India is well-poised to become a strong player in the Semiconductor Industry

By Akhil Chowdary, Consultant, Avalon Consulting   

Background:

Semiconductors are the backbone of modern technology, embedded in almost every electronic device, from smartphones and computers to automobiles and industrial machinery. The global semiconductor market size was valued at USD 611 billion in 2023 and is projected to grow from USD 681 billion in 2024 to USD 2,062 billion by 2032, with a CAGR of ~15%. With such a growth potential, the global semiconductor industry is becoming one of the most critical sectors in the world economy. The industry operates on a sophisticated supply chain network involving design, manufacturing, testing, and distribution, with major players concentrated in countries like the United States, Taiwan, South Korea, and Japan.

Opportunity for India:

Currently, the global economic landscape remains marked by a slowdown, rising inflation, and increased geopolitical tensions, pushing countries to prioritize self-reliance and resilience in supply chains. This presents opportunities for India, particularly in becoming a global trade and manufacturing hub. With its large labor force and competitive wages, India is positioned as an attractive destination for cost-effective production. The demand for cheaper outsourcing options from US and EU-based companies, especially in the tech and manufacturing sectors, could benefit India.

A major area of opportunity lies in the semiconductor industry. Semiconductors are vital for electronic devices and emerging technologies like AI, 5G, IoT, and electric vehicles. Geopolitical tensions between the West and China have opened the door for India to emerge as a key player in semiconductor manufacturing.

To capitalize on this, India must develop a robust ecosystem that integrates the entire semiconductor value chain. The government has already made strides through several initiatives.

1. India’s Semiconductor Mission: The government has allocated USD 9 billion in production-linked incentives, offering financial support for companies setting up semiconductor fabs, testing facilities, and design houses. The government will provide up to 50% fiscal support for various semiconductor-related sectors.
2. US Chips Act 2022: India recently joined the new chip partnership led by the USA. It is a state-run department and has 7 partners. This partnership is expected to focus on 2 areas – semiconductor assembly and sharing technological know-how with Indian Engineers.
3. Singapore Deal: India has also formed partnerships with Singapore, a key player in the global semiconductor industry, to develop semiconductor clusters and nurture talent.
4. Private Investments: Private foreign investments are flowing in, with Micron Technology committing over USD 800 million for a new semiconductor facility in Gujarat, while Kaynes Semicon and Samsung are also setting up semiconductor units in India.

Despite these initiatives, challenges remain. India needs to do more to build a robust value chain where it can cater to the global demand for semiconductors.

1. Infrastructure: Semiconductor manufacturing requires a stable and uninterrupted power supply and large quantities of ultra-pure water. Without adequate clean water and power, the industry risks operational disruptions. Thus, ensuring consistent and high-quality utilities is crucial. In addition to this, efficient logistics and transportation networks are essential for the timely delivery of raw materials and finished products.
2. Long-term Financial Strategy: Setting up semiconductor fabrication facilities is an extremely costly venture. Though the Semiconductor Mission offers financial incentives, covering up to 50% of project costs, long-term support of such support is uncertain. Current incentives are very short-term and we need a long-term investment strategy like stable policy frameworks, continuous fiscal support, etc.

Conclusion:

The semiconductor manufacturing industry is crucial for economic growth, international trade, and global geopolitics. Rising demand and technological advancements position this sector for continued expansion. To become a global leader, India must adopt a comprehensive, long-term strategy that tackles infrastructure, policy, workforce development, and innovation challenges. With strategic investments, partnerships, and government support, India can establish itself as a key player in the global semiconductor supply chain, fostering economic growth, technological progress, and geopolitical influence.

Author profile:  

Akhil Chowdary is a consultant at Avalon Consulting with a strong zeal to leverage Technology in building Business Strategy. He holds an MBA from MDI Gurgaon, a Master’s in Management from ESCP Europe, and B. Tech in Electronics and Communications from NIT Surat. He is well equipped in performing Market Assessments, Opportunity Sizing, and Benchmarking. He has a proven track record in IT Consulting where he was awarded 8 Awards and 3 Appreciations for delivering a customer-centric service. Besides work, he is passionate about photography, mentorship, cooking, and travel.