The Indian government is reviewing proposals totalling $21 billion in investments aimed at fostering chip (Chip is the general term for semiconductor component products) manufacturing within the country. The proposals encompass diverse ventures from both domestic conglomerates and international players.
Tower Semiconductor Ltd. of Israel has put forth a substantial proposal amounting to $9 billion, intending to establish a semiconductor plant in Gujarat, likewise, Tata Group has presented an $8 billion plan for a chip manufacturing unit in the same region. The semiconductor sector has evolved into a pivotal arena of geopolitical competition, with various nations, including the US, Japan, and China, vying to strengthen their domestic chip industries.
Prime Minister Narendra Modi's administration is keen on positioning India as a global manufacturing hub, leveraging incentives to attract international chipmakers while nurturing domestic champions.
The endeavour aims to reduce reliance on costly imports and fortify India's foothold in industries like smartphone assembly. Under India's incentive plan for chip manufacturing, the government is set to subsidise half of the approved projects' costs, with an initial allocation of $10 billion earmarked for this purpose. Despite past setbacks, such as the collapse of high-profile partnerships, India remains steadfast in its pursuit of semiconductor self-sufficiency.
Notably, financial incentives have already brought investments from tech giants like Apple and Google, stimulating the growth of India's electronics manufacturing ecosystem.
Apple Inc. is making and exporting billions of dollars worth of iPhones from India, while Alphabet Inc.'s Google is preparing to also assemble phones in the country this year. The semiconductor fund helped US memory maker Micron Technology Inc. set up a $2.75 billion assembly and testing facility in Gujarat. The town of Dholera in that state is being developed as a prospective chip-making hub.
Tower Semiconductor envisions scaling its proposed plant over a decade to produce 80,000 silicon wafers per month, potentially marking a significant milestone as the first manufacturing unit in India operated by a major semiconductor company. Similarly, Tata Group's venture is anticipated to be in collaboration with Power Chip Semiconductor Manufacturing Corp.
Both projects focus on manufacturing mature chips widely used across diverse sectors, including consumer electronics, automotive, and defence. At the same time, Tata Group is also eyeing the establishment of a $3 billion chip-packaging plant in eastern India. These initiatives align with Tata's broader strategy to diversify investments into high-tech sectors, building upon its existing ventures in smartphone components and assembly.
Concurrently, Japan's Renesas Electronics Corp is exploring opportunities for collaboration in India's burgeoning chip-packaging segment. All of the chip proposals require the assent of the Central cabinet, which could come within the next few weeks. To qualify for these subsidies, applicants must furnish comprehensive details, including technological partnerships, financing arrangements as well as the type of semiconductors they will make and specifications, along with their target markets.
The 20th Century had been the century of oil and the 21st century is the century of chips. Today chips are used in cars, appliances, smartphones, electronic gadgets, gaming consoles and even in weapons, modern life is not possible without semiconductors. Today the Chip market is around $570 billion and by the end of the decade, this is estimated to become $ one trillion. Hence every country would like to insert itself into the chip supplying business.
Globally Chip market can be divided into three major sectors: Designing, Manufacturing and Assembling. Usually, this process is spread across the globe. The leadership in Chip designing is with the US. The US firms currently make up 46 per cent of global chip design sales and a remarkable 72 per cent of chip design software and license sales.
Now these designs are manufactured elsewhere in the world like Taiwan which makes upto 50 per cent of the Chip manufacturing market, second comes South Korea (17 per cent of the Chip manufacturing), followed by Japan and China. The assembling of these chips is done in countries like China, Taiwan and South Korea. China is miles ahead in this job with more factories and more assemble units, compared with India. However, currently, India's Chip market value is 35.18 $ billion by 2026, it could be estimated about 64$ billion. So the industry is expected to double in the next three years.
The bottlenecks in the chip industry and how India can derive the advantage is that the chip industry requires an abundance of skilled and affordable labour force for its functioning, India could derive its advantage from its skilled and abundant labour force. In the current geopolitical climate - most of the countries are concerned about Taiwan’s market dominance in the Chip market, and if China invades Taiwan then that market would collapse, hence there is a global push to diversify the chip market which could benefit India.
Similarly, already, India–and the US signed an MOU to build a resilient Supply Chain in the semiconductor sector in March 2023. The QUAD group also announced a supply chain project unveiled in 2021. Along with this India as a most populous country with a huge domestic demand for chips would be an added advantage in the industry expansion.
The challenges ahead would be China’s head start in the chip market with a bigger chequebook, China’s Chip market accounts for US$ 192, which is seven times that of India and the new package announced for the industry is 143$ billion. Next, the chip market is a cartel group where it’s hard to enter and hard to leave and any agreement needs to be carefully scanned as there could be a lot of conditions, labour standards to be followed and green targets to be achieved.
However, keeping in with the Mission of Atma Nirbhar Bharat and Self–Reliant India made a good start with the 2nd edition of Semicon India-2023 during July 2023 to introduce to the world India's semiconductor strategy targeting one trillion$ market by 2035 with 3-4 per cent market share in the semiconductor industry.
The Government of India has established the India Semiconductor Mission (ISM) to address the global semiconductor shortage and encourage manufacturers to set up their semiconductor facilities in India. The Government of India has issued four schemes under the ISM, which as the nodal agency, will be responsible for carrying out technical and financial appraisal of the applications received, recommending the selection of applicants and performing other responsibilities as assigned by the Ministry of Electronics and Information Technology from time to time.
These four schemes are - Modified Scheme for setting up of Semiconductor Fabs in India, Modified Scheme for setting up of Display Fabs in India, Modified Scheme for setting up of Compound Semiconductors and ATMP Facilities in India and the Design Linked Incentive Scheme.
With a view to supporting the ISM, a few Indian states have also formulated specific policies for the semiconductor industry, offering fiscal and non-fiscal incentives. Gujarat was the first state to bring out a dedicated semiconductor policy in 2022, followed by the states of Uttar Pradesh and Odisha.
Economic Impacts and Job Creation
The semiconductor plant in Gujarat is not merely a technological endeavour but a catalyst for economic growth. It is expected to generate over 20,000 direct and indirect skilled jobs, fostering regional development. The ripple effect of such a colossal investment extends beyond technology, contributing significantly to employment and skill development in the country.
In approving these semiconductor plants, India has not just invested in technology; it has invested in its future. The journey to becoming a global chipmaker is a complex one, but with determination, strategic planning, and international collaborations, India is on the cusp of transforming its technological landscape.
