India to make second foray into chip manufacturing as demand seen rising

The United States of America, on August 9, signed the Chips and Science Act to provide $52.7 billion in government support to domestic semiconductor companies. The European Union is working on a similar legislation. The Indian government in December 2021 approved a $10 billion (Rs 76,000 crore) package for the semiconductor industry.

The state incentive could mark the beginning of India’s second chance at developing a large-scale semiconductor industry. It held on its own against Asian countries in the late eighties, before a fire gutted the state-owned Semiconductor Complex Limited (SCL) in 1989.

India’s imports have surged since then as semiconductors become indispensable in electronics. Semiconductor imports in 2021-22 increased 65.2 per cent from 2019-20, shows an analysis of data from the commerce and industry ministry.

The data used is obtained from broad trade categories but can be considered representative of the overall trend. A look at the countrywide data shows that most of India’s chip imports in 2021-22 came from China. While Singapore, South Korea, Taiwan, USA, and Japan were other suppliers, China’s share comprised more than 50 per cent of the total imports.
Demand is only expected to go up. The Ministry of Electronics and Information Technology (MeitY) estimates India’s semiconductor market to grow to $63 billion by 2026, from less than $20 billion in 2020.

Data shows that wireless communication will drive India’s semiconductor demand. This, along with consumer electronics and automotive electronics, is expected to account for more than two-thirds of the Indian semiconductor market in 2030.

It may take a few years before the Indian industry can use domestically produced semiconductors in light of the long gestation period for such plants. Localisation would be key for industries like automobiles where electronics play an important role, according to EY India partner (automotive), Som Kapoor.

“It is a key cog in the value chain,” he said.

The ongoing efforts include a modernisation push for the original SCL, which was later renamed the Semi-Conductor Laboratory. The government aims to encourage large industries to invest in India for setting up semiconductor fabrication facilities as well as design incentives.

Corporate majors Tata and Vedanta have expressed an intent to set up semiconductor facilities with foreign partnerships.

Bureaucratic hurdles are said to have affected the plans of multinationals planning to set up facilities as late as 2005. For example, government lethargy in addressing issues such as equipment stuck indefinitely at port resulted in one firm reportedly moving its plant to China instead.

India’s semiconductor import bills would suggest that it can ill-afford to repeat such mistakes. Business Standard