Semiconductor Manufacturing in India: Opportunities and Challenges

The global semiconductor industry powers modern technology, from smartphones to cars, and demand is rapidly increasing. Consequently, nations are competing to secure a strong role in the semiconductor supply chain. Meanwhile, India, with skilled engineers, a strong IT sector, and rising electronics demand, is emerging as a key player. Furthermore, the government’s “Atmanirbhar Bharat” initiative and financial incentives are driving India’s path toward becoming a semiconductor manufacturing hub.

Why Semiconductor Manufacturing Matters

Semiconductors are the “brain” of modern electronics, enabling the functioning of devices by controlling the flow of electricity. As industries become more digital, the demand for semiconductors has soared. However, the pandemic exposed vulnerabilities in the global semiconductor supply chain, leading to shortages that impacted industries such as automotive, consumer electronics, and healthcare.

India, like many countries, recognized the need to develop domestic semiconductor manufacturing capabilities to reduce reliance on imports. The current situation presents India with both an opportunity to strengthen its position and a challenge to overcome existing barriers.

Government Initiatives to Promote Semiconductor Manufacturing

1. PLI Scheme for Electronics Manufacturing

In December 2021, the Indian government launched the Production Linked Incentive (PLI) scheme to promote the manufacturing of semiconductors and display fabs in the country. This scheme aims to attract large investments from global semiconductor manufacturers by offering financial incentives.

Example: The PLI scheme allocates ₹76,000 crore (approximately $10 billion) for semiconductor manufacturing, supporting companies that set up semiconductor and display fabs in India. This initiative is seen as a major step in boosting India’s semiconductor ecosystem.

2. Atmanirbhar Bharat and Strategic Investments

As part of the “Atmanirbhar Bharat” (self-reliant India) initiative, the government has emphasized the importance of building domestic capabilities in semiconductor manufacturing. In line with this vision, India is focusing on creating a conducive environment for semiconductor research, design, and manufacturing. Strategic partnerships with global semiconductor leaders are also being encouraged to transfer technology and expertise.

Example: Vedanta Group’s collaboration with Foxconn, one of the world’s largest electronics manufacturers, is an example of how India is partnering with global giants to boost its semiconductor manufacturing capabilities.

Opportunities for India in Semiconductor Manufacturing

3. Growing Domestic Demand

India’s electronics market is expanding rapidly, driven by a surge in demand for smartphones, consumer electronics, and electric vehicles. This presents a massive opportunity for semiconductor manufacturing. Establishing domestic production can significantly reduce India’s dependence on imports, which currently account for nearly 100% of the country’s semiconductor needs.

Example Calculation: India imports nearly $24 billion worth of semiconductors annually. With the establishment of semiconductor fabs in India, the country could reduce this dependency and stimulate local industry growth.

4. Skilled Workforce

India boasts a large pool of highly skilled engineers, particularly in the fields of electronics, computer science, and semiconductor design. The country’s strength in IT services and engineering makes it well-positioned to support the technical demands of semiconductor manufacturing. Many global semiconductor firms, such as Intel and Qualcomm, already have significant R&D operations in India, demonstrating the country’s potential as a major player in semiconductor design and manufacturing.

Challenges India Faces

5. High Capital Costs

One of the major challenges of semiconductor manufacturing is the high capital investment required to build semiconductor fabs. Establishing a semiconductor plant can cost over $5 billion, requiring expensive, constantly evolving technology. Additionally, semiconductor fabs need clean water, uninterrupted power, and highly controlled environments, which present infrastructure challenges in India.

Example: The estimated cost of establishing a semiconductor fab ranges between $5 billion and $20 billion, depending on the type of fab and the technology it uses. India’s infrastructure development and availability of resources like clean water will be crucial in attracting such investments.

6. Technological Gaps

While India has expertise in semiconductor design and engineering, it still lags in semiconductor manufacturing, particularly in producing advanced chips. Catching up with global leaders in this area requires the transfer of cutting-edge technology, as well as significant investment in research and development (R&D).

Strategic Partnerships and Global Collaborations

To overcome the challenges of high capital costs and technological gaps, India is seeking to form partnerships with global semiconductor companies. These collaborations can provide access to advanced manufacturing technology and help build the necessary infrastructure. Several countries, including the U.S. and Japan, have expressed interest in working with India to develop its semiconductor industry.

Example: The Indian government is in discussions with semiconductor manufacturing leaders like Intel and Taiwan Semiconductor Manufacturing Company (TSMC) to set up manufacturing units in India. Such collaborations could play a key role in helping India bridge its technological gaps.

The Road Ahead for India

India’s push for semiconductor manufacturing is well-timed, given the global semiconductor shortage and the growing demand for electronics. While there are significant challenges, including the high cost of manufacturing and technological gaps, the government’s initiatives and the country’s skilled workforce offer a strong foundation for growth.

For success, India must focus on attracting foreign investment, forming global partnerships, and building infrastructure for semiconductor manufacturing. With strong policy support, technology transfer, and investment, India could become a key player in the global semiconductor industry.

Final Thoughts

India’s journey to becoming a semiconductor manufacturing hub is just beginning. While the challenges are significant, the opportunities are immense. The combination of growing domestic demand, government incentives, and international partnerships positions India well to build a robust semiconductor ecosystem. As the country continues to invest in this critical sector, it has the potential to not only meet domestic needs but also play a key role in the global semiconductor supply chain.

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