Chipping in: India's journey to Semiconductor self-reliance

Ever wonder what your phone, car, or even fridge have in common? What makes them smart? Semiconductors!

Now, if you just scroll through the news, you will know that every country is vying to reach self-sufficiency in this critical industry.

While extremely encouraging, here is a challenge that India faces. India is critically dependent on imports to meet its semiconductor requirements as we show in the chart below

Source: News articles, IBEF; *2024(Export) - Numbers not available

India is not only importing more semiconductors - we are also seeing a premiumisation in the value of chips we import. In 2022 and 2023, we imported ~18 billion and ~15 billion chipsets for a total value of ~₹1.1 lakh crore and ~₹1.3 lakh crore respectively. As we show in the chart below, the average of the chips imported has gone up by almost 50%!

Source: News Articles

This paints a relatively worrying picture for India. India faces a significant trade gap in the semiconductor sector, with imports steadily rising while exports remain sluggish. Currently, India imports 90% of its semiconductors. The government aims to reduce dependency on imports, but the challenge is immense.

So, what are we doing about it?

In 2022, the government launched the India Semiconductor Misson (ISM) in 2022. The government has allocated ~$10 billion to the mission to help it establish an ecosystem in manufacturing, packaging, and design.

Private players are stepping upto the challenge. The table highlights major semiconductor projects in India, showcasing the companies involved

Source: Inc42

Besides the above-mentioned projects, there are a lot of other projects that are pivotal for growth and self-reliance in this industry. Here are the key companies and their initiatives:

• Simmtech: A South Korean firm is investing $150 million in a PCB plant near Micron's Gujarat facility, supported by SPECS subsidies. Simmtech supplies Samsung, SK Hynix, and Micron.

• Samsung Electronics: Inaugurated a semiconductor R&D facility in Bengaluru under Samsung Semiconductor India Research in February 2024 to enhance semiconductor capabilities.

• Larsen & Toubro: Plans to invest over $300 million in a fabless chip company to design 15 products by 2027, aligning with India’s vision of reducing semiconductor imports.

• Sahasra Semiconductor:India’s first memory chip production began at the Bhiwadi plant in late 2023, starting with basic products and moving to advanced packaging, supported by a 25% capex incentive under SPECS.

• Foxconn: Investing $37.2 million in a joint venture with the HCL Group for an OSAT unit in Uttar Pradesh, with land secured near Jewar airport. Awaiting ISM approval.

Emerging Indian startups

Startups like Mindgrove Technologies, Morphing Machines, and Agnit Semiconductors are driving innovation and facilitating India's semiconductor ecosystem.

Sources: Inc42

Challenges in India's semiconductor landscape

• Global competition: The semiconductor market is led by established players like Taiwan and South Korea, making it difficult for India to compete in high-end chip manufacturing sector and gain global credibility.

• Technological complexity: Setting up semiconductor fabs requires advanced technology, precision, and capital, with tech transfer restrictions hindering access to crucial know-how.

• Skilled workforce: The industry requires highly trained professionals for complex fabrication plant operations, but current skill gaps make it a challenge.

• Material supply vulnerabilities: India depends on imports of specialized materials like ultra-pure silicon wafers, making it vulnerable to supply chain disruptions and price fluctuations.

• Technological gaps: Bridging the tech divide requires substantial R&D investments and advanced manufacturing capabilities, which are major hurdles.

• Intellectual property challenges: Weak IP protection and limited domestic innovation hinder global partnerships and local R&D.

To sum up, India’s semiconductor journey is at a crucial path. India is rapidly advancing its semiconductor ambitions through initiatives like the India Semiconductor Mission ($10 billion initiative), Make in India, and Digital India, aiming to reduce import reliance and foster local manufacturing.

A strategic success would require sustained effort in innovation, workforce development, and infrastructure from India to transform its potential into a thriving and self-reliant semiconductor industry.