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A Preview Into The Semi-conductor Industry In India

September 08, 2021


The Global Landscape

Semiconductors are extensively utilized in different applications, which offer the colossal potential for developing this industry. Semiconductors are an essential component of electronic devices, enabling advances in communications, computing, healthcare, military systems, transportation, clean energy, and countless other applications.

As per FortuneBusinessInsights, the global semiconductor market size stood at USD 513.08 billion in 2019 and is projected to reach USD 726.73 billion by 2027. The growth of this market is attributed to the increasing consumption of consumer electronics devices across the globe.

The Semiconductor Value Chain

The semiconductor value chain comprises design, manufacturing, fabrication, and assembling an integrated chip (IC). Each link of the chain demands specialization. The value chain is not linked to any specific region or geography for better economies of scale due to this developing technology's fast-paced nature.

This specialization and scattered logistics make the current ecosystem of the semiconductor value chain much more vulnerable and unpredictable.

The concentration of fabrication industries is mostly in Southeast Asian countries (such as South Korea and Taiwan), leading to expertise and design being imported globally from these regions. The Government of India is making efforts towards India joining these groups of nations with engineering expertise.

Let us consider the Government of India's plan and why it is trying to woo manufacturers into India.It's no secret that there is a massive shortage of semiconductors across the globe, and India has also been affected by the same. The primary reason behind the surge in demand for electronics is the COVID-19 pandemic restrictions which forced many to stay at home. Various supply chains were scattered and had to be closed down due to:

  • Lack of raw material
  • Lack of workforce
  • Lockdowns in regions
  • Disarray in communication channels across regions

All these factors combined led to the Indian Government rethinking its policies.

The Indian Government's Vision of Domestic Chip Design and Manufacturing

"India is offering more than $1 billion in cash to each semiconductor company that sets up manufacturing units in the country as it seeks to build on its smartphone assembly industry and strengthen its electronics supply chain." – Reuters Sources

As soon as the announcement of the Indian Government's incentive of billion-dollar cash for the semiconductor industry was made public, it seemed that it was another move by the Government to enrich its trials of the 'Atmanirbhar Bharat' and 'Digital India' initiative.

India has previously tried to give various incentives to some of the most prominent semiconductor players globally, but the players have firmly avoided India mainly due to:

  • Lack of infrastructure
  • Poor management
  • Multilevel bureaucracy

These factors, combined with a lack of engineering skill pool within the country, pushed these companies away from India. But things are now changing.

India's Semiconductor Market

India already has a high-speed growing domestic semiconductor industry. According to the Department of Electronics and Information Technology (DeitY),

  • Nearly 2,000 chips are being designed every year in India, and
  • More than 20,000 engineers are working on various aspects of chip design and verification.

The Government has a strong focus on developing India's Electronics System Design Manufacturing (ESDM) ecosystem.

Demand for semiconductors in India is led by its huge smartphone market—the second largest in the world. The country exported 145 million smartphones in 2020, down 2% primarily due to the pandemic, according to market research firm Canalys.

The 'Make in India' & 'Digital India' initiatives have significantly changed the digital revolution landscape in India. These drives have made the country world's second-biggest mobile producer, and the Government believes the time is ripe to splurge on the booming but underserved semiconductor market as well.

GoI's Plan of Action

As stated earlier, the Government of India is planning to incentivize companies who will set up chip fabrication units to the tune of  $1 billion each. The idea is that the Government will be a buyer and there will also be mandates in the private market (for companies to buy locally made chips).  

With a significant push from the Government to make India a semiconductor designing and manufacturing hub, the industry has seen a sudden resurgence in India.

A significant learning from the COVID-19 pandemic has been that global supply chains are vulnerable to international circumstances, and it can take months, if not years, to bring them up to 100% efficiency back again, as the case with the semiconductor industry

The Indian Government has understood the importance of this global semiconductor value chain disruption. Hence, they are making all efforts to manufacture and design the country's chips and avoid outsourcing and importing. However, as far as the present scenario is concerned, it has become more geo-political than anything else.

India is a market of enormous potential for the semiconductor market. The young population, disposable income, and improved skill sets required could lead to the fabrication industry is one of the main pillars for the $5Trn economy by 2025.






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