In the digital age, semiconductors serve as the backbone of modern electronics and information technology. These tiny electronic components power devices ranging from smartphones, computers, and televisions to medical equipment and automobiles.
Furthermore, semiconductors play a pivotal role in emerging technologies like artificial intelligence, 5G, cloud computing, and the Internet of Things. The global semiconductor market, valued at $527.88 billion in 2021, is projected to grow from $573.44 billion in 2022 to $1,380.79 billion in 2029, exhibiting a CAGR of 12.2 per cent during the forecast period.
As such, the production and self-reliance in semiconductors have become crucial for nations to maintain their technological sovereignty and economic prowess. Given this context, the country is dreaming to challenge the dominance of Chinese ecosystem in semiconductors manufacturing.
China's Semiconductor Landscape
China, as the world's largest consumer of semiconductors, accounted for a staggering 53.7 per cent of global demand in 2020. Despite this colossal consumption, China only domestically produces around 16 per cent of its semiconductor requirements, leaving it highly dependent on imports from countries such as the United States, Taiwan, South Korea, and Japan.
In a strategic move to reduce this dependency, China launched several initiatives, including the National Integrated Circuit Industry Investment Fund (CICF), which is a state-backed fund that supports the development of the domestic chip industry.
According to a report by Business Wire, the CICF has invested approximately $47 billion in the semiconductor sector as of 2020. Moreover, China has embarked on a national mission to advance its semiconductor technologies, attracting foreign investments and talent to help achieve the ambitious goal.
In contrast, India currently lags behind in semiconductor manufacturing when compared to other developed nations. Although India's domestic electronics market is poised for significant growth due to surging demand for smartphones, consumer appliances, electric vehicles, and digital platforms, the country does not possess any operational wafer fabrication plants (fabs) where semiconductors are manufactured. India relies heavily on imports, which amounted to $69 billion in 2020-21, exposing it to supply disruptions, price fluctuations, and security risks.
India has proactively acknowledged the critical importance of self-reliance in semiconductor production by implementing a range of policies and incentives designed to attract investments and stimulate innovation within this sector. Notable initiatives in this endeavor include the National Policy on Electronics (NPE) 2019, which aims to create a favorable environment for the electronics industry, with a targeted turnover of $400 billion by 2025. Additionally, the Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing has been introduced, offering a 4-6% incentive on incremental sales of electronics produced in India over five years, with a second round of the PLI scheme in 2021 focusing on electronic components.
Furthermore, the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) extends a 25 per cent financial incentive on capital expenditure for the domestic manufacturing of electronic components and semiconductors. To support these efforts, the Semicon India Programme provides fiscal support of up to 50 per cent of project costs for establishing semiconductor and display fabs in India, along with fostering the development of high-tech clusters bolstered by necessary infrastructure and research ecosystems. These comprehensive measures collectively illustrate India's determination to foster self-reliance and bolster innovation in its semiconductor industry.
These policy initiatives have yielded some promising results for India's electronics industry. According to the Ministry of Electronics and Information Technology (MeitY), India's electronics production increased from $70 billion in 2018-19 to $80 billion in 2020-21. Under the PLI scheme, India attracted proposals worth $153 billion from global and domestic companies for electronics manufacturing. Key participants in the scheme include industry giants like Samsung, Foxconn, Wistron, Pegatron, Dell, HP, Lava, Micromax, Dixon Technologies, and Flextronics. Under the Semicon India Programme, five proposals have been received for setting up semiconductor and display fabs with a total investment of $20.5 billion.
Challenges in India's Journey
While India has made significant strides towards semiconductor self-reliance, it confronts a host of formidable challenges along this journey. To begin with, establishing the necessary infrastructure and cultivating a highly skilled workforce versed in intricate semiconductor manufacturing processes is imperative. Substantial investments in these areas are essential to meet the industry's demands.
Semiconductor manufacturing is a high-cost and long-gestation endeavor, compounded by the constant evolution of technology, which necessitates ongoing upgrades and investments. Moreover, the semiconductor supply chain is susceptible to geopolitical tensions and trade restrictions, exemplified by US-China conflicts, which can disrupt supply availability and affordability. To mitigate these risks, India must diversify its supply sources and bolster domestic capabilities.
Additionally, India grapples with a relatively lower domestic demand for semiconductors compared to countries like China. This disparity impacts economies of scale and profitability. The development of a robust fabless semiconductor industry, currently lacking in India, is pivotal for fostering innovation and generating demand for semiconductors. These multifaceted challenges underscore the intricate path that India must navigate to achieve self-reliance in semiconductor production.
Opportunities To Leverage
As an emerging name in the global semiconductors landscape, India possesses distinct opportunities and advantages that can significantly reinforce its quest for semiconductor self-reliance. First and foremost, among these is India's large and burgeoning electronics market, spanning sectors such as mobile phones, consumer electronics, automotive, healthcare, and education. The adoption of cutting-edge technologies like 5G and artificial intelligence further amplifies the demand for semiconductors, making India an enticing investment hub.
India possesses formidable semiconductor design capabilities, with approximately 20 per cent of the global talent pool in this domain. The nation is also home to major research and development centers for global semiconductor giants, including Intel, AMD, and Qualcomm. Capitalizing on these design strengths opens the door to pioneering and tailored solutions for both domestic and international markets.
Furthermore, the Indian government's unwavering support for the semiconductor industry is evident through its comprehensive policies and incentives aimed at promoting investments and innovation. The government's willingness to provide land and infrastructure support for semiconductor fabrication units, coupled with a conducive regulatory environment, technology transfer facilitation, export promotion, and more, adds to the supportive ecosystem.
India can further solidify its position by cultivating strategic partnerships and collaborations with nations and organizations that boast advanced semiconductor capabilities. Collaborations with semiconductor foundry leader Taiwan and major semiconductor materials and equipment supplier Japan can bolster India's supply chain security. Active participation in multilateral forums such as the Quadrilateral Security Dialogue (Quad) and the International Solar Alliance (ISA) facilitates cooperation and coordination within the semiconductor sector, strengthening India's path towards semiconductor self-reliance.
Semiconductors are the lifeblood of India's economic growth, national security, and technological advancement. Although India faces numerous challenges in achieving semiconductor self-reliance, it also possesses a unique set of opportunities and advantages.
To bridge the gap between semiconductor consumption and production, India must invest in infrastructure, skills, research and development, foster domestic demand and scale, diversify supply sources, leverage design capabilities, seek government support, and forge strategic partnerships and collaborations. By taking a holistic and long-term approach, India can assert its presence in the global semiconductor industry and ensure its technological sovereignty in an increasingly interconnected world.
(Views expressed here are personal. Author is chairman of India Electronic and Semiconductor Association)