India aspires to join world's top 5 semiconductor nations, faces long road

On September 2, over 500 companies and 15,000 delegates from 33 countries will descend on New Delhi to showcase their semiconductor prowess at Semicon India — one of the country’s largest business-to-business, or B2B, gatherings.

 

Among them will be top executives of global semiconductor majors such as Applied Materials, Infineon, SK Hynix, Powerchip Semiconductor Manufacturing Corporation (PSMC), IBM, Rapidus, ASML, Micron, Tokyo Electronics, and Lam Research. 

Four countries that are key players in the semiconductor ecosystem — Singapore, South Korea, Japan, and Malaysia — will be present in full force with their pavilions. Also present will be 10 Indian state governments — Karnataka, Tamil Nadu, Odisha, Gujarat, Andhra Pradesh, Chhattisgarh, Haryana, Uttar Pradesh, Madhya Pradesh, and Assam — to showcase their semiconductor policies and incentives to woo potential investors.

 

India is a late entrant to the semicon party, arriving barely three -and-a-half years ago. The road ahead isn’t easy. 

When it comes to demand, the country is an important destination for semiconductor products. Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA), projects that with the market touching over $100 billion by 2030, India will account for 8-10 per cent of the estimated $1 trillion global chip sales. 

However, in terms of producing wafers in fabrication plants, a lot of ground needs to be covered. 

Most countries are working on building them domestically. Many are offering mega subsidies to attract big fabrication players. Between the US, China, EU, Japan, South Korea, and Taiwan, these subsidies account for over $388 billion. 

There is a reason India has to seriously get into the game.

 

The strategic importance of semiconductors came to the fore when a huge chip shortage confronted the world during the pandemic. It exposed how overdependence on the few countries manufacturing chips could adversely impact broad swathes of the industry — from automobiles to consumer electronics such as mobile phones and personal computers. 

The growing protectionism and weaponisation of chip trade by countries such as the US has only heightened this concern. 

Says Ajit Manocha, president and chief executive officer of California-based SEMI, one of the largest organisations of the industry: “Countries are now realising that they need semiconductors not only for national security but also for economic prosperity.” 

A late entrant, but… 

India has made a well thought-out but cautious entry into the semicon club. 

In December 2021, under the India Semiconductor Mission, the government offered a subsidy of $10 billion to kickstart the domestic industry. 

The good news is that the money has already been committed to a host of projects and disbursements have begun. This has helped India attract investments of over $18 billion. That is 2-3 per cent of the total global spending on semiconductor plants under construction. With all projects put together, including the ones states have cleared, India will have the capacity to produce 95 million chips per day, which is a good start.   

Many of these projects will begin commercial production by the end of December. An example is the Micron made-in-India chip.

However, except for one mega (₹91,000 crore) fabrication plant, by the Tatas, which is under construction and might be operational in 2027-28, India is titled towards Outsourced Semiconductor Assembly and Test (OSAT), and Assembly, Testing, Marking, and Packaging (ATMP) plants, for which over seven projects have been cleared, including by states. 

One reason is that these plants require far less investment, and the rollout is both faster and less complex. 

The catch-up game 

That said, given the global race for semiconductors, India will need to step on the gas to catch up. 

Last year, electronics and information technology minister Ashwini Vaishnaw said that in the next five years, India would look for

4-6 more fab plants, 6-10 compound semiconductor plants, and 8-10 ATMP plants. He wants India to hold 10 per cent of the global OSAT and ATMP market, which is dominated by Taiwan (40 per cent) and Malaysia (14 per cent).

It’s an ambitious goal, considering that India has just about started out. 

Global players like TSMC, the Taiwanese multinational semiconductor contract manufacturing and design company, are already investing billions of dollars in their own country, or in the US, or Europe, or wherever the semiconductor ecosystem is mature.

SEMI’s latest global forecast, in June, indicates that between 2024 and 2028, 107 new fab plans will go online, and by 2030, another 30 will be needed to meet the growing demand presented by artificial intelligence. By then, global semiconductor sales will double to 1.2 trillion.

 

While India currently has only one mega fab plant under construction, China has 44, Japan 12, Taiwan 14, Europe 10, and US 15, according to SEMI. 

India’s subsidy also pales by comparison. China is putting in a staggering $200 billion and the EU $47 billion. South Korea is offering $55 billion in tax incentives, and the US is promising $52 billion as sops till 2024 , according to the latest report by the Gartner and the Semiconductor Industry Association, which represents US semiconductor companies. 

To be recognised as a global player, India’s first attempt should be to meet its five-year plan of action. This would require substantial allocation in subsidies, without which foreign mega fab players won’t come to the country.

 

Industry experts reckon that if the existing subsidy (50 per cent of the project cost) is to remain for four mega fabs alone, it will require another $10-15 billion at least. With the government planning to incentivise the semiconductor ecosystem — such as gas and chemical players, and machine makers — a lot more money would be required.

 

This might, however, not be an insurmountable challenge.

 

According to reports, Japanese Prime Minister Shigeru Ishiba is likely to announce the doubling of Japan’s investment in India when Prime Minister Narendra Modi arrives in Tokyo on August 29. He has proposed an investment of $68 billion over the next decade, and semiconductors are expected to be one of the areas of cooperation. 

In the ATMP/OSAT space, India’s ambition to grab a 10 per cent share of the global market looks attainable. With many of the companies shifting part of their business from Malaysia to India, Taiwanese firms looking to hedge their bets, and with five such plants already under construction in India, the target appears achievable.   

India, of course, does not want to be just an OSAT player. It aspires to be among the top five semiconductor countries of the world. If that aspiration is to be realised, the next few years will be crucial.