India’s Emergence as a Semiconductor Manufacturing Hub

India depends on imports to fulfil its need of semiconductor devices. Major reason behind this highly dependent behaviour is the absence of semiconductor fabrication facility in India. While today, India has started its revolution in the international semiconductor market by establishing its existence and might be a valuable hub for semiconductor manufacturing in the years to come. This blog will give an overview of the semiconductor development in India which is expected to rely on its increasing tech community, skilled professionals, and pro governmental policies along with the current ongoing global trend that challenges the sole manufacturing dominance of China and moving toward diversification of the semiconductor supply chain. The current situation and outlook will be discussed on how India is moving towards a major country to become a leading destination in the arena of semiconductor manufacturing.

Semiconductor industry in India - An overview

Below we show the timeline of the attempts made by the Indian government to establish semiconductor value chain in India.

Source: Forbes India

In 2022, the Indian semiconductor market was valued at US$ 26.3 billion and is projected to expand at a CAGR of 26.3% to US$ 271.9 billion by 2032.

The figures provided below represent the total value of semiconductor products consumed in India.

Source: sphericalinsights

The consumption has increased because of rising domestic demand of Indian customers. The consumption of mobile devices and computers has sharply increased in India. Also, Indian government is now concentrating on going digital and making rural India adopt digital methods of education and transactions. Also, Indian start-ups have shot up in numbers and for all the innovative ideas to come to reality, more and more electronic gadgets are being used.

The table below illustrates the import and export statistics of semiconductor devices in India.

Source: oec.world
Note: Semiconductor devices include diodes, transistors and photovoltaic cells assembled or not assembled in modules or panels, light-emitting diodes (LEDs) and mounted piezo-electric crystals.

In 2017, semiconductor exports from India stood at US$ 0.21 billion, while imports were higher at US$ 4.65 billion. By 2019, exports grew to US$ 0.33 billion while Imports fell to US$ 3.15 billion. However, 2020 witnessed a downturn in both exports and imports, influenced by global economic disruptions such as the COVID-19 pandemic. Pent-up demand from the downturn led to exceptional recovery in 2021 and imports reached US$ 5.36 billion. In 2022, we saw evidence of India’s efforts on establishing itself as a semiconductor hub, with exports reaching an all-time high of US$ 0.52 billion.

Factors favouring India

Skilled workforce

Source: Nasscom

India leads the world with record number of Science, Technology, Engineering and Mathematics (STEM) graduates, offering the much-needed skilled workforce required in semiconductor manufacturing, design, research, and development.

Cost advantage

India offers a substantial cost advantage for semiconductor manufacturing due to the following factors:

Global supply chain diversification

Traditionally concentrated in the US and its allies (South Korea, the Netherlands, Japan, and Taiwan), as well as China, the semiconductor value chain – including design, manufacturing and final product sales – has seen a shift due to pandemic-related disruptions and rising labour costs, prompting global producers to diversify away from China. India has become a preferred destination for back-end assembly and testing operations amidst this industry relocation, with potential for future front-end manufacturing. India's entry into this ecosystem is strategically significant for global supply chain diversification, given its stable political environment and vast domestic market, which are appealing factors for technology companies seeking greenfield expansion opportunities.

Policy support

The Indian government has promptly seized the opportunity following the global semiconductor supply chain glut after the pandemic and showed great intent through policy support to present India as an alternative to China in the global semi supply chain. We discuss the government initiatives in detail in the section below.

Government initiatives

India Semiconductor Mission

The India Semiconductor Mission (ISM) functions as a dedicated division within the Digital India Corporation. Its main goal is to nurture a strong semiconductor and display ecosystem to position India as a prominent global player in electronics manufacturing and design. Under the guidance of international experts in the semiconductor and display industry, ISM serves as a central authority for executing the Programme for Development of Semiconductor and Display Ecosystem, ensuring coordinated implementation, in collaboration with government ministries, industry and academia.

Under ISM, there are several schemes in place:

The Ministry of Electronics and Information Technology (MeiTY) has recently recognised Aheesa Digital Innovations and Calligo Technologies as newly designated start-ups eligible for assistance under the SemiconIndia futureDESIGN DLI Scheme.

The government offers incentives for manufacturing setup in India:

• Under the Semiconductor Fab Scheme, fiscal support of 50% of the project cost on a pari-passu basis for all technology nodes.
• Under the Display Fab Scheme, fiscal support of 50% of the project cost on a pari-passu basis.
• Under the Compound Semiconductor Scheme, fiscal support of 50% of the capital expenditure on a pari-passu basis, including support for discrete semiconductor fabs.

Prime Minister Narendra Modi recently initiated the construction of three semiconductor plants valued at over US$ 15.1 billion (Rs. 1.25 lakh crore). Here is an overview of the three new semiconductor manufacturing units:

Other MoUs signed by the government:

Based on the official sources, the Union Cabinet has given its go-ahead to the Memorandum of Understanding between India and the European Commission so that they could improve collaboration in relation to semiconductor ecosystems. This MoU forms part of the EU-India Trade and Technology Council, whose objective is to develop a more advanced semiconductor industry and better digital technology across both areas for further industrial growth.

Also, the cabinet has approved an MoC regarding the Japan-India Semiconductor Supply Chain to build a stronger partnership between the two nations. The aim of this MoC is to further mutual collaboration and make an unshakable semiconductor supply chain available.

The Semicon India Programme was initiated by the government in December 2021 with an initial allocation of Rs. 76,000 crore (US$ 9.2 billion) aimed at fuelling the growth of semiconductor and display manufacturing ecosystems in the country.

In the interim Union Budget for 2024, India has raised the allocation for the Semicon India Program to be equal to Rs. 6,903 crore (US$ 833.7 million). The most recent financial details available for the Modified Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India during FY24 suggest a revised estimate of expenditure at US $181.5 million (Rs. 1,503 crore).

Under this programme, companies, consortia, or joint ventures can receive a fiscal incentive of 50% of the project cost for starting a semiconductor fab of any size (including mature nodes) within India. In addition, an equal fiscal incentive is available for those planning to establish display fabs in India with designated technologies. This measure confirms India’s determination to be the heart of global semiconductor manufacturing and reinforce its role in the digital economy.

Investments in semiconductor industry

In the Indian semiconductor industry, large amounts of investments have been made to signify the growing importance of India in the global scenario. Not only have domestic but also international bodies established their production bases and research centres in different parts of India. For example, Tata Electronics has invested heavily in its Gujarat and Assam-based semiconductor manufacturing plants, on top of partnerships with the world’s top companies PSMC and Renesas Electronics Corporation. This describes the scale and objectives these endeavours set out with.

These are more than just investments; they are signals of faith in India's capability as a global centre for semiconductor production and serve to underline India’s importance in the world supply chain. This would also put India at an advantage as it can attract more investments with constant support and generous policies.

Investments announced by foreign companies in 2023:

Looking forward

India is poised to witness exponential growth in its semiconductor industry with the advent of well-thought initiatives as well as calculated partnerships. Cooperation like that between Tata Electronics and PSMC, which is coming up in Gujarat, shows that India is serious about setting up top-notch semiconductor fabs. In addition, through the European Commission and Japan, the Indian government’s MoU indicates their commitment to take proactive steps towards strengthening global semiconductor ecosystems. In total, Indian government is evaluating semiconductor proposals totalling US$ 21 billion and considering how to allocate taxpayer support among foreign chipmakers, local industry leaders or a combination of both.

With sustained efforts and a proactive stance, India is on course to solidify its position as a leading semiconductor manufacturing hub, contributing majorly to technological advancement and economic growth.