Forty years after its initial, unsuccessful attempt to produce semiconductors, India is making a renewed push to become a major player in the global semiconductor industry. This new effort is marked by Prime Minister Narendra Modi laying the foundation for three major manufacturing and assembly facilities in Gujarat and Assam. Modi’s assertion that India could soon become a global semiconductor hub is backed by the significant scale and ambition of the country’s current initiatives.

A Multilayered Approach to Chip Manufacturing

Tata-Powerchip Semiconductor Corp’s fabrication unit (fab) in Dholera, Tata group’s outsourced semiconductor assembly and test (OSAT) unit in Assam, and CG Power-Renesas Group’s OSAT unit in Sanand position India in both fabrication and assembly/testing sectors of the semiconductor value chain. Additionally, American company Micron is building its OSAT plant in Sanand, Gujarat. India’s existing talent pool for chip design further strengthens its position in the value chain.

Strategic Importance of Domestic Chip Manufacturing

Dependence on other countries, particularly China and Taiwan, for chips could jeopardize India’s security. Chips are integral to all electronic devices, from debit cards and mobile phones to aircraft and space rockets. By developing its own chip manufacturing capabilities, India aims to mitigate these risks.

The government has introduced a significant Productivity-Linked Incentive (PLI) scheme for chip manufacturing and is prepared to invest further in the sector. Despite the high capital and demand volatility associated with chip fabrication, India’s approach includes setting up design, fabrication, and OSAT facilities to build a robust local ecosystem.

Sum of the parts

• Chip Fabrication: Establishing a semiconductor fabrication unit (fab) is a capital and labour-intensive process. Western semiconductor manufacturers went ‘fabless’ decades ago, outsourcing fabrication to Asian foundries to focus on design and innovation. However, geopolitical instability has highlighted the vulnerabilities of this model. PM Modi’s recent foundation laying for a fab in Dholera, Gujarat, in partnership with Taiwan’s Powerchip Semiconductor Manufacturing Corp, is a significant step towards localizing chip production. The first set of semiconductors from this facility is expected by December 2026.

• Assembly, Packaging, and Testing: While less capital-intensive than fabrication, is still crucial and technical. China leads this segment, followed by Taiwan, Japan, and South Korea. APT involves converting silicon wafers into finished chips ready for electronic devices. Despite being less capital-intensive, the back-end stage requires significant investment in specialized facilities and equipment.
• Chip Design: Chip design, which relies more on talent than capital, is a strength for India. The country has a substantial pool of chip designers working for Western companies. American semiconductor company AMD’s recent inauguration of its largest global design center in Bengaluru underscores this capability. The Indian government has also introduced the Design Linked Incentive (DLI) scheme to promote domestic chip design and create intellectual property in the semiconductor space.

Challenges and Future Prospects

India’s ambitious plans face several challenges, including the need for many trained workers and the creation of an ancillary ecosystem. The lack of supporting industries can hinder companies setting up operations in India. The government is considering additional schemes to incentivize semiconductor ancillary firms and address these challenges. Minister of State for Communications and IT Rajeev Chandrasekhar recently indicated that the government is exploring further incentives for the next round of investments.

India aims to develop the entire semiconductor ecosystem, from fabs and APT units to equipment and consumables. IT Minister Ashwini Vaishnaw has announced plans to manufacture semiconductor equipment domestically, further integrating India into the global semiconductor value chain.

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