The Indian Semiconductor Industry at the Cusp of Inflection

However, the industry has been plagued with a critical demand supply mismatch since the start of the COVID-19 pandemic in 2020. The reasons for this include the industry's cyclicity, surge in demand for personal computing or wearable devices, automobile demand recovery, and supply chain constraints. Despite efforts to diversify the semiconductor supply chain, over 80% of fabrication sites remain concentrated in and around Taiwan, Korea, Japan, and China. The industry can be broadly classified into three subtypes: integrated device manufacturers (IDM), fabless chip makers, and pure play foundries.

In the coming decade demand for semiconductors will be driven by the fourth industrial revolution and associated technologies such as IoT, connected devices, AI, and 5G. Anything that is connected to the network, i.e., smart devices require a chip i.e., semiconductor, thus driving the demand. Another factor that will drive demand is the global shift towards electrification of the mobility sector which requires 10x more chips than traditional ICE powered vehicles.

India’s attempt in semiconductor industry dates back to 1960’s with the setting up of Continental Devices India Pvt. Ltd. (CDIL) in collaboration with then Hawthorne, California based Continental Device Corp. Fast forward to 2021, the Government of India announced the “Indian Semiconductor Mission” (ISM) with an outlay of ~9 bln EUR incentive to build semiconductor ecosystem and invited applications from semiconductor companies in addition to the Production Linked Incentive (PLI) scheme of 1.6 bln EUR for electronics manufacturing.

The current demand for semiconductors in India is over 22 bln EUR, fully met with imports, and is expected to reach 100 bln EUR by 2030. Developing and establishing an ecosystem for the semiconductor industry in India is challenging considering the complex manufacturing process. However, there have been encouraging investments, such as US-based MICRON investing 760 mio EUR to set up an assembly and test facility in India, and Applied Materials and AMD planning to invest 370 mio EUR each. In March 2024, Prime Minister Narendra Modi laid the foundation stone for three semiconductor plants built by Tata Electronics Private Limited and CG Power at a cost of more than 14 bln EUR. The government expects investments from 4-6 large semiconductor fabrication, packaging, and testing companies in the next 1 year.

India is an attractive hub for semiconductor manufacturing as it is already home to more than 200 semiconductor design and embedded software companies. India makes up ~20% of the world’s semiconductor design engineers and already over 100 thsd VLSI design engineers in India are working in global semiconductor companies and domestic design service companies. To augment it further to create a supportive ecosystem, the government is also working on building up the required infrastructure and supply chain coupled with low-cost high-quality manufacturing to position itself as a reliable destination for semiconductor industry investments, which is expected to remain one of the key drivers to global economy in the future.