastructure in terms of land, semiconductor grade water, high
quality power, logistics and research ecosystem to approve applications for setting up at least
two greenfield Semiconductor Fabs and two Display Fabs in the country.

 Semi-conductor Laboratory (SCL)

11. The government will take requisite steps for modernization and commercialization of
Semi-conductor Laboratory (SCL), Mohali. It will explore the possibility for the Joint
Venture of SCL with a commercial fab partner to modernize the brownfield fab facility.

The government shall extend fiscal support of 30% of capital expenditure to approved
units. At least 15 such units of Compound Semiconductors and Semiconductor Packaging are
expected to be established with Government support under this scheme.

 Semiconductor Design Companies

12. The Design Linked Incentive (DLI) Scheme shall extend product design linked
incentive of up to 50% of eligible expenditure and product deployment linked incentive of
6% - 4% on net sales for five years.
Support will be provided to 100 domestic companies of semiconductor design for Integrated
Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor
linked design and facilitating the growth of not less than 20 such companies which can
achieve turnover of more than Rs.1500 crore in the coming five years.

 India Semiconductor Mission

13. In order to drive the long-term strategies for developing a sustainable semiconductors
and display ecosystem, a specialized and independent “India Semiconductor Mission (ISM)”
will be set up which will be led by global experts in semiconductor and display industry. It
will act as the nodal agency for efficient and smooth implementation of the schemes for
setting up of Semiconductor and Display Fabs.

Latest developments on results

14. The government has confirmed to received proposals from five companies to establish
electronic chip and display manufacturing plants with an investment of Rs 1.53

15. The government is seeking applications from 100 domestic companies, start-ups and
MSMEs under its Design Linked Incentive (DLI) Scheme. The scheme has three components
– Chip Design infrastructure support, Product Design Linked Incentive and Deployment
Linked Incentive. C-DAC (Centre for Development of Advanced Computing. The scheme
aims to nurture at least 20 domestic companies involved in semiconductor design and
facilitate them to achieve turnover of more than Rs 15 billion in the next five years.

16. Over 20 semiconductor manufacturing and designing companies in high-end, display, and
specialty fabrication have submitted Expressions of Interest (EOIs) to set up manufacturing
plants in India. The government is open to introducing new incentives for chipmakers,
beyond those detailed in the PLI scheme. It will likely be based on the investment coming in
and the company’s area of work, type of fab, and requirement.

Initiatives taken by the private sector

17. The government received proposals from five companies to set up electronic chip and
display manufacturing plants with investment of $20.5 billion (₹1.53 lakh crore).

18. A Vedanta Foxconn joint venture, IGSS Ventures and ISMC (a Taiwanees company)
propose to set up electronic chip manufacturing plants with $13.6 billion investment and have
sought support of $5.6 billion from the Centre under the ₹76,000 crore Semicon India.
Vedanta and another company, Elest, a Bangalore based company, have submitted
applications for setting up display fab projects with an investment of $6.7 billion.

19. SPEL Semiconductor, HCL, Syrma Technology and Valenkani Electronics have
registered for semiconductor packaging. Ruttonsha International Rectifier has registered for
compound semiconductors. In addition, Terminus Circuits, Trispace Technologies and Curie
Microelectronics have submitted applications under the design-linked incentive scheme.

20. The Tata Group is looking to enter semiconductor manufacturing and has set up a
business to seize the opportunity. The company is in talks with three states to invest up to
$300 million to set up a semiconductor assembly and test unit. Tata is talking to the southern
states of Tamil Nadu, Karnataka and Telangana and scouting for land for the outsourced
semiconductor assembly and test (OSAT) plant.

21. The government is in talks with top global companies such as Taiwan Semiconductor
Manufacturing Co, Intel, AMD, United Mi .. United Microelectronics Corp, and Fujitsu,
among others...

Forthcoming challenges

22. While India has made significant progress in electronics component making and chip
design, there’s a lot that needs to be done in order to become a semiconductor manufacturing
hub. There are intrinsic limitations that needs to be overcome and challenges that need to be
tackled head-on with a concrete strategy, critical support, concerted action and realistic,
forward-looking policies.

23. Foremost prerequisite for semiconductor manufacturing is state-of-the-art infrastructure

and circumventing resource crunch to ensure availability of abundant supply of fresh water
and uninterrupted electric power. By the virtue of being a late entrant in semiconductor
manufacturing, India risks losing not only initial tactical edge but also cost-effectiveness that
makes countries such as Vietnam and China popular manufacturing hubs.

24. Other than the infrastructure impediments, the capital expenditure and operational
expenditure for running a fabrication unit is exorbitant and would dissuade medium scale
enterprises. Being up to date in tech and adopting advancements at mass scale is another
crucial requirement that springs in. Semiconductor manufacturing requires replacing
technology within a span of 3-4 years, which means companies are constantly at their heels
to adopt recent innovations and discard what’s become obsolete.

25. Chip design and manufacturing are highly capital intensive. Setting up the Semiconductor
Wafer Fabrication (FAB) unit is a capital-intensive proposition. The investment required to
set up a FAB can range from $3 billion to $6 billion, depending on the technology node and
wafer capacity of the FAB. Unless the commercial viability of such investment is evident,
private investors will not be forthcoming.

26. Chip manufacturing, being technology and capital intensive, necessitates the availability
of specialized equipment. Approximately, over 50 pieces of equipment are required along the
semiconductor supply chain. Some of them are Lithography tools, Metrology and inspection
equipment and subsystems like optical or vacuum subsystems, gas and fluid management,
thermal management, or wafer handling.

27. Crucial factors of competitiveness in semiconductor manufacturing are the ability to

rapidly incorporate advanced technologies in electronic products, ongoing improvement of
manufacturing processes, and, last but not least, the capability of meeting due dates for
optimal customer satisfaction.

28.Semiconductor manufacturing is a complex and research-intensive

sector, with rapid changes in technology which require significant and
sustained investment. Government will have therefore, to make sure the sustained increase in
the financial and infrastructural support.
29.India has been trying to attract foreign companies to set up semiconductor manufacturing
units since 2006. It waived custom duty in 2017 and sought expression of interest in 2020.
However, these efforts did not receive much response. Therefore, the government should
provide an environment that is conducive for doing business to attract foreign investments.3

30. Semiconductor production is a highly resource and emission intensive process. Factories
need a constant uninterrupted supply of power and vast quantities of water, besides the
technical knowledge and a supporting ecosystem.

31.Semiconductor chip processing and manufacturing is an energy and water-intensive

process that also has created hazardous waste. Its disposal now and the after the end of the
life of chips, would be a great challenge.

For example, Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world’s
largest semiconductor manufacturing company, used 5 percent of Taiwan’s entire electrical
capacity and over 63 million tonnes of water....! Other large semiconductor manufacturers
like Intel and Samsung also have the same problems.

32.Paradoxically, semiconductor chips are key components in many green technologies like
electric vehicles, solar panels and even turbines. With the world moving towards green
technologies to cut down on carbon emissions, the increased demand for semiconductor chips
will only raise carbon emissions....!

Advise for future

33. The electronics market in India is currently of $160 billion. It is estimated that by 2026,
this will be of $400 billion. Of this, there is a value addition of only 15 percent to the Indian
economy. The remaining 85 percent is imported. This share needs to be increased.

34. There are so many mobile phone manufacturing companies in India, but the entire kit
comes from outside. We are just assembling. In a $100 million mobile phone market, India
contribution is only $10 million. The expansion of the manufacturing base would also
enhance employment opportunities.

35. India should had its own semiconductor labs decades ago. Moreso, local
manufacturing was never on government’s agenda. Now, the importance has been realised
and incentive schemes have been launched. The government is doing everything it can to
bring us at par with the global industry. The political will is seen but the suitable
enviornment for the domestic and foreign investors will have to be created. For this,
ministries of electronics & ITs are in discussions with anyone who shows interest.