Semiconductor Industry in India

Mains Marks Booster     5th August 2023        


Semiconductors are vital for electronics and computing, but there's a global shortage due to high demand exceeding supply. This shortage impacts economic growth and jobs. To address vulnerabilities, India aims to become the global hub for Semiconductor Design, Manufacturing, and Technology Development. However, the shortage of semiconductor chips has exposed vulnerabilities in the semiconductor supply chain, underscoring the need to bolster domestic manufacturing capacity.

What are Semiconductor Chips?

  • Semiconductors are materials that exhibit a conductivity level between conductors and insulators. They can be pure elements such as silicon or compounds like gallium arsenide.
  • Significance: Semiconductor chips serve as the fundamental building blocks and the "heart and brain" of modern electronics and information and communication technology (ICT) products

Semiconductor Industry in India: Present Status  

  • India has become the hub for semiconductor design with nearly 2,000 chips being designed per year.
  • Worth (nearly $23.3 billion in 2021; expected to reach $80  billion by 2023).
  • Expected Consumption: India's own consumption of semiconductors is projected to exceed $80 billion by 2026 and $110 billion by 2030.
  • Employment potential - generate 6 lakh employment opportunities by 2030; an exceptional semiconductor design talent pool making up to 20% of the world’s semiconductor design engineers. 
  • Consumption of semiconductors is expected to reach India $110 billion by 2030. 
        Semiconductor Chips

Need for promoting Semiconductor Industry

  • Foundation of Digital Transformation: Semiconductors and displays are at the core of modern electronics, driving the next phase of digital transformation under Industry 4.0.
  • Export potential - leveraging manufacturing capabilities can help tap the global market and contribute to export earnings narrowing trade deficit.
  • Employment generation - in domains like design, fabrication, assembly, testing. 
  • National security - By reducing dependence on imported semiconductors, safeguarding critical infrastructure, defense system, sensitive data from vulnerabilities.
  • Sustainable development - by enabling energy-efficient technologies and solutions contributing to low carbon footprint. 
  • Spillover effects - Enabling digital transformation in healthcare, energy, agriculture. 

Disruptions in the Semiconductor Market

Semiconductor manufacturing operates within a complex global ecosystem, making its supply chain vulnerable to macroeconomics, geopolitics, and natural disasters. 

Several factors have contributed to recent disruptions:

  • Demand Hike: During the COVID-19 pandemic, with people spending more time at home and remote work becoming the norm, there was a surge in demand for consumer electronics such as laptops.
  • Global Scramble: such as the automotive sector, began competing for the same raw materials, intensifying the shortage.
  • Production Bottlenecks: The increased demand outpaced the supply of semiconductor chips, leading to shortages of consumer durables and vehicles, which were previously unheard of.
  • Supply-Chain Constraints: Palladium and neon are crucial resources for semiconductor chip production, with Russia supplying over 40% of the world's palladium and Ukraine producing 70% of neon.
  • Geopolitical Tensions: Taiwan accounts for 92% of advanced semiconductors. Ongoing trade tensions between the United States and China have impacted chip production in Taiwan.

Challenges in Developing the Semiconductor Industry in India

Several challenges need to be addressed to establish a robust semiconductor industry in India:

  • Highly capital-intensive - As semiconductor fabrication units undertakings costing billions of dollars for large facilities.
  • High maintenance: They require high-quality supply of water, electricity, and insulation from the elements, reflecting the high degree of capital needed to make sophisticated circuits.
  • Lack of highly-skilled labor and technology: Semiconductor fab is a multiple-step sequence by which electronic circuits are gradually created, which requires high skills and technology in which India is lagging.
  • Scarcity of raw materials: From a value-chain perspective, it needs silicon, Germanium & Gallium arsenide, and Silicon carbide which are not available in India and needs to be imported.
  1. Adverse effect on the environment: Many toxic materials are used in the fabrication process such as arsenic, antimony, and phosphorous, that consists a hazardous impact on the environment.
  2. Disposal of Hazardous Waste: The semiconductor fabrication process involves the use of toxic materials such as arsenic, antimony, and phosphorus, which can have adverse environmental effects

Policy Initiatives in India

India has implemented several policy initiatives to foster the growth of the semiconductor industry:

  • Make in India: This initiative aims to transform India into a global hub for Electronic System Design and Manufacturing (ESDM).
  • Production-Linked Incentive (PLI) Scheme: In December 2021, the Indian government sanctioned ?76,000 crore under the PLI scheme to encourage the domestic manufacturing of various semiconductor goods.
  • Design-Led Incubation (DLI) Scheme: The DLI scheme offers financial incentives and design infrastructure support at different stages of semiconductor design and development, including Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores, and semiconductor-linked design.
  • Digital RISC-V (DIR-V) Program: This program aims to enable the production of microprocessors in India, achieving industry-grade silicon and design wins by December 2023.
  • India Semiconductor Mission (ISM): The ISM envisions building a vibrant semiconductor and display design and innovation ecosystem to establish India as a global hub for electronics manufacturing and design.
  • Semicon India program: It aims to provide attractive incentive support to companies that are engaged in semiconductor industries.
  • Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): For the manufacturing of electronic components and semiconductors.

Way Forward

  • Becoming a Key Player: India should strive to become a significant player in a trusted, plurilateral semiconductor ecosystem that excludes key adversaries. 
  • Favourable trade policies play a critical role in establishing such an ecosystem.
  • Fiscal Support: Given India's talent and experience, focusing fiscal support on other parts of the chip-making chain, such as design centres, testing facilities, and packaging
  • Maximizing Self-Reliance: Future chip production should encompass the entire value chain, from design to fabrication, packaging, and testing
  • Connectivity and Capability: Connecting related industries and enhancing national capabilities are crucial steps to build a robust chip manufacturing ecosystem in India.
  • Collaboration between Industry and Government: Industry-government collaboration is essential to leverage existing capabilities, 

Conclusion: To fulfil the global demand for semiconductors and enhance India's capabilities, it is imperative to build upon existing strengths, implement robust policy mechanisms, and foster a collaborative environment between industry and government. Central and state governments must cooperate on policy priorities and execution to achieve this goal.

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