The upsurge in digital connectivity and subsequent demand for semiconductor chips has brought India’s semiconductor industry into the spotlight. Recently, US-based Micron Technology inked a Memorandum of Understanding (MoU) with the Gujarat state government, promising to establish a Semiconductor Unit worth Rs 22,500 crore near Ahmedabad. As part of the move towards self-reliance, this initiative targets increased domestic manufacturing and reduced import dependency in the semiconductor sector.
Significance of the MoU
This MoU plays a crucial role in solidifying global partnerships like the one established during the India–US 5th Commercial Dialogue 2023. The agreement focuses on diversification and resilience in the semiconductor supply chain, aligning itself with the US’s CHIPS and Science Act, 2022 and India’s Semiconductor Mission. Projected to create over 5,000 direct jobs, the initiative will bolster India’s position as a global semiconductor manufacturer while contributing to the domestic manufacture of memory chips.
Understanding Semiconductor Chips
Semiconductors, which have conductivity between conductors and insulators, are vital to the function of modern electronics and information and communications technology products. Pure elements such as silicon and germanium or compounds like gallium, arsenide, and cadmium selenide can all be semiconductors. Today, they are integral to automobiles, household gadgets, and medical devices such as ECG machines, among others.
Increasingly, semiconductors have become pivotal to many sectors including aerospace, automobiles, communications, clean energy, information technology and medical devices. The heightened demand for these components has outstripped supply, resulting in a global chip shortage impacting economic growth and job creation.
The State of India’s Semiconductor Market
In 2022, the Indian semiconductor industry was valued at USD 27 billion, with 90% of the products being imported, signifying a high external dependence for Indian chip consumers. Major exporting countries to India include China, Taiwan, the USA, and Japan. By 2026, the Indian semiconductor market is projected to reach USD 55 billion, with domestic consumption of semiconductors expected to surpass USD 80 billion.
Challenges in India’s Semiconductor Manufacturing
Despite a robust chip design talent pool, India faces several challenges in semiconductor manufacturing. These include an expensive fabrication setup, high investment cost, minimal fiscal support, and lack of fabrication capacities. The resource-intensive nature of chip fabrication, which requires millions of litres of clean water, an extremely stable power supply, ample land, and a highly skilled workforce, adds to these complexities.
Initiatives Promoting Semiconductors in India
To mitigate these challenges and promote domestic semiconductor and display manufacturing, various initiatives have been launched. One such initiative is the roughly USD 10 billion-dollar Production-Linked Incentive (PLI) scheme announced by India in 2021. Further, the MeitY launched the Design Linked Incentive (DLI) Scheme aimed to nurture domestic companies involved in semiconductor design.
India’s Semiconductor Mission was launched in 2021 with an outlay of Rs 76,000 crore as part of the strategy for developing a sustainable semiconductor and display ecosystem in India. This mission includes schemes for the establishment of Semiconductor Fabs, Display Fabs, Compound Semiconductors/Silicon Photonics/Sensors Fab, and Semiconductor ATMP/OSAT facilities in India.
The Way Forward
The path ahead involves establishing favourable trade policies and bolstering research and development in this sector. Building a plurilateral semiconductor ecosystem and enhancing national capability are critical. Additionally, India should explore opportunities to collaborate with technologically advanced, friendly nations like Taiwan and Japan to reduce import dependency in the semiconductor sector.