Time for India to 'chip in'

Spectre of Chinese annexation has forced Taipei to look for another destination to manufacture semiconductors, and this is where India comes into the picture.

New Delhi, Dec 15: With Vedanta Group signing pacts with 30 Japanese technology companies to develop an Indian semiconductor and glass display manufacturing ecosystem, India's plan to become a semiconductor hub is slowly coming into fruition. It comes at a time when the US and EU are aiming to increase their chip manufacturing industries.

The pacts were signed at the Vedanta-Avanstrate Business Partners Summit 2022 held last week at Tokyo, Japan. The summit was attended by more than 200 delegates from over 100 global companies.

Vedanta has said that it is committed to make India a hub for electronics manufacturing. It is focussed on taking the lead in creating the electronics industry ecosystem rather than just technology transfers, the company's Global MD, Display & Semiconductor Business, Akarsh K. Hebbar said.

Current scenario

The world is heavily dependent on the semiconductors made in Taiwan, which is now being threatened by China of annexing it forcibly. In this scenario, Taipei is looking for another destination to manufacture its production. This is where India has come to the picture.

India is one of the largest exporters of chips in the world and has made unsuccessful attempts to produce semiconductors locally in the past, but the Narendra Modi-led BJP government is pushing to build an entire ecosystem of designing, manufacturing and assembling.

"The track record has not been great but the new government has been heading in the right direction ... [with] policies to drive impetus and attract leading semi and fab companies," Neil Shah, partner at tech consultancy Counterpoint Research, told the media.

India's strengths

The major strength of India is its huge market consumption of semiconductors. The country has talent or engineers to design semiconductors and cheap labour is its key advantage over others. "Also, India has loads of English-speaking engineering talent and [a] cheaper labour force making it cost effective," Shah added. The challenge for the country is to build its own technology.

"What we are now seeing from the Indian government side is trying to take the next step. We have design centres of international firms, but India doesn't have a lot of intellectual property, which can be termed Indian ... because these are companies from other countries which are doing this. So now, the next step is the effort to build an ecosystem where there is some Indian IP (intellectual property) by Indian companies," said Pranay Kotasthane, chairperson of the high tech geopolitics program at the Takshashila Institute.

India's positive steps

The chips play a key role in consumer products. Their applications can be found from cars to mobile phones and ATM cards. The Indian semiconductor market was valued at $27.2 billion in 2021 and is expected to grow at a healthy CAGR of nearly 19 per cent to reach $64 billion in 2026, according to a report. However, India has never been into manufacturing it.

After the COVID-19 pandemic wreaked havoc on global supply chains, leading to shortages of chips across industries from automobiles to medical devices, India decided to cut down on its dependence on other countries. Hence, the Modi-led BJP government has brought a financial incentive scheme for manufacturing semiconductors in the country.

In December 2021, the Government of India launched the Semiconductor Mission with an incentive outlay of Rs 76,000 crore to attract investments in the strategic semiconductor sector. It should also be noted that India's end equipment market stood at $119 billion in terms of revenue in 2021. It is expected to grow at a CAGR of 19% from 2021 to 2026.

India's semiconductor component market is predicted to reach $300 billion in cumulative revenues by 2026. The 'Make in India' and production-linked incentive (PLI) schemes are expected to boost local sourcing of semi-components in the coming years, according to the report by the India Electronics & Semiconductor Association (IESA) and Counterpoint Research. The policy reforms and building of a semiconductor ecosystem will reduce reliance on imports going forward, it said in August 2022.

India has signed an agreement with Belgium-based research and innovation hub, Interuniversity Microelectronics Centre (IMEC), which will provide the technology to manufacture chips of 28 nanometres and above, for which the user has to pay a royalty, according to a report.

As the Indian government started taking significant steps to give a fillip to the semiconductors industry, Indian companies such as HCLTech and Reliance Industries are now seeking equity investments of more than $500 million, as well as agreements for services in engineering, and research and design.

Last month, Gujarat government signed an MoU of Rs 1.54 lakh-crore with Vedanta-Foxconn Group for the manufacture of semiconductor and display fab. This investment is expected to create a significant impact on the economy and create jobs while creating a huge ecosystem for ancillary industries and thereby helping MSMEs.

With the Modi government pushing hard to make India self-reliant, the country, for sure, can secure a slice of the growing market.