India's Growing Semiconductor Industry: Past and Global Leaders

The semiconductor industry stands at the forefront of technological advancements, powering a wide array of electronic devices that have become an integral part of modern life. India, too, has set its sights on becoming a global semiconductor powerhouse, embarking on a journey to attract foreign investments and establish a robust indigenous semiconductor industry.

India's Semiconductor Aspirations:

The Indian government, led by Prime Minister Narendra Modi, is resolutely focused on establishing India as a prominent player in the semiconductor industry. This vision aligns with the government's ambition to transform India into a global manufacturing hub. 

To achieve this, India has taken significant steps, including signing a crucial Memorandum of Understanding (MoU) with the United States in March 2023, under the framework of India–US Commercial Dialogue, aimed at establishing a robust chip supply chain and innovation partnership.

To incentivize and attract investments, the Indian government has earmarked a staggering $10 billion for the development of a sustainable semiconductor and display manufacturing ecosystem within the country. This substantial financial backing reflects the government's determination to build a competitive semiconductor industry.

What are Semiconductors?

Semiconductors are materials with unique electrical properties, occupying a crucial space between conductors (e.g., metals) and non-conductors or insulators (e.g., ceramics). Commonly made from materials such as silicon, germanium, or gallium arsenide, semiconductors are vital in producing electronic devices, including transistors, diodes, and integrated circuits (ICs).

The ability to engineer and control semiconductor properties during the manufacturing process has led to the development of revolutionary technologies like light-emitting diodes (LEDs), solar cells, and sensors. These materials have become pivotal in various advanced fields, such as renewable energy, medical devices, and aerospace systems.

China holds the most significant global share for gallium and germanium. According to the Critical Raw Materials Alliance, China holds around 60% of the world’s germanium. The remaining 40% comes from Canada, Finland, Russia, and the United States. Regarding gallium, China holds a greater amount at 80%.

Gallium arsenide, the second most common semiconductor utilized today, is only produced in a select number of plants, with only one in Europe.  

How Lucrative is the Semiconductor Market?

Despite facing challenges from geopolitical tensions and economic uncertainties, the semiconductor industry is demonstrating impressive growth. According to Fortune business insights, the global semiconductor market was projected to grow from $573.44 billion in 2022 to $1,380.79 billion by 2029, at a compound annual growth rate (CAGR) of 12.2 percent in the forecast period, 2022-2029.

Another estimate by the International Data Corporation (IDC), worldwide semiconductor revenue in 2022 to cross $661 billion. However, heading into 2023, global macroeconomic and geopolitical factors emerged as the dominant forces shaping the semiconductor industry, said an insight report by Deloitte.

"Rising interest rates, high inflation, lower consumer confidence, and tech-led stock market retreats have led to a dramatic loss in market capitalization," it said. 

The collective market capitalization of the top 10 global chip companies experienced a substantial decline of 34% from $2.9 trillion in November 2021 to US$1.9 trillion in November 2022. Despite this decline, the semiconductor industry's market capitalization remains notably significant when compared to other sectors.

The Semiconductor Industry Ecosystem

The semiconductor industry's intricate value chain encompasses multiple specialized sectors, each playing a vital role in the overall manufacturing process. From mining to manufacturing, the ecosystem involves various fields like Intellectual Property (IP) cores, Integrated Device Manufacturers (IDM and fabless), foundries, and Outsourced Semiconductor Assembly & Test (OSAT) companies. Electronic Design Automation (EDA) software whose market size according to Grand View Research was valued at $11.10 billion in 2022 and is projected to expand at a compound annual growth rate (CAGR) of 9.1 per cent from 2023 to 2030.

The role of semiconductor materials, such as silicon, germanium, and gallium arsenide, cannot be overstated. While some materials are abundantly available, others like Rare Earth Elements (REE) used in high-κ dielectrics and chemical-mechanical polishing can be costly. China has emerged as a dominant player in REE mining and refining, giving the nation significant leverage in the semiconductor material market.

France, Germany, Italy, Poland, and Ireland, among other EU members, have been courting semiconductor giants ever since, and even before, the passage of the EU’s Chips Act. Spain is joining those ranks as chipmaker Broadcom announces its decision to invest and develop a semiconductor ecosystem within Spain.  

Broadcom’s chief executive, Charlie Kawwas, recently tweeted, “Excited to announce our decision to invest in Spain’s semiconductor ecosystem under their semiconductor support program.”

While Broadcom has been tight-lipped over how much it plans to invest, it could be around $1 billion, according to the Spanish Economy Ministry. The hefty investment will be used to construct “large-scale back-end semiconductors facilities unique in Europe.” No clue as to where the possible location for this facility will be quite yet.  

India's Semiconductor Journey: The Past and Present

India's foray into semiconductor manufacturing dates back to the 1960s when a handful of companies started producing germanium semiconductors. Encouraged by policies under the Rajiv Gandhi government in the 1980s, India made considerable progress in the semiconductor domain, attracting interest from international players.

At that time, India was merely two years behind the latest semiconductor manufacturing technologies, positioning itself as a potential player in the global semiconductor market.

However, the subsequent decades saw India lose its competitive edge due to a combination of factors. Economic liberalization policies introduced in 1991 led to an influx of cheap semiconductor imports, and the lack of promised government subsidies and inadequate infrastructure support hindered the semiconductor industry's growth. In the early 2000s, efforts to revive the semiconductor push through licensing agreements with companies like AMD and Intel faced challenges and did not materialize.

The Indian government has renewed its focus on the semiconductor sector in recent years, offering substantial incentives and signing strategic MoUs with international partners. One such example is the agreement with the United States to establish a chip supply chain and innovation partnership. This proactive approach has started to yield results, as evidenced by companies like Foxconn and Vedanta proposing a joint venture to establish a semiconductor and display manufacturing facility in Gujarat.

India faces several challenges in becoming a global semiconductor hub. Companies used to China's labor flexibility may encounter hurdles with India's labor laws. Moreover, other middle-income countries like Vietnam are also attractive destinations for semiconductor companies seeking to diversify their manufacturing locations.

Conclusion:

India's Semiconductor Ascent India's pursuit of becoming a key player in the semiconductor industry is commendable and reflects the nation's commitment to technological advancement and economic growth. The government's incentives and strategic partnerships are promising signs, laying the groundwork for a thriving indigenous semiconductor industry.

However, India must overcome challenges and expedite its policy implementation to remain competitive in the global semiconductor market. By fostering innovation, supporting research and development, and creating a business-friendly environment, India can realize its vision of ascending the global semiconductor value chain.

As the Indian semiconductor sector journeys forward, its past experiences and lessons will serve as guiding beacons, enabling India to carve its niche in this dynamic and transformative industry.

The path ahead is rife with opportunities, and with determination and coordinated efforts, India has the potential to emerge as a significant player in the semiconductor industry, shaping its technological destiny and contributing to global technological advancements.

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