Can India become one of the biggest semiconductor producers?

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The government gives several incentives to companies to settle in the country, but the industrial policy for the sector still needs to be improved. Semiconductors power every aspect of modern digital life Getty Images It’s been a year and a half since India announced incentives to bolster its domestic semiconductor manufacturing industry, but progress has been slow. Days after Micron announced it would invest nearly $3 billion in a chip assembly and testing plant in the state of Gujarat, Taiwanese tech giant Foxconn withdrew from its $19.5 billion joint venture with Indian Vedanta to build a chip factory in the country. Plans by at least two other companies appear to have stalled, according to local media. Prime Minister Narendra Modi’s government hopes big investments by chipmakers will pay off after $10 billion in incentives. Meanwhile, the premier has been closing several technological partnerships to establish this sector in the country. Old or defective cell phone? Take the quiz and find out if it’s time to switch handsets Following an agreement with the US on critical and emerging technology to enhance bilateral collaboration in semiconductor supply chains, India signed a similar memorandum of understanding with Japan this week last. And at least three Indian states have announced individual policies aimed at securing investment in this area. While generous subsidies and strong political momentum have helped the industry, there is a need to accelerate the process. Technology transfer will be key to India’s emergence as a chip-making powerhouse, says Konark Bhandari, a member of Carnegie India. “Companies’ commitment to bringing these technologies depends on a combination of several factors, such as the business climate, domestic market, export potential, infrastructure and talent”, he says. As things stand, only part of this puzzle appears to be complete. India’s Advantage Semiconductors are central to every aspect of modern digital life—from tiny smartphones to the massive data centers that power the internet. Advanced semiconductor technologies are also playing a key role in the automobile industry’s transition to green electric vehicles and in the development of artificial intelligence applications. India accounts for 5% of the global demand for chips. This is likely to double by 2026, according to consultancy Deloitte, driven by greater adoption of smartphones, home appliances and new trends such as self-driving cars. Prime Minister Modi’s government has announced several incentives for semiconductor manufacturing Getty Images via BBC The domestic market is evidently thriving. But at key stages of the chip production value chain — product development, design, manufacturing, ATP (assembly, testing and packaging) and support — India has a strong presence in the design function alone and will have to start from scratch when it’s about manufacturing. “India is home to 20% of global chip design talent. There are 50,000 Indians doing this work,” Deloitte partner Kathir Thandavaryan told the BBC. Most semiconductor manufacturers — including Intel, AMD and Qualcomm — also have their largest research and development centers in India, leveraging local engineering talent. Getting trained staff, however, can become a major hurdle for companies, according to Deloitte, with around 250,000 people needed to work across the entire value chain when investments start pouring in. Greater industry-university collaborations in this area are critical. The government has been working to make this possible by training 85,000 engineers, for example, through its Chips to Startup program. Several other factors—such as an improvement in global rankings for logistics, infrastructure and efficiency, and a more stable power grid, a critical prerequisite for semiconductor manufacturing—have strengthened India’s preparedness to be part of this global race, experts say. Geopolitics also appear to be in India’s favor, with increasing focus on the US looking for alternatives to China to outsource parts of its own semiconductor supply chain. India is becoming an increasingly close ally and could be a viable destination for US companies looking to outsource support functions, according to Thandavaryan. But its protectionist trade policy — particularly India’s absence from multilateral trade pacts such as the Comprehensive Comprehensive Economic Partnership (RCEP), a free trade agreement between 15 countries in the Asia-Pacific region — could be costly. “Semiconductor companies outside of China would be unlikely to face major changes in the tariff scheme applicable to their components if they moved to Vietnam [que está na RCEP, assim como a China]. This is because there is likely to be more uniformity between countries that are part of the same regional trade agreement,” says Bhandari. Obstacles New Delhi’s biggest obstacle to positioning itself as a global option for chip makers, however, is much familiar to manufacturers in all sectors: improving the environment to do business.The country, known for its software investments, has few hardware resources.The manufacturing sector’s share of GDP has remained stagnant for years due to the lack of an enabling ecosystem. India will need to undertake “fundamental and lasting reforms” to change this and make its semiconductor mission a success, experts say. “This involves addressing investment barriers such as customs/tariffs, taxation and infrastructure,” Stephen Ezell told the BBC. , vice president of global innovation policy at the US-based Innovation and Information Technology Foundation. “India will not be able to compete in the long term with competitors such as China, the European Union or the US if are their main strategy to attract the assembly line, test and packaging or semiconductor factories.” This is mainly because India’s semiconductor incentive policy is just one of many in the world. The subsidies offered simultaneously by blocs like the EU or the US are much greater. In June, Federal Minister Ashwini Vaishnaw spoke about the technology Micron will bring to India Getty Images via BBC Most companies will also not relocate their operations in exchange for subsidies “because they have an existing ecosystem of suppliers, partners, consumers, a logistics network — everything that makes it difficult to offshore operations to other jurisdictions,” says Bhandari. India’s subsidies could also be better targeted, experts say. At the moment, the government offers subsidies at all ends of the chip manufacturing value chain. Instead, the country could play to its strengths. For example, India can invest in training schools for engineers or double down on its competitiveness in semiconductor assembly, testing and packaging and design support, rather than actual chip manufacturing, which is extremely capital intensive and has long lead times. gestation. The government shouldn’t just focus on manufacturing, warns Ezell. However, being competitive in this area would mark a “great technological leap for the country” and the government is right to try to seek more investment in this category, he adds. Not having some domestic manufacturing facilities would also have “serious implications for India’s import costs”, says Bhandari, as domestic electronics production passes the $100 billion mark. A lot is at stake with India’s semiconductor bet. And there have been many setbacks in the past. But after years of delays, a dedicated policy is just the first step in the right direction. This is a “new opportunity to correct previous mistakes”, says Bhandari. “The geopolitical stars have aligned to help with this opportunity. In a turbulent world with fragmented supply chains, India is at a crossroads – it can make a serious attempt to spur hardware manufacturing or let another opportunity slip away.”

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