Supply chain and talent woes pose challenges to Indian semicon industry

As Taiwanese semiconductor companies explore India as an alternative manufacturing hub amid rising geopolitical tensions, significant challenges hinder the realisation of this potential partnership.

Kristy Tsun-tzu Hsu, director of the Taiwan ASEAN Studies Center, stated that there are five key considerations a Taiwanese company takes into account when deciding where to invest. These include local customer support, infrastructure completeness, supply chain robustness, local government policy support, and the availability of adequate talent.

"Just one Tata partnership with TSMC will never be enough. India needs to build relationships with a broader range of key suppliers and business partners," said Hsu at the recently held Ashwamedh Elara India Dialogue 2024 in Mumbai.

India's nascent semiconductor industry is also facing challenges in attracting talent back to the country after undergoing training abroad.

"After they are trained in Taiwan, many are reluctant to return, preferring to stay in Taiwan or move to the United States," said Hsu, speaking about Indians who have received training in Taiwan. "You need trained human resources who are willing to return and contribute to this sector."

A primary challenge is the lack of a well-developed local supply chain. While India has strong capabilities in integrated circuit design, it still lacks comprehensive infrastructure for applications, testing, and packaging, she added.

Without a robust supply chain, Taiwanese companies may have to rely on imports, which could undermine the goal of building a self-sufficient semiconductor industry in India. This reliance on external sources could lead to increased costs and logistical hurdles, said Hsu.

Local customer support also poses a significant challenge. Indian companies tend to be price-sensitive, which may affect their willingness to source locally produced chips, said Hsu.

Indian firms often prioritise imports over domestically produced semiconductors if they find cheaper alternatives from abroad, added Hsu, complicating efforts to establish a sustainable business model in India.

The global market for semiconductors is projected to reach $1 trillion by 2030, up from $600 billion in 2021, according to a report by McKinsey & Company.

Union Minister of State for Information Technology, Jitin Prasada, announced in Parliament earlier this year that the Indian semiconductor market is expected to surpass $100 billion by 2030.

While the Indian government offers policy support for foreign investment, concerns remain about infrastructure reliability, including stable electricity and water supply, said Hsu.

The Union Cabinet approved a new semiconductor manufacturing unit by Kaynes Semicon in Sanand, Gujarat, on Monday, September 2, with an investment of ₹3,300 crore. The facility is expected to produce 60 lakh chips per day, catering to various industries such as automotive, industrial, electric vehicles, consumer electronics, telecom, and mobile phones.

This is the latest addition to the "Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India," launched on December 21, 2021, with an allocated budget of ₹76,000 crore.

Earlier in February, the government approved Tata Electronics' proposal to establish a semiconductor fabrication facility (Fab) in Dholera, Gujarat, with a total investment of ₹91,000 crore. This project is being developed in collaboration with Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC).

Additionally, Tata is working on a ₹27,000 crore plant in Assam, while CG Power is setting up an Outsourced Semiconductor Assembly and Test (OSAT) unit in Sanand, Gujarat.

India's current needs are more focused on legacy chips rather than advanced technologies. Therefore, the emphasis should be on producing legacy chips, such as those at 28 nanometres or above, which are crucial for meeting domestic demand, said Hsu.

Areas such as assembly and packaging are important for maximising clustering opportunities and attracting essential supply chain partners.