Three years on: Has India found its footing in the semiconductor industry?

Three years ago on December 15, India embarked on a bold journey to carve a place for itself in the global semiconductor industry — an endeavour it had struggled to realize over the past seven decades. The COVID-19 pandemic-induced semiconductor supply chain disruptions were a wake-up call for nations worldwide, highlighting the need for self-reliance in this critical industry. Semiconductors, integral to everything from consumer products to defence and space, emerged as a strategic commodity that could shape the geopolitics of the future. Countries with robust semiconductor ecosystems would inevitably command a stronger voice on the global stage.

But how did India tackle this Herculean task? 

Laying the Groundwork

Former Minister of State for Electronics and IT, Rajeev Chandrasekhar, who played a key role in shaping the Semicon India Programme, shared insights with Fortune India on how the government laid the foundation for this transformative mission. “The very important starting point was the political leadership of our country recognizing the opportunity the semiconductor value chain represented for India, and the fact that the Prime Minister immediately sanctioned those $10 billion and approved the policy in the cabinet,” recalls Chandrasekhar. 

Beginning in 2014, the government focused on electronics assembly and gradually expanded its efforts through various production-linked incentive (PLI) schemes including mobile phones, electronics and IT. These initiatives aimed to attract global players and bolster India’s electronics manufacturing capabilities, creating a fertile ground for semiconductor investments.

The Semicon India programme approved by the union government on December 15, 2021, offered competitive incentives at 50% for setting up fabs, testing and packing plants, compound fabs, display fabs among others to lure semiconductor manufacturers. Individual states provided additional support of about 20-25% over the centre’s subsidy, making it a combined subsidy of about 70-75%. Even after being called as one of the best and competitive subsidies in the semiconductor ecosystem by experts, India’s lack of semiconductor expertise and its history of failed attempts loomed as significant challenges. “The semiconductor CEOs are the most cynical, because in 2021, 2021 and 2023, every country was wooing every semiconductor company. So, they had heard every pitch, they had met every country,” Chandrasekhar admitted. “They remembered India as a country with poor roads, unreliable power, and inadequate infrastructure.”

Changing Perceptions

To overcome these doubts, Chandrasekhar personally led presentations to global semiconductor leaders. “For almost three to seven months, I was making presentations to all the leading semiconductor companies of the world, to their CEOs and boards. It was done virtually, and in almost three-four slides of my presentation, I showcased the large factories that have been set up by Apple, Samsung and state of the art automobile production. The fact that India had these global standard, global scale manufacturing centres that were manufacturing for Indian consumers and global consumers, that was a very important part of the marketing of India as a semiconductor destination to the global semiconductor majors. Today, the proposition was, we are building infrastructure, have world class ports, world class airports, great electricity grid…all these inputs that are critical for the semiconductor ecosystem,” he recalls.

This visual evidence of India’s evolving infrastructure and business environment helped rebuild confidence among potential investors.

The Result

Over the last three years, India has begun attracting investments from both global and domestic players. While the primary goal was to bring in front-end chip manufacturing giants like TSMC, Intel, and Samsung, only Micron has committed to setting up a back end ATMP (assembly, testing, marking, and packaging) facility in India. Despite this, Indian conglomerates have stepped in to fill the gap, recognizing the strategic importance of semiconductors.

For instance, Tata Electronics has received approvals for setting up a semiconductor fab and a testing and packaging plant in partnership with Taiwan’s PSMC. Similarly, the Murugappa Group’s CG Power is setting up an OSAT (Outsourced Semiconductor Assembly and Test) facility in collaboration with Japan’s Renesas, and Kaynes Technology is also establishing an OSAT unit. These collaborations underline a key shift in India’s approach: global partnerships have become mandatory for projects approved under the scheme, ensuring access to critical technical know-how.

Charting success amid challenges

Experts have mixed opinions.

“The ISM has been a major success for India. Investments of ~$19 billion that have been approved over the last three years across the segments of the semiconductor value chain leveraging the Scheme and proposals that are in the pipeline. We expect that another $ 3-4 billion of investments to be anchored and hence the cumulative of ~$22-23 billion will enable India to achieve the domestic manufacturing target of 30%+ of the overall India semiconductor demand by 2030,” says Kathir Thandavarayan, Partner, Deloitte India. He adds, the participation of Indian organizations – With multiple investments announced by leading Indian companies in collaboration or partnership with global companies on OSAT/ATMP, compound semiconductors etc., the country has been able to create not just a domestic manufacturing footprint but also a sustainable model for semiconductor manufacturing over the next years. 

However, some industry leaders have criticized the programme for falling short in attracting major global players like Intel, TSMC, and GlobalFoundries. Despite this, the announcement of Tower Semiconductor planning to set up a fab in India in partnership with the Adani Group has been hailed as a significant achievement.

Chandrasekhar sees this as a testament to the programme’s progress. “This proposal is unique because it is the first proposal by a fab operator, because the PSMC proposal to Tata’s is that technology transfer proposal, where Tata is the fab operator. This proposal is by one of the established fab operators in the world, a much larger and multi-year proposal. It marks a very big milestone as a company that Intel was wooing, that independent fab operator is coming to India and trying to locate its plant,” he noted.

What Lies Ahead

While this time around India seems to be on the right track with some small and big wins the mission has achieved several milestones—India is still in the early stages of building a full-fledged semiconductor manufacturing ecosystem and there is still significant ground to cover.

India lacks necessary technology and process expertise for semiconductor fabrication, making it reliant on global players for manufacturing know-how and technology transfers. “To achieve this, India needs to prioritize fostering local design houses to generate demand, incentivize mature and smaller fabs as a starting point, and strengthen R&D and skill development," says Shivani Parashar, analyst, Counterpoint Research. 

As states are gearing up to support the semiconductor ecosystem in India, there are going to be teething troubles as well. Most of the semiconductor parks across states are in early stages of development given that major investments have been approved in the last 12 months under the Scheme. “To attract and accelerate investments even beyond the Scheme, states need to create fully developed semiconductors parks with plug and play facilities where organizations can jumpstart their operations. This will be crucial to attract investments in a sustained manner, competing with Southeast Asia, China, Taiwan and Korea in the region and outside. This would require us to attract master developers who have created global semiconductor parks / ecosystem locations and have anchored leading names,” says Easwaran Subramanian, Partner and Supply Chain Leader, Deloitte India. 

India aims to be among the top 5 semiconductor manufacturing nations by 2029. For this, India must aim to establish at least 3-5 fabs to create a viable ecosystem for the semiconductor industry. but building fabs alone won’t suffice. For these facilities to be profitable, they should have enough orders to run 24x7. Ajai Chowdhry, chairman at EPIC Foundation & MGB, National Quantum Mission of India explains how this can be achieved. “One area that should be looked at is that we must create products and chips designed in India so that these will then fill up the fabs that will be created. This is the huge hole in the whole strategy, which must be taken care of. The task force was created just for this purpose. The report is with the government for them to act. This needs to be done very quickly.”

The semiconductor industry operates as a truly global ecosystem. On an average, each segment of the semiconductor value chain involves 25 countries in its direct supply chain and 23 in supporting market functions. According to an Accenture GSA report, a semiconductor product can cross international borders 70 times or more before reaching the end customer. Given the global ecosystem, India alone cannot master this journey. It needs to collaborate with semiconductor powerhouses like the U.S., Taiwan, South Korea, and Japan to become an integral part of the global supply chain. Ashok Chandak, president, India Electronics & Semiconductor Association explains, “India should capitalise on the geopolitical alliances (such as QUAD, FTA), leverage the thriving chip design ecosystem for talent exchange and cordial relationships with these countries. Get started with the ATMP/OSAT, Fabs of 28 nm and above, drive hard to seek technology transfers, focus on niche areas with the respective countries, support ease of setting JV’s and continued Incentives. Position India as an alternative manufacturing hub to reduce dependence on single geographies and build a more resilient global supply chain.”

As India has concluded the Semicon 1.0 with Rs 76,000 crore incentive, industry says the Semicon 2.0 program needs an additional outlay of compared to previous $10 billion or even more in incentives to support this capital-intensive and long-gestation industry. Sustained financial support will be crucial to attract global players and enable domestic capacity building.

India has made a decisive start, and the next decade will be critical in determining whether India can transition from a promising newcomer to a global powerhouse in semiconductors.