The Story So Far
The electrical characteristics of semiconductors are unique. A conductor is something that conducts electricity, while an insulator is something that doesn’t. Semiconductors are materials that have properties that fall in the middle of the spectrum. These are used to make integrated circuits (ICs) as well as electronic discrete components like diodes and transistors. Today, semiconductors are employed in a wide range of applications, including automotive electronics, consumer electronics, computer processing, industrial electronics, and wired and wireless communications. The semiconductor business has grown significantly in recent decades attributed to three factors: technology scaling, improved performance, and inexpensive manufacturing costs due to mass production.
In the backdrop of the COVID-19 pandemic, several countries, including India, have realised the importance of global supply networks as well as their vulnerabilities in the lack of specific effort to diversify supply chain partners. In the case of semiconductors, this is particularly true. Hence, the Indian government is well aware of the problem and has taken a number of initiatives in recent years to gain a footing in semiconductor manufacture and achieve self-sufficiency. India’s quest to become a global leader in semiconductor chip manufacturing is likely to be filled with both opportunities and obstacles.
India’s Stand in Global Semiconductor Market
The Asia Pacific region continues to be the largest market for semiconductors, accounting for about half of the global industry. Sales in the Asia Pacific stayed stable during the global recession, whereas sales in the Americas and Europe plummeted. The increased demand for consumer devices such as portable music players, mobile phones, and flat screen televisions has fuelled global semiconductor growth in recent years. Many of these devices are manufactured in Asia, which, together with rising electronic consumption in these nations, explains why sales to this region are so high.
In 2001, the Asia-Pacific region surpassed the Americas to become the world’s largest region for semiconductor sales, and its lead has grown year after year since then. In 2009, India’s semiconductor design industry, which includes Very-large-scale integration (VLSI) design, board/hardware design, and embedded software development, was valued at US$ 6.5 billion, and it is expected to grow at a compound annual growth rate of 17.3 % over the next three years, reaching US$ 10.6 billion in 2012. Embedded software development is the largest source of revenue, followed by VLSI and board design. The increased work being done in India is due to the rising availability of a qualified talent pool, as well as the emergence of India as a consumer market for electronic goods.
In recent years, the number of companies producing advanced chips has decreased, and cutting-edge manufacturing has shifted east. According to a survey by the Semiconductor Industry Association, all chips created using the most advanced methods (known as sub-10 nanometre processes) are made in Asia, with 92 % being made in Taiwan and the remaining 8% in South Korea. Only a small percentage of semiconductors are created in the United States. In 2019, only 12% of chips sold worldwide were created in the United States, compared to 37% in 1990.
The escalating COVID-19 instances in supplier countries, particularly those in Asia, were the primary source of the semiconductor scarcity. Furthermore, low margins in the fabrication of substrates, which transfer user instructions to a computer’s chips and relay the results, have led to underinvestment, exacerbating the global chip scarcity. During the coronavirus-induced lockdowns, supplies were further harmed by a sudden surge in demand for gadgets. Manufacturer chip hoarding, penalties on Chinese technological companies, the US-China trade war, and the deployment of 5G infrastructure are all factors to consider. The shortage of semiconductors has spread across India, impacting every industry. Smaller players are feeling the pinch as original equipment manufacturers (OEMs) slow manufacturing, affecting their business orders and income. Chip demand is increasing as new technologies become more widely available. For example, the Indian government emphasizes the importance of electric car adoption, which has resulted in an increase in chip demand.
In the services layer, India is on top. The delivery cost is the lowest in the world, and it has begun to thrive on the applications layer, thanks to a slew of fintech firms. However, India is absent from the core technological layer, which is dominated by the United States, China, Taiwan, and South Korea. India must develop the core Information communications technology (ICT) layer, which has been neglected so far, in order to maintain its strength. However, this is changing, and non-traditional investors are becoming more interested in exploring the market for non-linear benefits. There is a widespread consensus among policymakers that if India is to become a global leader in the near future, advanced and specialised technologies would play a critical role.
Synopsis on Indian Semiconductor Industry
Evolution Of the Industry
The semiconductor industry began in India in the late 1960s when discrete semiconductor device R&D and manufacture in Germanium and Silicon technologies were established, and the first saleable integrated circuits (both digital and analogue) were created and produced. This was the country’s first foray into semiconductor research and development, and it resulted in the establishment of global incumbent semiconductor businesses like Texas Instruments (1985) and Arcus (acquired by Cypress Semiconductor) rather indigenous. There are four stages in the development of the domestic semiconductor design sector.
The exploratory phase (prior to 1995) saw the beginning of semiconductor design in India with the establishment of state-run companies that produced discrete Germanium semiconductors, as well as some multinational companies like Texas Instruments that were looking to test the Indian waters and were among the first to tap the Indian opportunity.
In the period of rapid expansion in the IT industry (1995–2000) witnessed the rise of India’s domestic IT industry and the influx of English-speaking engineers, an ecosystem grew, attracting a growing number of domestic and multinational businesses like Analog Devices, National Semiconductor, Delphi Automotive Systems, and Synopsys.
Whereas, explosive growth phase (2000–2005) saw the fastest expansion of semiconductor design companies in India, with around 42 % of the companies now operating in the country having been founded or entered during this time. Strong government support and fast evolving educational institutions, which began providing advanced courses in semiconductor design, were the main driving forces behind this.
The ecosystem is gradually orienting toward product/design innovation during the innovation phase (2005 onwards), with top 10 global cable firms and top 25 semiconductor companies present in India. Captives and non-captives alike are gradually orienting themselves to execute projects with increased strategic value (toward spec-to tape out/product ownership). A considerable number of multinational semiconductor companies had established captive design facilities in India by 2005. Although, rather than creating its own indigenous manufacturing hub, the preceding phases focused on capitalising international and domestic MNCs.
In 2020, India spent $15 billion on electronic imports, with China accounting for 37% of the total. Semiconductor manufacturing in India would reduce the country’s import cost while also providing numerous job possibilities for Indian youngsters. Subsequently, India has a limited foothold in the semiconductor industry, which is primarily used for strategic purposes. The Semi-Conductor Laboratory (SCL) in Mohali, the Gallium Arsenide Enabling Technology Centre (GAETEC) in Hyderabad, and the Society for Integrated Circuit Technology and Applied Research (SITAR) in Bengaluru are India’s present facilities. The government has approved several projects and schemes to help the country become self-reliant, including the “Establishment of Gallium Nitride (GaN) Ecosystem Enabling Centre and Incubator for High Power and High Frequency Electronics” project, which will be carried out by the Society for Innovation and Development (SID).
Key Segments Arousing the Demand
The semiconductor design sector in India is growing due to rising consumer electronics sales, a flourishing telecom/networking market, and an increase in the use of portable/ wireless devices globally, a trend that is also visible in India.
End users today expect a lot more from an electronic product in terms of stand-alone functionality, cross-product integration, connectivity, and the emergence of new technologies like wireless communication, as well as increased investments in the Internet of Things (IoT), artificial intelligence, and industrial demand from sectors like medical devices. As a result, there is a higher demand for semiconductor design. As the market for such devices grows in India, a new trend has emerged where corporations are turning to domestic firms for semiconductor design services because they have a better understanding of the industry. Automobile electronics is another important growing sector, as both passenger and commercial cars become increasingly “smarter” with onboard computer systems that improve safety and the customer experience.
The semiconductor design business has made a substantial contribution to the country’s economy. In addition to driving India’s economy, this industry has a positive impact on the lives of its citizens by actively contributing to numerous socio-economic factors such as employment, the standard of living, education, and diversity, among others. India will be one of the top electronics markets by 2025, with market size of more than $500 billion. The semiconductor chips, which are the building blocks of electronic items, will lay the groundwork for this sector. To serve such a vast market, however, India has to build an indigenous semiconductor manufacturing environment, which it currently lacks.
Drivers and Challenges in the Indian Semiconductor Industry
With the newly unveiled National Education Policy placing a greater emphasis on flexibility, multi-disciplinary approaches, research, and innovation in India’s higher education landscape, there is now the possibility of better synergy between industry and academia in designing curriculum to meet the needs of semiconductor companies in India. Following this, Indian semiconductor design businesses are seeing an increase in projects in chip development, as opposed to derivative chip design, as a result of their extensive knowledge. With more designs being developed for the current technology node, the complexity of work is likewise increasing. Despite the fact that India’s cost structures are constantly increasing in absolute terms, India still boasts an impressive overall cost advantage over the United States, Europe, and Japan. In comparison to other Asian countries, the Indian government and design companies have strict IP protection policies. There have been occasions where corporations have shipped work to India, despite the fact that design turnaround times in the country are significantly longer than in the countries stated above due to India’s more severe IP protection regulations. India’s rising economic growth, the opportunity to grapple with complicated problems, and the chance to understand more about their past all attract reverse brain drain. They are either joining international corporations or investing in start-up enterprises, which bodes well for the industry. This tendency has increased the technological sophistication of VLSI design services while also ensuring a steady supply of outsourced projects for the industry.
Although the above-mentioned drivers have significant challenges which is causing hindrance for further developments. Like, inadequate experience in foundry interactions and a lengthier time-to-market are two factors that have hampered the expansion of the domestic semiconductor design sector. The ecosystem will not mature or develop at a rapid rate unless this hole is filled. Due to the obvious disparity in expectations between industry and the Indian education system, the talent pool graduating from non-premier institutes has low skill sets. This means higher training expenditures and a longer time before an engineer is productive. Although India has great digital skills, it lacks the required number of engineering graduates who can handle analogue technology. With the presence of OEM/ODM firms, strong government support, infrastructure, and uninterruptible power, the countries stated above have a full and mature ecosystem that has been established over the last 30 years. As a result, even in design-related tasks, foreign countries are frequently favoured over India. Also, rising insecurity among foreign governments and enterprises outsourcing activities to India (or other offshore locations) could make attracting employment to India more difficult in the future.
Vision on Building a Self-Resilient Ecosystem
In the semiconductor industry, India has a limited presence, primarily for strategic applications. The Semi-Conductor Laboratory (SCL) in Mohali, the Gallium Arsenide Enabling Technology Centre (GAETEC) in Hyderabad, and the Society for Integrated Circuit Technology and Applied Research (SITAR) in Bengaluru are the three facilities now operating in India. However, if New Delhi takes steps to attract more talent and investment, this could change.
“From 5G technology to artificial intelligence, virtual reality, cloud, internet of things, and robotics, the world looks to India with optimism to give technology enabled solutions that are inexpensive and sustainable,” Prime Minister Narendra Modi said at the Indian Mobile Congress. The government is starting to understand the importance of semiconductors and displays as “the underpinning of modern electronics driving the next phase of digital transformation under Industry 4.0.” Semiconductors and display manufacturing are both capital and technology-intensive, with long gestation and payback periods, and India is seeking both financial and technological assistance.
However, in December 2021, the Cabinet approved a comprehensive programme for the development of a sustainable semiconductor and display ecosystem in the country with an outlay of Rs.76,000 crore (>10 billion USD) in support of Aatmanirbhar Bharat’s vision of positioning India as the global hub for Electronics System Design and Manufacturing. The programme will usher in a new era in electronics production by offering enterprises in semiconductors and display manufacture, as well as design, a globally competitive incentive package. This will pave the path for India’s technological leadership and economic self-reliance in these vital areas. The program’s goal is to enable firms and consortiums working in Silicon Semiconductor Fabs, Display Fabs, Compound Semiconductors / Silicon Photonics / Sensors (including MEMS) Fabs, Semiconductor Packaging (ATMP / OSAT), and Semiconductor Design with attractive incentive support. Incentives for the development of India’s semiconductor and display manufacturing ecosystem have been authorised are stated below.
The Schemes for Setting Up Semiconductor Fabs and Display Fabs in India would provide pari-passu fiscal support of up to 50% of project costs to applicants who are found eligible and have the technology and capacity to carry out such highly capital and resource intensive projects. Also, to approve applications for at least two greenfield Semiconductor Fabs and two Display Fabs in India, the Government of India will work closely with state governments to establish High-Tech Clusters with the necessary infrastructure in terms of land, semiconductor grade water, high-quality power, logistics, and research ecosystem. Even the Union Cabinet has also ordered that the Ministry of Electronics and Information Technology (MeitY) will take the necessary efforts to modernise and commercialise Mohali’s Semiconductor Laboratory (SCL). MeitY will investigate the prospect of a SCL-commercial fab partner forming a joint venture to modernise the brownfield fab facility. Subsequently, the Scheme for Establishing Compound Semiconductors / Silicon Photonics / Sensors (including MEMS) Fabs and Semiconductor ATMP / OSAT Facilities in India will provide approved units with financial assistance of up to 30% of capital investment. This strategy is projected to culminate in the establishment of at least 15 such Compound Semiconductors and Semiconductor Packaging units with government assistance. For the next five years, the Design Linked Incentive (DLI) Scheme will extend a product design linked incentive of up to 50% of qualifying spending and a product deployment linked incentive of 6% to 4% of net sales. Support will be provided to 100 domestic semiconductor design companies for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores, and semiconductor linked design, with the goal of facilitating the growth of at least 20 of these companies with a turnover of over Rs.1500 crore in the next five years. And lastly, a specialised and independent “India Semiconductor Mission (ISM)” would be established to drive long-term plans for the development of a sustainable semiconductors and display ecosystem. Experts in the semiconductor and display industries from around the world will lead the India Semiconductor Mission. It will serve as a focal point for the effective and efficient implementation of strategies for the establishment of Semiconductor and Display Fabs.
Meanwhile, the Indian government is said to be in talks with Taiwan to establish a semiconductor manufacturing facility in the country. The Indian government has already chosen a number of locations for this. If the talks succeed, it might be carried out by one of Taiwan’s major semiconductor manufacturers, such as the Taiwan Semiconductor Manufacturing Company (TSMC) or the United Microelectronics Corporation (UMC). The semiconductor business is also attracting domestic attention. The Vedanta Group announced in December that it wants to invest $15 billion in display and semiconductor production in India over the next five to ten years. For chip manufacturing in India, the Tata Group is said to be in talks with a number of multinational semiconductor companies, including Taiwan’s TSMC and UMC. The Tata Group is reportedly planning a $300 million investment in an outsourced semiconductor assembly and test (OSAT) facility. Tamil Nadu, Karnataka, and Telangana have all been mentioned as potential locations for the project. The company will reportedly “build and test semiconductor chips after acquiring sophisticated silicon wafers from semiconductor foundries, including Taiwan-based TSMC, Fitch Solutions,” according to reports. The Tata idea seems to have piqued the government’s interest.
Hence, trusted semiconductor and display sources are important to the protection of critical information infrastructure in the current geopolitical context. To ensure India’s digital sovereignty, the authorised initiative would promote innovation and strengthen domestic capacities. To capitalise on the country’s demographic dividend, it will also develop highly skilled employment possibilities.
With its quantitative and qualitative engineering staff, India is capable of enticing a large number of international firms to establish operations here. The semiconductor industry is very knowledge-intensive, necessitating a big engineering workforce. To attract semiconductor companies, India has a large engineering workforce with the necessary experience. The government and industry initiatives are offering new business opportunities for current enterprises to progress up the value chain.
India possesses everything; a semiconductor manufacturing ecosystem requires talent, infrastructure, design firms, and a research environment. Despite this, business hurdles are preventing India from becoming the next large semiconductor manufacturing destination. As a result, it necessitates the development of solid solutions (via public-private partnership). Hence, the road to India’s success as a global hub of semiconductor chip manufacturing looks promising and a near possibility; kudos to the Indian government’s encouraging policies, growing domestic demand for electronic products, an increasing number of entrepreneurs in the area of fabless semiconductor companies, and availability of a large pool of local design talent.
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