India has strategically started to plan a domestic semiconductor ecosystem. The drive is primarily necessitated by the need to reduce dependence on imports and protect itself from vulnerabilities in the global supply chain. The government also set up the Semiconductor Mission with an initial investment of USD 10 billion this year in 2021. This action is very important for national security, especially in sensitive sectors like defense and telecom. These tensions and the COVID-19 pandemic have underscored one of the major dangers of extreme dependency on foreign supplies for semiconductors, particularly from Taiwan, Japan, and South Korea.
While indeed a positive step by India in taking the PLI initiative, much remains to be undertaken. It is very capital-intensive to set up semiconductor fabs at a cost of billions of dollars; besides, resource management is another issue to grapple with, particularly concerning water usage. However, this step into semiconductors by India is more of a long-term strategic effort aimed at getting a foothold in the global value chain of electronics and improving technological self-reliance.
| GS Paper | General Studies III |
| Topics for UPSC Prelims | Semiconductor ecosystem, Semiconductor Mission, Production-Linked Incentive, Semicon India Programme, Design Linked Incentive (DLI) Scheme, 5G, artificial intelligence, quantum computing, Special Economic zones |
| Topics for UPSC Mains | Current Status of the Semiconductor Industry in India, Key Roadblocks in India’s Semiconductor Dream |
This editorial is based on “Securing India’s Semiconductor Future” which was published in The Hindu Business Line on 18/09/2024. The article discusses India’s strategic push to build a domestic semiconductor ecosystem to reduce reliance on imports and strengthen national security, driven by the Semiconductor Mission and PLI scheme.
Understanding this topic is crucial for UPSC aspirants regarding the GS Paper 3 syllabus, which includes science and technology, economic development, and national security. Knowledge of India semiconductor initiatives can aid in answering questions on technological advancements, government policies, and strategic economic measures.
India’s push to establish a domestic semiconductor ecosystem is crucial for reducing import dependence and securing national security, especially in sensitive sectors like defense and telecom. This topic is significant for UPSC aspirants as it ties into previous questions on technological advancements, national security, and economic policies, highlighting India’s strategic initiatives and the challenges faced. Understanding this issue aids in comprehending the broader implications for national self-reliance and global supply chain dynamics.
The semiconductor industry of India has also observed substantial growth and development in recent times. The size of the semiconductors market in India was reportedly valued to be USD 26.3 billion in 2022. Exponential growth in the sector is expected to achieve about USD 271.9 billion by 2032, with the compound annual growth rate touching 26.3%.
The Indian semiconductor market for 2022 was approximately USD 26.3 billion. Such a high-value market size indicates that semiconductors have become crucial in all kinds of industries, including electronics, telecommunication, and automotive sectors. The forward thrust of the market, therefore, comes from the ever-growing demand for electronic devices and technologies.
Accordingly, the market for semiconductors in India is expected to reach USD 271.9 billion by 2032, growing at a CAGR of 26.3%. The growth is without a doubt spectacular and indicates a possibility of turning this industry into a giant power in the world arena. What the government has been doing helps achieve the targeted growth in the sector.
India remains a net importer of semiconductors, although imports are pegged at USD 5.36 billion in 2021. However, efforts to bring down this dependence are in progress. It is worth noting that exports of semiconductors from India reached USD 0.52 billion in 2022, reflecting the progress made by the country. Improving the domestic semiconductor ecosystem is crucial for boosting export potential and for achieving self-reliance.
There are some initiatives launched by the Government of India that tend to promote the semiconductor industry. The scope of these initiatives was mainly to reduce import dependency and improve indigenous manufacturing capabilities.
Indian Semiconductor Mission is an initiative aimed at building a comprehensive semiconductor and display ecosystem. It is a division within the Digital India Corporation, which acts as a facilitator to initiate friendly environment growth in the sector. As an enabler, it offers fiscal support offsetting 50% of project costs for semiconductor fabs and display fabs.
Launched in December 2021, the Semicon India Programme provided ₹76,000 crore or $9.2 billion. Boosting semiconductor and display manufacturing also received a budget of ₹6,903 crore or $833.7 million in FY24. This reflects a high commitment by the government to the development of this crucial sector.
The country has entered into several international collaborations to strengthen its semiconductor ecosystem. These include a Memorandum of Understanding with the European Commission and a Memorandum of Cooperation with Japan, which are intended to explore potential opportunities surrounding supporting semiconductor supply chain resilience in Europe and exchanges about the latest developments in technology with Japan.
Semiconductors outline new growth waves across verticals, with their significant contribution to India’s economic, security, and technological contours.
Semiconductors are considered an indispensable key to economic growth, especially in electronics manufacturing. Semiconductors’ global market is expected to touch USD 1 trillion by 2030, and India’s semiconductor mission will add up to 35,000 high-quality jobs and indirect employment to 100,000 people, thus clearly rescuing the economy.
Semiconductors power critical defense and telecom systems. Domestic capabilities will ensure an uninterrupted supply of defense systems and safe, secure communication networks. This will enhance strategic autonomy by contributing to increased self-reliance and reducing dependence on imports of semiconductors.
A strong semiconductor ecosystem advances technological self-reliance. A reduction in import dependency sends the right message that innovation is encouraged with incentives such as the DLI scheme, which is focused on promoting inventions at home, an essential need for emerging technologies like 5G, AI, and quantum computing.
It currently contributes only 3% in the global manufacturing value chain. It is aiming to penetrate into the global electronics supply chain. Policies such as Production-Linked Incentives (PLI) are encouraging global players to make India an important player in the global market.
The semiconductor industry offers quality job opportunities that help create skill development in cutting-edge technologies. Advanced skills in chip design, nanofabrication, and advanced packaging in particular give a boost to STEM education and research and lay a foundation for a skilled workforce.
Despite the potential, India faces several challenges in realizing its semiconductor ambitions, including infrastructure, talent, and cost issues.
India’s uneven development and inadequate infrastructure, such as unreliable power supply and water scarcity, hinder semiconductor manufacturing. The 2024 heatwave highlighted the impact of power shortages on industrial activities, including semiconductor production.
The semiconductor industry requires highly skilled professionals. Despite a large pool of engineering talent, India faces a shortage of semiconductor experts. By 2027, India is projected to face a shortage of 250,000 to 300,000 professionals, impacting ecosystem development.
It is a capital-intensive process. The cost of operations is high. It is expensive to set up and operate fabrication plants in India compared to the ones in Taiwan and South Korea. Global companies do not find India attractive as the cost advances.
This global supply chain is highly dependent on the semiconductor industry yet very vulnerable to disruptions from geopolitical tensions as well as natural disasters. In this respect, the neon supply affected by the Russia-Ukraine conflict, which is primarily used in chip production, illustrates such vulnerability of the chain.
Semiconductor manufacturing is essentially energy-intensive with various environmental impacts that leave digital footprints in the form of greenhouse emissions and water consumption. India’s drive towards sustainable development thereby contributes to challenges for the nation in balancing industrial growth with environmental responsibility.
India faces competition from emerging markets like Vietnam, Malaysia, and Indonesia, which offer favorable incentives and infrastructure. Malaysia, for instance, has attracted companies like Infineon, posing a competitive challenge to India’s semiconductor ambitions.
To achieve its semiconductor ambitions, India must adopt strategic measures to enhance education, develop chip design capabilities, and build a robust supply chain.
India should expand semiconductor engineering programs and partner with global companies for industry-relevant curricula. Collaborations, like between IISc and Taiwan Semiconductor Manufacturing Company, can create specialized programs with practical training facilities.
Investing in chip design centers in tech hubs like Bangalore and Hyderabad can leverage India’s software expertise. Initiatives like the Shakti processor by IIT Madras exemplify India’s potential in chip design, fostering innovation for diverse applications.
Building a comprehensive domestic supply chain involves attracting investments in all segments. Establishing Special Economic Zones (SEZs) with tax breaks can attract global players like Applied Materials, enhancing the semiconductor ecosystem.
A focused sovereign fund for semiconductor investment can also provide much-needed long-term capital to India and reduce dependence on foreign investment. South Korea’s model, which had already delivered well in such investments, could zero in on the latest cutting-edge technologies and allow India to become a leader in the semiconductor domain.
India may use geopolitical strategies to facilitate technology transfers that only enhance the semiconductor capabilities of India. The joint research center between India and Japan is but one example of collaboration that would enable exchanges of technology and expertise that would bypass the difficulties of acquisitions.
Focusing on environmentally sustainable manufacturing can position India as a leader in green technologies. Partnering with companies for pilot fabs using recycled water and renewable energy aligns with global sustainability trends, attracting conscious investors.
Creating a shared infrastructure for research and prototyping can lower entry barriers for startups and researchers. A network of nanofabrication facilities, similar to the NNIN in the US, can foster innovation and collaboration, accelerating semiconductor development.
| Political: The Indian government introduced the Semiconductor Mission and increased the budget for fiscal support. The international cooperation with Japan and the European Commission enhances the geopolitical scenario of India. Economic: Tremendous increase in the semiconductor sector: the market is expected to be USD 271.9 billion in 2032. Benefits through the PLI scheme and employment generation will increase the economic status for India. It involves high operational costs. Social: This semiconductor sector is likely to create 35,000 high-value jobs and develop chip design and nanofabrication skills, thus developing India’s human resource capacity. Technological: Such programs as the DLI scheme would encourage indigenous innovation in chip design. However, talent deficits and dependence on foreign technologies create a burden. Environmental: Process semiconductor manufacturing is very energy-intensive, using huge quantities of water and creating greenhouse gases, an environmental threat. Legal: It has a legal framework and provides tax benefits, and even streamlined policies are provided within the SEZ. That is really quite attractive to most of the global semiconductor players. Legal and regulatory challenges could arise from emerging markets, though. |
To achieve its semiconductor goals, India needs to invest in education and training in chip design, establish a strong domestic supply chain, and strategically work with global and international players. In this way, by addressing gaps in infrastructure and talent gaps, and actively cultivating sustainable practices, India can consider itself a strategic leader in the global supply chain for semiconductors.
| UPSC Civil Services Examination, Previous Year Questions (PYQs) Mains Q. What are the main bottlenecks in developing India as a global hub for manufacturing of semiconductors? (GS Paper III, 2022) Q. Examine the role of initiatives like the Semiconductor Mission and Design Linked Incentive (DLI) scheme in shaping India’s semiconductor ecosystem. What strategic measures are necessary to overcome the resource-intensive nature of semiconductor manufacturing in India? |
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