The global semiconductor race is heating up, and India is making all the right moves through strategic partnerships with the United States. An editorial in “The Hindu Business Line” on 26/11/2024 highlights how initiatives like iCET and the CHIPS Act are pivotal in challenging China’s dominance in this sector. India’s semiconductor mission aims to build a robust ecosystem, address talent gaps, and position the country as a trusted global technology partner.
| GS Paper | GS Paper II |
| Topics for UPSC Prelims | Global semiconductor industry, India Semiconductor Mission, Semicon India Programme, Make in India, Atma Nirbhar Bharat, Quantum computing, Digital India RISC-V program, Solar panels, Electric vehicles, Renewable energy |
| Topics for UPSC Mains | Current Status of India’s Semiconductor Sector, Key Issues Hindering the Progress of India’s Semiconductor Sector. |
This editorial is based on “India, US semicon partnership on good wicket” published in The Hindu Business Line on 26/11/2024. The article discusses the intensifying global semiconductor race, highlighting strategic US-India collaborations like iCET to counter China’s dominance.
UPSC aspirants need to know how the global semiconductor industry operates and what strategic moves India has been making. The area is relevant to GS Paper 3, in particular science and technology, indigenization of technology, and infrastructure. The information in this area would also help answer questions regarding the technological advancements and the policies of the economy.
The topic is in news due to the recent strategic partnership between India and the US in the semiconductor sector, which aims to counter China’s dominance in technology. This collaboration is very important for UPSC aspirants as it deals with some of the key themes like indigenization of technology, geopolitical strategies, and economic growth, which are often dealt with in previous UPSC exams. This development spells out India’s endeavor towards indigenization of critical technologies, which was one of the usual themes in GS Paper 3 by UPSC.
The Indian semiconductor sector is growing rapidly because of market demand and government initiatives. The market was estimated at $26.3 billion in 2022 and is expected to touch $271.9 billion by 2032, expanding at a CAGR of 26.3%. Initiatives like the India Semiconductor Mission (ISM) and Semicon India Programme are aimed at strengthening the infrastructure of the sector and reducing import dependency.
The Indian semiconductor market reached a value of $26.3 billion in 2022. Given its robust CAGR of 26.3%, it would rise to $271.9 billion by 2032. Increasing demand in the electronic and automotive sectors will create significant opportunities for India in this field.
India’s semiconductor imports have remained ahead of exports; whereas imports have grown from $0.21 billion in 2017 to $0.52 billion in 2022. The pandemic had caused disruption in global trade, but the strong recovery in 2021 reflected India’s endeavor to position itself in the semiconductor value chain and its emphasis on having a healthy domestic ecosystem.
The Indian government has brought in major initiatives to the semiconductor sector. The India Semiconductor Mission offers fiscal incentives – 50% of project costs for the fabs and display units. Another programme is the Semicon India Programme, worth ₹76,000 crore ($9.2 billion), with goals to boost manufacturing and research and development. MoUs with international entities like European Commission and Japan have focused on improving supply chain resiliency.
Investing in the semiconductor sector is strategically very important for India’s geopolitical positioning, economic growth, and technological sovereignty. It supports initiatives like Atma Nirbhar Bharat, which aims to achieve self-reliance, economic growth, and job creation. Semiconductors also form the foundation of green technology, national security, and supply chain resilience, making this investment critical.
The global geopolitical landscape, especially in the US-China tech war, makes semiconductor production crucial. The global semiconductor market is expected to reach $1 trillion by 2030, with India’s consumption projected to exceed $100 billion by 2026, which points to the strategic need for domestic production to secure a strong geopolitical position.
Domestic semiconductor production is the need of the hour for Make in India and Atma Nirbhar Bharat. India plans to achieve 10% market share by 2030, saving $24 billion annually in imports. The $10 billion Semiconductor Mission is a support to this goal, with agreements such as Tata Electronics and PSMC launching AI-enabled fabs in Gujarat.
Investment in semiconductors will have a multiplier effect on India’s GDP and create millions of jobs. Projects like Vedanta-Foxconn fab are expected to generate 1 lakh direct jobs. A strong semiconductor ecosystem will also nourish India’s startup ecosystem and support MSMEs, enhancing competitiveness and innovation in hardware development.
The Covid-19 pandemic exposed vulnerabilities in global supply chains, affecting India’s electronics and automotive sectors. Investment in domestic semiconductor production can help avoid such disruptions. For example, the automotive industry lost $110 billion worldwide in 2021 due to chip shortages, affecting Indian manufacturers with delayed production cycles.
Semiconductors are critical to the progress of AI, IoT, and quantum computing-areas where countries need to remain technologically sovereign. Countries are investing heavily in chip production to reduce reliance on Chinese supply chains. India’s Digital India RISC-V program and partnerships with entities like Micron Technology, which is setting up a $2.75 billion facility in Gujarat, are steps in this direction.
Semiconductors are pivotal in green technologies such as solar panels and electric vehicles. Domestic production can accelerate India’s renewable energy goals, including achieving 500 GW of non-fossil fuel capacity by 2030. Semiconductors are essential for the efficiency of solar inverters and EV batteries, driving the transition to sustainable energy.
Semiconductors are integral to such high-end defense technologies such as missile systems and secure communication networks. Dependence on foreign chips is unsafe. India has started projects, led by DRDO, for the development of chips indigenously for strategic sectors to ensure self-reliance and diminish vulnerabilities in defense electronics.
High capital costs, shortage of a skilled workforce, weak infrastructure, and low R&D characterize the Indian semiconductor sector. Long gestation periods, geopolitical dependencies, and a fractured state approach make things more complex. All these are necessary to be addressed to make the semiconductor ecosystem self-reliant.
Semiconductor manufacturing is capital-intensive, where fabs cost over $10 billion each. Financing like Micron Technology’s $2.75 billion facility in Gujarat notwithstanding, immense funding, like the kind provided to the US with the CHIPS Act worth $53 billion, is required.
India lacks skilled professionals in semiconductor fabrication, which is essential for areas like nanotechnology and process engineering. Although India has a strong design workforce, the fabrication and packaging talent pool is minimal. A potential skill gap of 250,000 to 300,000 professionals by 2027 poses a significant challenge.
Semiconductors fab require advanced infrastructure, which includes uninterrupted power and water supply and cleanroom environments. It consumes as much electricity as a small city and up to 10 million gallons of ultrapure water daily. The Vedanta-Foxconn project faced delays due to the inadequate infrastructure that necessitates great improvement.
India does not have a strong R&D ecosystem for developing indigenous chip technology. Most capabilities are design-oriented, and manufacturing and material research are imported. Given that India invests only 0.65% of its GDP in R&D, compared to South Korea’s 4.8%, the lack of foundational research partnerships and university-industry collaboration further hinders innovation.
India’s supply chain is highly dependent on imports from East Asia. More than 75% of the semiconductor production in the world is based in this region. This places India at the risk of geopolitical disruptions, as illustrated by the US-China tech war. In 2022, India imported $24 billion worth of semiconductors.
The semiconductor industry has a long gestation period, with fabs taking 4-5 years to become operational and even longer to achieve profitability. High initial costs and slow returns deter investors. For example, Intel took nearly a decade to recover its fab investments. In India, startups and MSMEs face significant challenges in investing in such long-term projects without sustained subsidies and market guarantees.
The private sector in India takes a lesser role in fabrication due to high costs and technical barriers. Most the initiatives done are government led, such as Infosys and Wipro, mainly focusing on chip design, not really on fabrication, while Taiwan’s main success is made by private goliaths TSMC, which only shows an increased need to have this private sector included in India more.
The federal nature of India’s system creates fragmented policies. States end up competing for semiconductor investments rather than cooperating with one another. Competing incentives offered by states such as Gujarat, Karnataka, and Tamil Nadu overshadow other states and impede the development of a united semiconductor hub. In contrast, China coordinates semiconductor development at a national level to ensure seamless integration of resources across regions.
India’s semiconductor ambitions remain focused on mature nodes (28nm and above), which is not sufficient for advanced technologies like AI and 5G. The global demand for advanced nodes (5nm and 3nm) is being led by TSMC and Samsung. Therefore, without investing in the capabilities of advanced nodes, India risks being confined to the low-value segments of the semiconductor market.
India needs to implement a comprehensive approach toward its semiconductor ecosystem, encompassing financial incentives, a skilled workforce, PPPs, R&D investment, and infrastructure improvement. To strengthen the semiconductor ecosystem in India, a stable supply chain, advanced nodes, simple regulations, and leverage on India’s software expertise are imperative steps toward making the semiconductor industry self-reliant and globally competitive.
India should offer more lucrative financial incentives, such as tax exemptions, subsidies, and low-interest loans, to attract semiconductor investors. A specific Semiconductor Development Fund would reduce the risk associated with the long gestation period of fabs. If India could model the US CHIPS Act, providing $52 billion in financial assurance, it would attract investors.
Developing a skilled workforce is essential for semiconductor design and fabrication. India can establish specialized training centers in collaboration with global leaders like TSMC and Samsung. The India Semiconductor Mission can expand its training programs and offer scholarships in nanotechnology and VLSI design to bridge the skill gap and meet the needs of the industry.
PPPs can strengthen public-private partnerships in order to drive innovation and scale in India’s semiconductor sector. Private players can focus on chip design and innovation, while the government handles large-scale fabrication facilities. A model like TSMC’s public-private synergy can streamline investments and operations, fostering collaboration and efficiency.
India needs to set up semiconductor R&D centers to spur innovation in materials, designs, and advanced nodes. Government grants and private funding need to be set aside for semiconductor-focused research hubs that could be set up in partnership with academic institutions. The Digital India RISC-V program can be used as a platform for designing indigenous chips.
Infrastructure challenges, such as uninterrupted power supply, ultra-pure water availability, and cleanroom environments, need to be addressed for fabs. Developing industrial clusters near semiconductor hubs and fast-tracking renewable energy projects for fabs can reduce operational costs. Government-supported infrastructure projects, like dedicated semiconductor parks, should be prioritized.
Important things are the development of indigenous supply chains for critical semiconductor raw materials like silicon wafers and rare earth elements. Tie-ups with countries such as Australia and Japan may be created for sourcing critical rare earths, investing in local production facilities will gradually reduce import dependency. Indian MoU with IEA on critical minerals can target semiconductor raw materials.
Competition with other nations in AI, quantum computing, and 5G requires investing in advancing smaller node technology (below 10nm). Advanced research laboratories focussed on smaller nodes are required, and that investment must be supplemented by appropriate government funding to allow Indian participation in high-value market areas and stimulate innovation.
India can project itself as an export-oriented hub for semiconductors using its strategic location and inexpensive labor. It can attract global companies for chip packaging, testing, and design facilities by providing incentives. Free trade agreements with countries that import technology can also be established to ensure access to preferential markets and enhance exports.
It is important to streamline regulatory frameworks to attract global semiconductor investments. A single-window clearance system for semiconductor projects will cut delays and improve investor confidence. Setting up a National Semiconductor Task Force to harmonize state and central efforts will help smoothen bureaucratic inefficiencies in project execution.
Funding local startups and research institutions is the key to promoting indigenous semiconductor IP development. Initiatives like the “Chip-to-Startup” program should be expanded to focus on IP creation for specific industries, and patents should be incentivized through subsidies or grants to boost India’s rank in global semiconductor IP filings and drive innovation.
Encouraging semiconductor fabs to adapt green technologies can be achieved. Incentives for renewable energy, as well as advanced water recycling techniques like TSMC, will lead to cost savings during the operation of the facility. Sustainability goals for semiconductor projects can easily be aligned with the overall target of net-zero emissions by 2070.
Indian states should collaborate instead of competing for semiconductor investments in creating a unified national strategy. Regional clusters like the Bengaluru-Mysuru corridor or the Gujarat-Maharashtra cluster can be developed with specializations in design, packaging, and fabrication. Federal support through the Semiconductor Mission can harmonize state-level policies and avoid duplication of efforts.
This can be integrated through integrating India’s global leadership in software with semiconductor hardware development. Combining AI, chip design, and various software solutions can also build demand for indigenous semiconductors, with their resultant innovation and further securing Indian position in the global tech space.
| Political Factors: The Indian government has shown strong support for the semiconductor sector through initiatives like the India Semiconductor Mission (ISM) and the Semicon India Programme, which offer substantial financial incentives and funding for domestic semiconductor manufacturing. Additionally, India’s geopolitical positioning as a strategic partner to the U.S. in countering China’s technological dominance enhances its political significance in this field. Economic Factors: The semiconductor sector offers substantial growth opportunities for India by reducing the country’s reliance on imports, boosting GDP, and creating millions of jobs. However, the high capital costs associated with setting up semiconductor fabrication plants (fabs) pose a considerable challenge. These facilities require substantial investment, and the long gestation period before becoming operational and profitable may deter investors. Social Factors: India’s semiconductor mission presents an opportunity to drive workforce development by addressing the skills gap in semiconductor fabrication and packaging. While India excels in semiconductor design, it faces a shortfall of skilled professionals in areas such as fabrication, with an estimated demand for 250,000 to 300,000 workers by 2027. Training programs and educational reforms are critical to ensuring the industry’s long-term success. The sector will also create significant employment opportunities, contributing to job growth. Technological Factors: Currently, India’s semiconductor ecosystem focuses on legacy manufacturing nodes (28nm and above), which are insufficient for the advanced technologies needed for AI, 5G, and IoT applications. To stay competitive, India must invest heavily in the development of advanced semiconductor nodes. Initiatives like the Digital India RISC-V program and partnerships with global firms are steps in the right direction, but significant technological advancements are necessary for India to remain relevant in the rapidly evolving global semiconductor landscape. Environmental Factors: The semiconductor sector is crucial for supporting green technologies such as electric vehicles and solar panels, aligning with India’s renewable energy goals. Establishing a domestic semiconductor manufacturing base would accelerate the country’s transition to clean technologies. At the same time, semiconductor fabs need to adopt environmentally sustainable practices, including the use of renewable energy and water recycling, to minimize their environmental impact. Legal Factors: A streamlined regulatory framework is essential for the semiconductor industry’s growth in India. The current fragmented state policies and complex approval processes may hinder the development of semiconductor facilities. Simplifying regulatory procedures and creating uniform policies across states would facilitate investment. Moreover, strengthening intellectual property laws and promoting local innovation in semiconductor design is crucial for reducing dependence on foreign technology and fostering a self-reliant industry. |
The potential of India’s semiconductor mission is enormous in transforming the country into a global tech hub. Government support, coupled with private sector investment and technological innovation, will be key to achieving this ambitious goal. A successful semiconductor ecosystem will not only strengthen India’s digital economy but also elevate its strategic position in the global tech landscape.
| UPSC Civil Services Examination, Previous Year Questions (PYQs) Mains Q. India’s strategic importance in the global semiconductor industry has gained prominence in recent years. Examine the current state of India’s semiconductor sector and the potential impact of the India Semiconductor Mission on the country’s economic and technological growth(UPSC Mains 2022, GS Paper III) Q. The India Semiconductor Mission (ISM) and Semicon India Programme are critical components of India’s strategy to develop a domestic semiconductor ecosystem. Analyze the current status of India’s semiconductor sector, identifying key challenges such as talent shortages, supply chain vulnerabilities, and dependence on imports. How can initiatives like Make in India and Atma Nirbhar Bharat address these challenges? |
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