India Wants To Become Chip-Making Hub But Local Production Still Lagging Behind

As the global semiconductor landscape undergoes a transformation following the pandemic, India has been beating the drum about its ambitious vision to turn the country into a chip-making hub in the world's stage.

However, experts note that local production is still lagging behind, with "only 9% of the Indian semiconductor component consumption being met locally."

Semiconductors are the tiny wonders that silently power the modern age. They are found in cars, smartphones, televisions, radios, medical diagnostic equipment and so on. Despite their critical importance in a number of in-demand devices, most economies satisfy their chip requirement from technologically advanced countries like Taiwan, China, the U.S., Japan, and South Korea.

In recent years, India has been attempting to move up the global supply chain as part of New Delhi's overarching vision of making the country self-reliant and turning it into a global manufacturing hub.

"The changing geopolitical landscape, and shift in preference for manufacturing locations caused by the pandemic, are underlining the need for a strong indigenous semiconductor industry. While local production is currently low, India has immense potential to become a leading semiconductor component supplier in the coming years, provided the talent pool and resources are utilized correctly," Counterpoint Research told International Business Times.

The Indian semiconductor market was valued at around $35 billion in 2022 and was expected to grow at a healthy CAGR of 16% from 2019 to 2026 to reach $64 billion in 2026, the global technology market research firm said. The IT, industrial and mobile and wearables segments have taken the lead in India's semiconductor industry.

With the sudden surge in the demand for chips and semiconductor components, New Delhi is well aware of the need to develop a robust, indigenous ecosystem for semiconductor manufacturing within India itself.

Nearly two years have passed since the current Indian government announced its scheme worth more than $9 billion (Rs 76,000 crore) for attracting semiconductor and display fabs in the country on Dec. 15, 2021. However, much of the overlay still remains underutilized.

"So far the only applicants approved under the scheme are one chip packaging unit (that of Micron) and 7 design companies (which are likely to be Indian start-ups). No one has been approved in the key category of Silicon based chip fabs and in the smaller compound semiconductor, sensor and other fabs category," semiconductor analyst Arun Mampazhy told IBT.

"Naturally a big part of the overlay is still unused and it appears over the last two years, there has been a disproportionate amount spent on admin expenses and PR than progress on ground. As a result, in the global stage, India is still not even a speck. In 2024 if two commercial Silicon fabs ground break, by 2030 India can expect to be about 1% globally," he said.

India still has made no progress on Silicon based fabs and also has other applications pending in other categories.

While several different deals and initiatives have been announced this year, some see these as small steps in a long marathon that India needs to run before it can break ground in the industry. New Delhi's lackluster response to certain deals, including talks with Israeli company Tower Semiconductor, are seen as the India Semiconductor Mission's inability to "convert these offers into wins and take them to ground breaking," Mampazhy said.

"In areas like mobile assembly, globally India is said to contribute around 2.2% at present and it is expected to keep going up- this is not the semiconductor industry but what is called Electronic Manufacturing Service or EMS. As for the non-design semiconductor industry, chip packaging is only getting started now in India and even countries like Vietnam, Malaysia and indeed China are already way ahead. India may be able to get to a 2% or at best 5% global market by the end of the decade."

India is about five decades behind in the chip fabrication and related industries, but still has potential to build a robust semiconductor ecosystem, which can be a major contributor to its economic growth.

Mampazhy believes this will consequently trigger subsequent investments in fabs and related industries.

"Having ignored chip fabrication and related industries almost completely for more than 50 years India cannot expect to become a commanding player suddenly - all talk about becoming hub is either total lack of understanding of reality or exaggeration," Mampazhy said.

"A tough but desirable target to keep will be to cater to 50% of domestic and 10-15% of overall global market by 2047, unfortunately ISM so far has not defined any short term or long term goals," he added.

As per Counterpoint Research, schemes such as the Make in India and the Production Linked Scheme will accelerate the country's journey to becoming a leading semiconductor component supplier in the near future. However, the firm believes additional reforms will help increase local manufacturing and sourcing of semiconductor components. This would also add to India's push to become a $5-trillion economy, the firm noted.

"To achieve India's semiconductor vision, a robust, indigenous technology ecosystem must be developed. The focus must be renewed on incentivizing the design ecosystem in the country in a manner that may have cascading effects to help create a stronger foundation for design-led manufacturing and allied sectors," Counterpoint Research said.