Tryst with Semicons: Arduous road for India to lead chip manufacturing

First, the good news. India’s consumption of semiconductors is booming. It is poised to account for 10 per cent of the $1 trillion global semiconductor market by 2030, more than doubling its share in eight years.

India Electronics and Semiconductor Association (IESA), the association for semiconductor companies, in collaboration with research agency Counterpoint, projects that by the end of this decade domestic consumption will go up to more than $100 billion. A McKinsey study says the global market for semicon will touch $1 trillion in the same period.

But will India’s new tryst with building mega silicon and compound fabs for the first time, as it joins an exclusive club, be able to keep pace with the growing domestic consumption and as well as export demand? 

And will the country catch up with those that are ahead in the game?

Money not an issue

After two years of dilly-dallying since the semicon scheme was announced, the government by March this year cleared projects worth $17.8 billion. This includes a mega fabrication (fab) plant by the Tata Group with an investment S10. 95 billion, and three ATMP (assembly, testing, marking, and packaging) plants that will together churn out 80 million chips a day. The government is also considering a proposal from Israel-based Tower Semiconductor to set up a fab plant for $8 billion.

ATMP units require less investment than a full-fledged fab plant.

The plan charted out by the government is ambitious. Communication Minister Ashwini Vaishnav, in an interview to Business Standard, said there would be four to six more fabs and another six to 10 compound fabs, as well as eight to 10 ATMP or OSAT projects in the next five years. OSAT stands for outsourced semiconductor assembly and test.

To put these fab plants will require, even on conservative estimates, anywhere between $50 billion and $65 billion of additional investment. And if the government continues to offer 50 per cent subsidy, it has to expand the current Semiconductor Mission corpus of $10 billion, which has nearly been exhausted, by two to three times more. But, the minister says, there is a 20-year strategy, and money is not an issue.

India has joined the semicon race at a time when several others are already in the fray, with the intention to ensure stability in chip supply, which the pandemic and geopolitical tensions between the United States and China have affected.

And they are really loosening their purse strings. The US, China, European Union, Japan, South Korea, and Taiwan are collectively offering $261 billion in incentives and subsidies for semiconductor companies. Since 2020, these largesse have helped the US support 26 new fab and ATMP plants, China 30 of them, followed by Japan(four), and Taiwan (seven).  The EU has earmarked $47 billion in grants so it can have a 20 per cent share of the global fab market by 2030. South Korea is providing tax incentives of $55 billion.     

India on global stage

So, how does India’s announced investment in new capacity of fabs stack up globally? It is 2 per cent of the global spend estimated for new fabs of $500 billion currently. Even if the new fabs planned by Vaishnaw fructify by 2032, India's share will still be sub-3 per cent.

That is because the bulk of the fresh global investments is going to a few countries: Taiwan, US, South Korea, and Japan will account for 82 per cent of the $2.3 trillion investment coming for new wafer fabs between 2024 and 2032 across more than 100 fab plants, says Semiconductor Industry Association (SIA)-the voice of semiconductor industry in US. What is earmarked for other countries (excluding China and EU), which includes India, is only 3 per cent, or $75 billion.

Looking at India’s capacity buildup planned by the Tatas, it is again just the beginning. Its fab plant in Dholera will have an initial capacity of 50,000 wafers a month. That is miniscule, compared to the 30 million wafers a month that will be churned out globally this year. It will take four to five years for India to have a reasonable share of the global capacity. Even Southeast Asia has a semiconductor fab capacity of 1.7 million wafers a month.  

Where India can make a bigger dent is in the OSAT-ATMP space. That is why, Vaishnaw says, the government is looking at a 10 per cent share of the global market in five years and touch 25 per cent in 10 years.   

Too much optimism?

Out of the 39 new ATMP-OSAT plants announced globally, India already has three, which the government has cleared: one each by Micron, Tata, and Murugappa Group, with an investment of $7.8 billion. And there is more waiting in the wings.

Though 45 per cent of the global ATMP-OSAT capacity is controlled by China and Taiwan, geopolitical pressures are changing the market. There is pressure on Taiwanese OSAT players from their clients, especially from the automobile industry, to hedge their risks and set up shop in a third country. It is an opportunity India is well positioned to grab.

Micron, for instance, has shifted machines from Malaysia (which has a 7 per cent share of the global ATMP market; the largest in Asia) to India to start plant operations by December-end. Its plan is to supply the chips made in India directly to its global clients such as Apple Inc, for whom India is a big hub for iPhones. Hynix has been looking for a similar play.  

India has to contend with Vietnam, which now has 1 per cent share of the OSAT-ATMP market and has roped in Amkor, which is investing $1.6 billion in a testing and assembly plant, and Hana Micron ($1 billion). The battle could get more intense between the two countries. In addition, just days ago, Malaysian Prime Minister Anwar Ibrahim said the country will invest $100 billion in advanced packaging, chip design, and manufacturing equipment. 

There is a natural advantage to India in chip design capability, which global players have already leveraged for years. In a 2023 Survey undertaken by the US Department of Commerce Bureau of Industry and Security, companies cited India, China, and Europe as the main non-US locations for their design activities. 

According to SIA, 19 per cent of the chip design engineers across the globe are in India, next only to the US and China. Not only that, 7 per cent of the design facilities across the globe are in this country.

The government’s design-led scheme for providing incentives to homegrown MSMEs (micro, small, and medium enterprises) has been slow to pick up, with only seven companies eligible for the incentive scheme worth $200 million), out of some 100 the government wants to support. 

The Minister for Electronics and Information Technology, Rajeev Chandrasekhar, has already looked at revamping the scheme to allow larger companies — Indian and foreign — to take advantage of the programme.

Clearly, India has a tryst with semiconductors, but the road ahead promises to be long and arduous.