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How to setup manufacturing of semiconductors in India

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Semiconductor Industry: Overview

The Indian electronic manufacturing sector has seen enormous growth in the past and is expected to grow at a greater pace. The current market capitalization of the Indian electronic manufacturing sector is 118 Billion USD and is expected to grow around 300 Billion USD by 2024-25.

One of the major requirements for establishing an electronic manufacturing plant is to have a constant supply of semiconductors which are one of the most critical raw materials required. Yet India lags behind in establishing new semiconductor wafer fabrication domestic facilities due to the weak ecosystem present in India and lack of basic resources if we compare it with the manufacturing giant’s nations like China, Taiwan, and Vietnam.

Setting up a semiconductor wafer fabrication unit requires a huge investment, an interruption-free electricity supply, coping with the advancement of new technologies. Which currently is a barrier for all the investors in India. 

The semiconductor crisis is one of the most critical economic threats looming over the world economy for one year now. This crisis has been so bad that Apple lost 6 billion USD in revenue, Maruti had to cut down 60 % of its production, Mahindra had to cut down 20% of its production and the auto industry itself has lost 100 billion dollars in revenue due to chip shortages. And India being the largest and fastest economy in the world, our economy is again vulnerable to a massive threat due to this crisis.

Currently, every manufacturer around the globe is facing a global shortage in the supply of semiconductors and PCB boards. Hence to encounter this global shortage, the Indian government is planning to launch schemes around the semiconductor manufacturing sector to promote and create more business opportunities.

Read Also: How to start PCB Manufacturing Factory in India

What is a Semiconductor Chip?

Semiconductor Industry Meaning:

The semiconductor chip is basically the brain of any electronic device and they are responsible to conduct every small action in our electronic devices and cars. For example in your mixer controls the speed of the motor, in your car there are hundreds of semiconductors that handle everything, starting from your keyless entry to automatic doors and even the functioning of your engines. And today in this digital world that we live in, semiconductors are by far the most important components that keep the world functioning. Starting from mobile phones to the biggest servers in the world they are as important if not more important than the internet itself.

Reason for Semiconductor Chip Storage: 

The first reason for this shortage is that the industry had already been growing at such a rapid pace that it was already at the brink of shortage. According to the Semiconductor Industry Association today more than 100 billion integrated circuits are in use every single day all across the world which is equal to the number of stars in our corner of the Milky Way galaxy. This market is so huge that even with giants like Intel, micron, NVidia, AMD, QUALCOMM, there still isn’t enough supply to cater to the skyrocketing demand therefore when the pandemic hit on one side while the demand for electronic gadgets skyrocketed due to work from home on the other side due to temporary shutdown of factories and shipping services, the demand went way beyond the supply capacities and the reason why this shortage is so difficult to recover is that manufacturing a microchip typically takes more than 3 months and involves giant factories, dust-free room, multimillion-dollar machines, molten tin, and lasers. Since the manufacturing cannot be increased on such short notice, the wait times for the chip are increasing at an alarming rate, going from just 11.8 weeks in September 2019 to 21 weeks in August 2021.

Meanwhile, according to Statista the chip industry that was already worth 440 billion USD in 2020 is estimated to grow to 550 Billion USD in 2021 and will touch 600 billion dollars in early 2022.

And this drastic difference in supply and demand is the reason why companies all around the world from different sectors have started facing production issues. The 4 major industries that face the heat are the

  • Automobile Industry
  • LED Lighting Industry
  • Consumer Electronics Industry
  • Appliance Industry

Need of The Time:

In the global market, every manufacturer around the globe has witnessed a monopoly in the semiconductor sector by namely three nations are Taiwan, China, and Vietnam.

This monopoly in the sector gave rise to a global shortage in demand for semiconductor and PCB boards which in turn became a root cause for the nations like India to look for alternatives to end the dependence on other nations.

Currently, Taiwan is the major player around the globe which constitutes around the manufacturing of 50% of the global demand for semiconductors. Taiwan Semiconductor manufacturing company (TSMC) and United Microelectronic Corporation are some of the leading manufacturing companies from Taiwan. 

Due to the India and China standoff and China’s claim on Taiwan as its territory. 

According to them, the Indian government has already identified a number of locations for the facility, and one of Taiwan's premier semiconductor manufacturers, such as Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC), may carry out the massive project.

According to the sources, the idea to build the semiconductor hub is primarily motivated by the strategic importance of India-Taiwan connections rather than the commercial component.

"The semiconductor plant in the United States was built in recognition of the two countries' close strategic ties. The same will be true in India's scenario "one of the above-mentioned people said

In the face of rising Chinese hostility, the US has remained steady in its outreach to Taiwan, assuring Taipei of its continuous support.

The above figure shows the global monopoly of Taiwan in the semiconductor manufacturing sector.

Initiative by Indian Government for the Semiconductor Industry:

The government of India launched a 76,000 Crore Production linked Incentive program. Wherein the central government of India plans to establish 20 semiconductor units in the country over the next two years.

To tackle the semiconductor shortage and de-risk India from China the government has lined up attractive incentive support for companies engaged in silicon semiconductor fabs, display fabs, compound semiconductors, silicon photonics, sensor fabs, semiconductor packaging, and semiconductor design. Because of PLI, Land, semiconductor grade water, power, logistics, and research ecosystem will be provided to these companies at subsidized rates to set up two greenfield semiconductor fabs and two display fabs in the country. Apart from this, we have designed a linked incentive scheme and the India semiconductor mission.

All these new schemes launched by the government are expected to contribute to the one trillion dollar economy by 2025-26. It has a production target of close to 128 billion dollars over the next 20 years and exports are expected to touch 68.97 billion dollars over the next 20 years.

The Following are the Four Schemes:

  • Scheme for setting up semiconductor fab: The government has approved financial assistance of up to 50% of the project cost for the establishment of certain silicon-based semiconductor fabs in India. The initiative will receive financial support for six years from the date of acceptance. In the acquisition of electronic products by the government, semiconductor fabs established in India will be eligible for a buying preference.
  • Scheme for setting up display fabs: Under the initiative for establishing up display fabs in India, the center has set aside financial support of up to Rs 12,000 crores per fab. This program aims to attract big investments in TFT LCD or AMOLED-based display panel manufacturing.
  • Scheme for Setting up of Compound Semiconductors / Silicon Photonics / Sensors: The Scheme for Establishing Compound Semiconductors / Silicon Photonics / Sensors (including MEMS) Fabs and Semiconductor ATMP / OSAT Facilities in the Country would provide authorized units with the financial assistance of 30% of capital expenditure. Under this proposal, at least 15 such Compound Semiconductors and Semiconductor Packaging units will be established.
  • Design Linked Incentive (DLI) Scheme: For five years, the Design Linked Incentive (DLI) Scheme will provide an incentive of up to 50% of eligible spending and a product deployment-linked incentive of 4-6 percent of net sales.

Problems Associated

High initial investments are required: Semiconductors and display production is a highly complex and technology-intensive industry that requires considerable and ongoing investments due to large capital inputs, high risk, extended gestation and payback periods, and rapid technological developments.

Government fiscal assistance is minimal: When compared to the magnitude of expenditures normally necessary to set up manufacturing capacity in the various sub-sectors of the semiconductor industry, the current level of financial support is microscopic.

Inadequate Fab capabilities: India has a good chip design talent pool, but it has never developed chip manufacturing capabilities. The ISRO and the DRDO both have their own fab foundries, however, they are primarily for their own needs and are not as advanced as the most advanced in the world.

Fab setup is extremely expensive: Even on a small scale, a semiconductor fabrication facility (or fab) might cost multiples of a billion dollars to build up, lagging by a generation or two behind the newest in technology.

Grants under the PLI Scheme are insufficient: Despite the fact that India's Production Linked Incentive (PLI) scheme only intends to cover half of the cost of establishing at least two greenfield semiconductor fabs through fiscal support, little of the current scheme's outlay (roughly $10 billion) is likely to be left to support other elements such as display fabs, packaging and testing facilities, and chip design centers.

Sector with an inefficient use of resources: Chip fabrication plants are also incredibly thirsty, requiring millions of liters of clean water, a highly dependable power supply, a large amount of land, and highly experienced personnel.

The Way Ahead

Sufficient Funding for All Elements: Given India's substantial expertise and experience, it may be better if the new mission concentrates budgetary assistance on other sections of the chip-making chain, such as design centers, testing facilities, packaging, and so on, at least for the time being.

Increasing Self-Sufficiency: Future chip production should not be a one-trick pony, but rather a multi-tiered ecosystem that includes design, fabrication, packaging, and testing.

  • In this industry, India must also improve research and development, which is currently inadequate.

Designing and implementing Out-of-the-Box Functionalities: Given the long gestation periods and rapid technological changes, India must out-strategize on design and functionality, as the final product will be available only three to four years after work begins, by which time the current chip shortage will have been resolved and technology will have advanced even further.

Public Sector Enterprises (PSEs) role: With the support of a global major, India's PSEs like as Bharat Electronics Ltd or Hindustan Aeronautics Ltd can be leveraged to set up a semiconductor fab foundry.

  • Providing management with a free hand in a joint venture where a global major has brought in technical competence, as well as long-term policy stability and appropriate incentives, could lead to success.

Measures of Connectivity and Capability: For India to make a presence in the specialty chip manufacturing and design business, a number of variables must come together.

  • The Indian government's immediate priority is to connect allied industries in India in order to develop a chip manufacturing ecosystem. It is necessary to improve national capabilities.
  • In addition, when government subsidies are removed, new businesses should be able to survive in the market.

Taking Advantage of Quad Groupings: Multilateral cooperation is a need, not a choice, for India in developing such essential and emergent technologies. A nice place to start is the Quad Semiconductor Supply Chain Initiative.

  • To protect the supply chain from geopolitical and geographic hazards, India should push for a Quad Supply Chain Resilience Fund.

Conclusion

For something as vital as semiconductor chips, India has realized that relying solely on global supply chains is not a good idea. The Cabinet's decision to create an India Semiconductor Mission, led by "global industry experts," to push long-term plans for the chip and display industries' long-term development is a step in the right direction.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.

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Author
Sagar Sharma
I have over 8 years of experience working in product regulatory compliance. Currently, I work as the operations head at Corpseed Ites Pvt Ltd, where my Job role is providing best in class consulting in the field of product compliance.