An Indian encore, for chips: Meity's semiconductor plan is just beginning

India is betting on Semicon 2.0 and a China+1 strategy to build a competitive semiconductor ecosystem, targeting mature-node chips and a larger share of global OSAT business

In the last five years, India has come from nowhere to snatch a fourth of iPhone’s global production from China. Apple wanted to hedge its dependence on China, and the Union government pitched in in time to offer an attractive incentive scheme worth ₹30,000 crore to sweeten its tryst with India. 

The government now wants to do it all over again. But this time around it’s in a tougher space — semiconductors, where India has come late to the party. India wants to wrest a reasonable share in the mature 28-nanometre and above chip market that is dominated by China. These chips power everything from cars, to consumer appliances, IoT (internet of things) devices and telecom equipment — accounting for 70 per cent of global semiconductor volumes and 30 per cent of its value. 

Ministry of electronics and information technology (Meity) secretary S Krishnan says countries like the US, Japan and South Korea are increasingly moving their focus to high-margin leading-edge chips (below 28nm to even 1 nm) which power AI, data centres and mobile phones, leaving the mature node market to China. But the world needs an “alternative source” that can “counter and compete” with them, he said in a TV interview recently.   

Repeat performance 

The question is whether India can replicate the China+1 model in semiconductors. 

The government is serious: Last fortnight it announced Semicon 2, earmarking an additional ₹1.27 trillion as financial incentive for companies to build fabs, plants for outsourced semiconductor assembly and test (OSAT) and assembly testing, marking and packaging  (ATMP) plants, the supply chain eco-system and home-grown design firms.  

This is over and above the ₹76,000 crore of incentives announced under the earlier Semicon scheme; most of its budget has already been earmarked for one silicon fab plant and eight OSAT and ATMP plants. Three of these — by Micron, Kaynes Technology and CG Power — are up and running. 

Said Ashok Chandak, president of the Indian Electronics and Semiconductors Association (IESA), which has semiconductor companies as its members: “We are sitting in the right place and on a big opportunity. We are no longer in announcement stage — production has started in OSAT plants. And we are also sitting on a sweet spot of being a trusted and reliable supplier to the world with a large domestic demand, propelled by a boom in electronics production.”   

To put things in perspective, there are three stages in chip production — chip designing, fab plants churning out wafers with circuits etched in it, and OSAT/ATMP plants turning them into a finished chip ready to be shipped. 

Some like Intel and Micron do the entire spectrum on their own, while companies like Qualcomm only design and outsource the rest, and others like TSMC make both wafers and finished chips. Then there are independent OSAT players who just make the finished chip.  

In order to make up for lost time, India’s semiconductor strategy is heavily focused on building the OSAT/ATMP play — which is an easy entry point as investment requirements are reasonable (Tatas’ fab plant in Dholera, Gujarat, cost three times its OSAT plant in Assam). In addition, the time required to put up a plant is around a year compared with a fab facility which needs a long gestation period of 3-4 years to take off and another 5 to 7 years to break even compared with 18 months for an OSAT plant .  

On the flip side, it is a high-volume low-margin business, and highly labour intensive, with labour accounting for 70 per cent of costs. 

Meity wants India to grab a 10 per cent share of the global OSAT/ATMP business by 2030. This would be worth $55-70 billion. 

That is ambitious but doable: Once the first four OSAT/ ATMP plants cleared by the government — Micron, Kaynes, CG Power and Tata OSAT — are up and running, their combined capacity (excluding Micron, which does not divulge numbers) would be more than 70 million chips a day, which is around 7 per cent of China’s production and sub-3 per cent of the global output.   

Already, many manufacturers are planning their next phase of expansion, preparing to apply for incentives from Semicon 2.0. Not only that, the four others recently cleared in the second phase will also be up and running by the end of this year or the next. Together the OSAT/ATMP players would invest $6.7 billion (half of which will be in government subsidy).   

But to properly break into the market it has to take on the Chinese, who dominate with an over-35 per cent share of the global OSAT business. Their costs are 10-30 per cent lower than those of their competitors because of sheer scale — straddling both the conventional packaging segment (generally for mature nodes but in some cases for memory chips) as well as advanced packaging (for lower nodes). 

The India draw 

There is a potential price advantage, but it’s not the only thing that has got global companies looking to India — another factor is the chance to derisk their bets on China in geopolitically uncertain times.  

Mysuru-based Kaynes Semicon, which is already rolling out products in Sanand, has 100 per cent of its capacity booked through agreements with companies in the US, Europe and Japan for its 2.3 billion chips per year capacity. It has drawn global bigwigs like Infineon, Fujitsu, and Alpha Omega Semiconductors, among others.   

Raghu Panicker, CEO of Kaynes Semicon, said: “Global companies coming to us are doing so because they want a resilient alternative supply chain not dependent only on one country.” 

Big fab companies like TSMC, he said, have no capacity as they are concentrating on high-margin AI demand. And Southeast Asian countries like Malaysia (which has a 13 per cent share of the global OSAT business) don’t get government subsidies. “So global companies see us as a good alternative.”   

The company is looking to expand capacity to 8 billion chips annually, for which it will apply for incentives under Semicon 2.0. “Ninety-five per cent of our chips and products are exported. And with the financial incentives from the Centre and state (meeting 70 per cent of the cost of the plant) we can offer a price which is 15 per cent lower than the Chinese and offer  a reliable supply source,” he said. 

The view is endorsed by Shetal Mehta, founder of Surat-based Suchi Semicon which is investing ₹860 crore to expand its capacity tenfold from 300,000 chips a day to 3 million. Suchi Semicon’s capacity has also been completely booked by foreign companies.  

“On the one hand they (global companies) are looking at a China + 1 strategy to diversify their supply. On the other, they see the domestic electronics sector booming in India — just like China 10-15 years ago — which will propel demand for chips. They want a share of that action,” Mehta said. 

Big players also see an opportunity – the Tatas, for instance, have secured Intel as a prospective customer for its OSAT and fab plants. Intel CEO Lip-Bu-Tan, while signing up, said the deal provides them an opportunity to collaborate in the world’s fastest growing compute market, fuelled by rising demand for personal computers and rapid AI adoption. 

Micron executives have also pointed to the opportunity from its Indian plant supplying memory chips to global clients — just like Apple Inc sources iPhones that are assembled or made in India. 

There is a big opportunity in auto too. US tech firm Qualcomm, for instance, has tied up with Tata Electronics to manufacture automotive modules in Tatas’ OSAT factory in Assam. These are set to be supplied to Qualcomm’s US businesses.    

Demand from within 

What supports all the action is the growing demand for semiconductors in the country, the bulk of which is currently imported. Meity’s latest assessment pegs the demand to $150 billion by 2030 – nearly 50 per cent more than what IESA projected last year as no one anticipated the AI boom. 

Even homegrown chip design companies that made their chips abroad and sold them across the world are now moving to India. L&T Semiconductor CEO Sandeep Kumar said, “We are shifting our outsourcing of OSAT for our chips to India; we are working closely with Tata Electronics’ OSAT plant in Jagiroad, Assam. The key thing is that they are offering globally competitive pricing. We sell 30 per cent of our chips to India, and the rest abroad.” 

But the battle in the fab space for India is still in its infancy. China is on a roll — by 2028 it is expected to grab 42 per cent of the global mature node market. It’s investing $100-125 billion to build 33 new fabs in this segment by 2028, according to industry estimates. 

In India, the Tatas are putting up $11 billion to set up the country’s maiden silicon fab plant with a capacity of 50,000 wafers a month — which will become operational sometime in mid-2028.    

Analysts said its size is equivalent to what SMIC in China adds in incremental capacity in a year. According to Semiconductor Equipment and Materials International, a global association of 4,000 firms, China’s production from fab plants is around 10.1 million wafers per month. 

For India, this is just the beginning, with plenty of room for all to grow. The Tatas have plans for expansion. And Meity aims to support four large fabs and six-to-ten compound semiconductor fabs in the next few years. 

The entry into fab for mature nodes is a strategic move for India — to prove that the country can now fabricate reliably and offer an alternative option for domestic as well as global players looking to diversify and de-risk their supply chain. 

Meity’s plan is ambitious — it wants to be among the top five semiconductor players in the world by 2032. Can this become a reality? The signs from the government and the private sector look good so far.