Next 5 Years: How Can India Seize the Opportune Moment In Semiconductors? In this highly vying tech world, where innovations burgeon on a daily basis, understanding the growing demand in different sectors and leveraging the opportunity presented by 'China Plus One' strategy in tech manufacturing can fulfill India's aspirations to be among the world's top five semiconductor producers

Gordon E. Moore predicted the future. "The number of transistors on an integrated circuit will double every two years with minimal rise in cost," he had said. In the 1960s, this went on to become the globally accepted Moore's Law.

Parallely in India, the tryst with semiconductors had already begun: Continental Device India Ltd (CDIL) became the first to introduce silicon semiconductor technology in 1964. Fastforward, in March 2024, in a significant step towards creating an indigenous semiconductor ecosystem, the Centre approved Tata Electronics Private Limited proposal to set up a semiconductor fab.

The chip industry, a complex global ecosystem valued at half a trillion dollars, relies on a handful of fabrication foundries (fabs) that play a pivotal role. While global competition for semiconductor investment is fierce, India's value proposition is strong: Considering India's large and growing consumer and business marketplace, its strengths in electronics production, and global supply chain rebalancing, India should seize this moment to expand its global presence.

India's semiconductor market, 2022 (actual) and 2030 forecast ($billions)

Source: Invest India

TrendForce's latest findings reveal that as of 2023, Taiwan holds approximately 46 per cent of global semiconductor foundry capacity, followed by China (26 per cent), South Korea (12 per cent), the US (6 per cent), and Japan (2 per cent). However, due to government incentives and subsidies promoting local production in countries like China and the US, the semiconductor production capacities of Taiwan and South Korea are projected to decrease to 41 per cent and 10 per cent, respectively, by 2027.

In this highly vying tech world, where innovations burgeon on a daily basis, what is India's positioning today? Can it fulfill its aspirations to be among the world's top five semiconductor producers in the next five years?

No one size fits all: Making up to the growing demand in different areas

The semiconductor industry comprises companies that design, fabricate, assemble, test, and supply semiconductors that are suitable for various applications.

Expanding its presence in semiconductor manufacturing would build on India's decades-long experience in semiconductor design: At present India houses around 20 per cent of the global chip design talent pool. Tata Electronics is building a mega semiconductor fabrication facility in Dholera, Gujarat in partnership with PSMC (Taiwan's pure-play foundry with capabilities across logic and memory technologies). The pact with PSMC provides access to a broad technology portfolio in leading edge and mature nodes including 28nm, 40nm, 55nm, 90nm and 110nm and also collaboration for high volume manufacturing.

Giving a sense of the macro picture, Srinivas Satya, head of supply chain and component business unit, Tata Electronics, said, "As we are working in the matured nodes, there is no dearth of demands and that's the way ahead in the near future. It's a relatively easy job to set up a fab as a one-time effort, however, it takes a lot of dollars and equipment to keep it running. There's going to be a tremendous opportunity for entrepreneurs and many other companies to build an ecosystem around this."

As semiconductor is an R&D intensive industry with a short technology life cycle, leading companies continue to maintain their dominant positions by constantly pushing technology boundaries manufacturing high-end nodes in their home countries. In this context, India would focus on the matured nodes, which range in size from 65 nm to 28 nm in the medium term including fab manufacturing. The choice of nodes involves compromises and India currently doesn't have an ecosystem for advanced nodes ranging from 10 nm to 5 nm, "The journey towards advanced nodes will be a long one. We do not have the ecosystem right now as it requires a different set of talent, capital and technology," Satya added.

Semiconductor fab manufacturing is highly capital intensive requiring long gestation periods. Establishing a wafer manufacturing (front end fab) requires investments in the range of $10 billion. Different players in the industry have only two ways to win: Either they need capital or they need to find the right product-market fit. "We've been working on silicon carbide, it is one of those niches where we see a lot of potential. It is nowhere near the nanos, but it has a niche market and is used in power-related products," said Prithvideep Singh, General Manager, CDIL. Sharing a similar opinion, Anil Kalra, head of operations, L&T Semiconductors, said, "There is huge energy demand in India, with investments in green sustainable sectors. Semiconductors will be needed in all these areas, where silicon carbide products will have an edge."

In August 2023, CDIL, inaugurated a new surface-mount semiconductor packaging line at their Mohali plant in collaboration with the Government of India's scheme for promotion of the manufacturing of electronic components and semiconductors (SPECS). With this, adding another first to its credit, CDIL became India's first silicon carbide (SiC) component manufacturer. SiC devices are the reason behind the 'fast charging' of batteries in EVs and other electronic gadgets.

India's automotive industry is growing and semiconductor applications in electric vehicles, autonomous driving, and in-car entertainment systems present significant opportunities. Overall, the automotive market in India will require about $5 to $6 billion worth of semiconductors by 2030. "We are currently at 18 million two wheeler sales in India, now this is expected to go to 25 to 30 million by 2030 and the industry believes that 50 per cent of it'll convert to electric vehicles. Two wheelers are consuming anywhere from $100 to $200 worth of semiconductor per bike," said Vivek Tyagi, MD, Sales, Analog Device, indicating the huge demand in the industry.

The increasing spending power of the aspirational Indian middle class is expected to drive India's GDP at nearly twice the global rates. As per International Monetary Fund (IMF) projections, India is poised to become the third largest economy in the world by 2028 with an estimated nominal GDP of USD 5.58 trillion, growing at an average rate of 6.55 per cent per year between 2021 and 2028. Per capita GDP is set to cross
$3,000 by 2025, further accelerating discretionary spending and fuelling demand in the electronics sector.

Seizing the opportunity: Leveraging China plus one strategy

In the past few years the global manufacturing landscape has seen a Tectonic Shift with multinational corporations seeking to de-risk from China: In order to reduce dependence on the country for manufacturing their high-tech electronic products and components, many of these companies have embraced a 'China plus one' (C+1) strategy taking active measures to reduce risk by downsizing their presence in the country.

Furthermore, The US-China trade conflict has highlighted the vulnerability of the global economy due to overreliance on a small number of countries for the supply of critical raw materials, components, and products across sectors. The politics of high-technology trade, which has led to recent export curbs by China, are also a part of this continued uncertainty. Supply chain disruptions, which began with the COVID-19 pandemic, have worsened following the conflict in Ukraine and are threatening global economic security.

The Indian government has been actively creating policies to attract leading firms in the value chains to set up production operations in India. Addressing issues related to inverted tariff structures, rationalizing state-level tax regimes and incentive schemes have all been a part of India's recent industrial and foreign policy basket. Strategic collaboration between India and other countries can facilitate the relocation of sub-component value chains to India, enabling local firms to develop niche advantages and achieve greater self-reliance in the production of electronics.

US -based chip equipment supplier Applied Materials will collaborate with semiconductor supplier organizations to reduce the time to commercialisation in India. "Supply chain is something that we are targeting, everyone is looking at the China plus one, China plus two strategy. Bringing global and domestic suppliers to service the industry will make the ecosystem sustainable. We are also looking at Net zero: We are taking steps to reduce the amount of water, energy consumption, gas abatement, alternate materials, chemistry," said Suraj Rengarajan, managing director, Applied Materials India.

Varun Manwani, director, Sahasra Group, said, "India has the talent pool and it is positioned to become the largest global market for a tech-savvy young population. The huge talent pool here will drive and bring in capital and cash."

According to a PwC ORF report, as India is trying to achieve the target to increase its electronics manufacturing capacity to INR 24 lakh crore by 2025-26 and create over 10 lakh jobs, it is necessary for the country to come up with innovative ideas to ensure growth. One of the spaces where India can leverage the advantages of the electronics sector is by investing in the fabless foundry model like its East-Asian peers. For example, Taiwan's fabless foundry model has helped the country increase its global semiconductor value chain across the world. With semiconductor ubiquity in electronics, something similar can be employed by India as well. Alliances like the Chip 4 Alliance can be taken up in the domain of semiconductors. These, coupled with the structured bridge innovations at the federal level, will go a long way in strengthening India's ecosystem by addressing macro as well as micro ecosystem challenges

In the next five years, India has the potential to expand its presence in the semiconductor assembly, test, and packaging (ATP) segment to as many as five facilities, suggests various researches. Upping the ante, in March Tata group and CG Power received approvals to set up ATMP facilities. In January this year, crediting the Micron investment for sparking manufacturing interest in India, Minister of State for IT Rajeev Chandrasekhar said that the Ministry was analyzing four OSAT proposals.

Recently, Kaynes Semicon, a subsidiary of Kaynes Technology, said it will be investing INR 4,000 crore to set up a semiconductor OSAT/ATMP in the next one to two years. "India has a huge market for OSAT. We have seen how China tried to control the trade in terms of the raw material and OSAT. China, Taiwan and Korea have almost 60 to 80 per cent of the market in packaging, so, China plus one is very important as it gives us the opportunity to grow," said Sumit Verma, senior director, Kaynes Semicon.

In order to achieve its aspirations, India needs to create a tailored, best-in-class taxation framework that will be competitive and comparable to those offered in international locations like China and Vietnam, for product development and related R&D activities. Such a framework, characterized by its efficacy and comparability, promises to mitigate transaction costs, incentivise R&D endeavors, and elevate India's standing in the global business landscape particularly within the realm of product development and associated innovation.

From the 1960s till date, Moore's prediction included silicon chips performance increase with regard to speed, compactness and power consumption. As a result, semiconductor-enabled products today play integral roles in virtually every aspect of modern life and India can leverage this opportunity by deepening recent improvements it has made in business and policy environments, while avoiding regulations that might create business uncertainty.