Unveiling India’s Semiconductor Future: The Road Ahead

The semiconductor industry, often referred to as the "new oil," underpins modern technology. From smartphones and computers to cars and defense systems, semiconductors are essential. Globally, this industry is valued at over $500 billion, and its importance has been underscored by the ongoing global chip shortage. As countries race to secure their semiconductor supply chains, India is stepping into the spotlight, aiming to become a key player in this critical sector. But where does India stand today, and what does the future hold?

But first, let's get the basics right.

Fabs, Fabless, and Foundries - The Foundation

• Fabs (Fabrication Plants): These are specialized facilities where semiconductor devices are physically manufactured. Building a fab requires billions of dollars in investment, state-of-the-art technology, and a highly skilled workforce. Taiwan’s TSMC is the global leader in this space, but India is making its first moves with initiatives like the PLI scheme.
• Fabless Companies: These companies focus on designing semiconductor chips but outsource the manufacturing to external fabs. Qualcomm, for instance, is a fabless company that relies on TSMC for its manufacturing needs. India's talent pool in chip design is strong, making fabless a promising area for growth.
• Foundries: These are the fabs that manufacture chips for fabless companies. They play a critical role in the semiconductor supply chain. India is working to attract foundry investments as part of its broader semiconductor ambitions.

Global Advancements and India's Position:

Globally, the semiconductor industry is racing towards smaller and more efficient chips. Currently, the cutting-edge chips are being manufactured at 3nm nodes, with companies like TSMC and Samsung leading the charge. In contrast, India is focusing on establishing fabs that will likely start with larger nodes (28nm or more). While this may seem like a step behind, it's a significant leap for India as it builds its semiconductor ecosystem from the ground up.

The PLI scheme is a critical element here, offering financial incentives to companies willing to invest in semiconductor manufacturing in India. The scheme is part of the broader "Make in India" initiative, aiming to reduce dependence on imports and build a robust domestic manufacturing base.

Challenges in Bridging the Gap Between Aspiration and Reality

India’s semiconductor journey has been a mix of potential and challenges. Most of India’s semiconductor needs are met through imports, making it vulnerable to global supply chain disruptions. Some of the key hurdles include:

• Infrastructure: Semiconductor fabs require a highly reliable power supply, advanced logistics, and access to essential materials like silicon wafers. India's infrastructure is still catching up to these demands.
• High Capex: The capital costs required to set up such factories which can produce at a level that brings in economies of scale is too high.
• Skilled Workforce: While India has a strong talent pool in semiconductor design, manufacturing is a different ball game. The country needs to develop specialized training programs to build the required skills.
• Supply Chain Dependencies: The global semiconductor supply chain is incredibly complex, with various components sourced from different countries. India needs to integrate itself into this global supply chain while building domestic capabilities.

However, recent government initiatives aim to change this narrative. The Production Linked Incentive (PLI) scheme, worth over ₹76,000 crore, is a significant step towards boosting semiconductor manufacturing in India. This policy aims to attract global players and support domestic start-ups to build a robust semiconductor ecosystem.

Success Stories: India's Early Movers and the Role of Global Partnerships

India's ambitions are already showing early signs of success. Companies like Tata Group have announced ventures into semiconductor manufacturing, and strategic partnerships with global players are bringing the much-needed expertise and investment into the country.

These partnerships are vital as they provide India with access to advanced technology and best practices in semiconductor manufacturing. Moreover, as India strengthens its position, it will be better positioned to negotiate favorable terms in future partnerships, ensuring long-term growth.

PLI Scheme: The Catalyst for Growth

The Production Linked Incentive (PLI) scheme is designed to attract semiconductor companies to set up manufacturing units in India. By offering financial incentives, the government aims to reduce initial investment risks and make India an attractive destination for global semiconductor giants.

Key points of the PLI scheme include:

• Incentives for Capital Investment: Companies are encouraged to invest in semiconductor manufacturing and are rewarded based on the level of investment and production achieved.
• Focus on Advanced Manufacturing: While initial fabs may start with larger nodes, the long-term goal is to attract companies that can manufacture advanced chips, helping India climb up the value chain.

Challenges Ahead

While the initiatives are promising, challenges remain. Building a semiconductor fab is a capital-intensive process, often requiring billions of dollars in investment. The technology is complex, and setting up a fab can take years. Additionally, India needs to develop a skilled workforce, with expertise in semiconductor design and manufacturing.

Furthermore, the global semiconductor market is highly competitive, with countries like the U.S., Taiwan, and South Korea leading the way. India will need to differentiate itself, possibly by focusing on niche areas or leveraging its strength in software and design.

Conclusion: Is India Ready to Become a Semiconductor Powerhouse?

The road ahead is challenging, but India is on the right path. With the right investments, policies, and global partnerships, the country has the potential to become a major player in the semiconductor industry.

In the coming years, India’s success in the semiconductor space will depend on its ability to innovate and adapt to the rapidly changing global landscape. For investors, entrepreneurs, and policymakers, the opportunity is immense, but so are the challenges.

India's semiconductor story is just beginning, and it’s one to watch closely.