Semiconductors are imperative for staying competitive in a digital-first world. Right from smartphones, health wearables and laptops to smart TVs, microwave units, air conditioners and more, the use of semiconductor chips is all pervasive. Advancements in AI and IoT make semiconductor chips the backbone of today's digital revolution. With the endeavour to become a self-reliant economy, the government of India outlined its Aatmanirbhar Bharat vision in May 2020, with plans to become a self-sustaining semiconductor production unit. Some schemes that have been introduced in this light include Production Linked Incentive (PLI), Scheme for Promotion of Manufacturing Components and Semiconductors (SPECS) and the Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme with a collective budget of Rs. 50,000 cr.

This is definitely a positive start. But semiconductor production is complicated, capital intensive and time consuming. It involves chip design, electronic design automation, Intellectual Property, fabrication, assembly, equipment, wafers, chemicals. Globally, this entire value chain is seeped in interdependence between a handful of countries like USA, Taiwan, Japan, China and some European nations. 

Where India stands currently  

In India, semiconductors are a 100% import sector, with spends touching $10bn in 2013. In 2020, India spent $15bn on electronics imports, with 37% coming from China. However, India has a distinct advantage in chip design. Multiple global Integrated Device Manufacturers (IDMs) have set up design centres across India. MeitY states that India produces nearly 2,000 chips every year and more than 20,000 engineers in the country are involved in chip design. There is a growing talent pool of engineers in India that are skilled in Integrated Chip (IC) design. Recent developments indicate the increasing interest to set up manufacturing units across strategic industrial pockets in India like Gujarat, Haryana and Hyderabad. The Panasonic plant in Jhajjar was inaugurated in 2018 and production is expected to commence soon, primarily catering to the manufacturing of ACs, washing machines and refrigerators replete with the latest IoT offerings by Panasonic such as Miriae. In 2014, Prantij in Gujarat’s Sabarkantha district was earmarked as the location for the state’s first semiconductor wafer fabrication facility to be set up by 2017. Gujarat still remains a preferred destination to set up such units. In addition, Uttar Pradesh is also being viewed as a viable destination; on Dec 12th 2020, the state approved financial incentives for Samsung’s display factory in India after the South Korean electronics company decided to move the plant to India from China. 

Existing Realities To Consider

But, acquiring complete monopoly on the semiconductor value chain is a tall and challenging order. Each country that is important in the value chain have multiple “choke points”, which governments are trying to capitalise for their benefit over the others in the form of export policies and outright bans. India, which has a stronghold over chip design, is now trying to branch out further in gaining strategic autonomy in the semiconductor value chain. The first steps toward that include setting up fabless manufacturing units. Fabless units are highly cost intensive; initial setting up costs for one unit are estimated to atleast $1bn and results would take about 4-5 years to yield. Production alone would take about 2 years to commence. Moreover, the R&D and manufacturing costs for chips are only increasing - the latest demand is for 5 nanometre (nm) chips and they cost around $540mn. Most manufacturers make 14nm chips and are upgrading to 10nm with the goal of hitting 5nm chip production soon. Some are already making 5nm chips like Taiwan Semiconductor Manufacturing Co. Ltd and Apple, (thereby proving Moore’s Law is getting outdated fast). 

However, India’s engineers are producing some of the world’s cutting edge semiconductor designs in companies like Qualcomm, Intel, Nvidia, ARM,AMD, Mediatek etc. Acc to Satyen Gupta of IESA, R&D in semiconductor design, electronics & embedded software is nearly $23bn and employs 6 lakh professionals. 

What India Can Do 

India needs to have a two-pronged approach to bridge the existing gap with other nations in terms of competitive advantage, and consolidate its position as a market leader in one area it already has expertise in. This includes ramping up chip design capabilities and research. Recently, MeitY and Cadence Design Systems have started an incubator called Fabless Chip Design Incubator Programme (FabCI) to support IPR in chip design. A fairly less capital intensive method would be to harness the existing talent pool - India has 4,000 engineering colleges that see nearly 1.2 million graduate each year, which can focus on building semiconductor design capabilities by working with industry and government. 

The propensity of digital transformation, connected devices and edge computing in India gives the nation a massive opportunity to become a semiconductor manufacturing and design hub in South Asia. It remains to see how the industry and government collaborate to build an impenetrable strategy to harness this opportunity.