India’s Semiconductor Industry

The semiconductor industry is crucial for global technology. Recent actions by the US government have intensified discussions about India’s position in this sector. The outgoing Biden administration imposed restrictions on semiconductor access, excluding India from a list of exempted nations. This has raised concerns for India’s economy and technology landscape.

Current Context of Semiconductor Dependency

• India relies heavily on semiconductor imports.
• These chips are essential across various industries, including automotive, energy, and consumer electronics.
• The absence of local manufacturing capabilities makes India vulnerable to supply chain disruptions.
• The electronics sector alone generated approximately $145 billion in revenue in 2024 and is projected to contribute to India’s economic goals by 2030.

Impact of US Restrictions

If the US imposes stricter semiconductor restrictions, Indian firms could face substantial challenges. This situation could lead to foreign investors withdrawing from the Indian market. Companies may struggle to maintain operations without a steady supply of chips. Historical precedents, like the impact on Huawei during the US-China trade war, illustrate the potential fallout.

India’s Strengths in the Semiconductor Landscape

India has notable advantages. The country’s cost-effective labour and real estate can attract technology services. Moreover, India has a vast consumer base, making it an attractive market for tech companies. However, the country lacks core semiconductor fabrication capabilities, which limits its ability to compete globally.

Government Initiatives for Semiconductor Development

India is taking steps to enhance its semiconductor capabilities. The government is exploring the establishment of a dedicated chip manufacturing sector. Discussions are underway to develop chips for national projects, particularly in artificial intelligence. Additionally, India is strong in chip design, producing number of chip designers globally.

Current Market Position and Future Prospects

As of 2024, India’s semiconductor revenue accounts for around 4% of the global market. In contrast, the US dominates, contributing over half of the total semiconductor sales. The disparity in market size marks India’s challenges. However, India plans to operationalise its first semiconductor fabrication facility by the end of 2025, marking step forward.

Long-Term Development and Research Needs

Developing a robust semiconductor industry requires time and investment. Experts suggest that India can accelerate its growth due to a mature technological ecosystem. However, achieving cutting-edge performance will take years of research and development. The government must focus on incentivising innovation and building core competencies to secure India’s position in the global semiconductor market.

Questions for UPSC:

1. Discuss the strategic importance of semiconductors in India’s economy and technology landscape.
2. Critically examine the potential consequences of US semiconductor restrictions on India’s technology sector.
3. Explain the role of government initiatives in enhancing India’s semiconductor manufacturing capabilities.
4. What are the challenges India faces in developing its semiconductor industry? How can these be addressed?

Answer Hints:

1. Discuss the strategic importance of semiconductors in India’s economy and technology landscape.

1. Semiconductors are essential for various industries, including automotive, energy, and consumer electronics.
2. India’s electronics sector generated approximately $145 billion in revenue in 2024, denoting its economic significance.
3. Silicon chips are integral to technological advancements and innovations across sectors.
4. Dependence on imports makes India vulnerable to supply chain disruptions and geopolitical tensions.
5. Strengthening semiconductor capabilities can enhance India’s self-reliance and technological sovereignty.

2. Critically examine the potential consequences of US semiconductor restrictions on India’s technology sector.

1. Stricter restrictions could lead to operational challenges for Indian firms relying on US-made chips.
2. Foreign investors may withdraw, negatively impacting India’s investment climate and economic growth.
3. Historical examples, such as Huawei, illustrate the potential fallout from restricted access to essential technology.
4. Indian companies may face disruptions in production and innovation due to limited chip availability.
5. The overall competitiveness of India’s technology sector could diminish on the global stage.

3. Explain the role of government initiatives in enhancing India’s semiconductor manufacturing capabilities.

1. The Government of India is exploring the establishment of dedicated semiconductor manufacturing sectors.
2. Discussions are ongoing to develop chips for national projects, particularly in artificial intelligence.
3. Incentives are being structured to encourage semiconductor design and fabrication within India.
4. India has a strong base of chip design engineers, contributing to the global semiconductor design market.
5. Government initiatives aim to reduce dependency on imports and encourage domestic innovation.

4. What are the challenges India faces in developing its semiconductor industry? How can these be addressed?

1. Lack of core semiconductor fabrication capabilities limits India’s competitive edge in the global market.
2. Significant investment and time are required to establish a robust semiconductor manufacturing ecosystem.
3. India must focus on research and development to innovate and create self-designed chips.
4. Building strategic partnerships with global tech firms could enhance technology transfer and expertise.
5. Government policies should prioritize incentives, subsidies, and investments to develop core competencies.