Context: Recently, the Union Cabinet chaired by Prime Minister approved the proposal of Kaynes Semicon Pvt Ltd to setup a semiconductor unit in Sanand, Gujarat, with the objective to develop a vibrant semiconductor ecosystem. The proposed unit will be setup with an investment of Rs 3,300 crore.

Key highlights of the plant

• This is the fifth semiconductor unit, and the fourth assembly unit, to receive Cabinet approval.

• The proposal was approved under the India Semiconductor Mission (ISM).

• The capacity of this unit will be 60 lakh chips per day.

• The chips produced in this unit will cater to a wide variety of applications which include segments such as industrial, automotive, electric vehicles, consumer electronics, telecom, mobile phones, etc.

• In June 2023, the Union Cabinet approved the first semiconductor unit in Sanand, Gujarat.

• In February, 2024, three more semiconductor units were approved. Tata Electronics is setting up a semiconductor fab in Dholera, Gujarat and one semiconductor unit in Morigaon, Assam. CG Power is setting up one semiconductor unit in Sanand, Gujarat.

Need for domestic manufacturing of semiconductors

• 1) Foundation stone of modern electronics industry

• Semiconductors and displays are the foundation of modern electronics industry.

• These are critical components that power electronics - from computers and smartphones to the brake sensors in cars.

• 2) To reduce import dependency

• As India does not produce any semiconductors, the country’s demands are met with imports. 

• The demand for semiconductors in India will reportedly reach around USD 100 billion by 2025, up from the current demand of USD 24 billion.

• 3) To overcome the disruption in supply-chain

• The absence of local manufacturing affected India the most during the lockdown imposed due to the Covid-19 pandemic.

• 4) Geopolitical significance

• In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance.

• These are key to the security of critical information infrastructure.

• E.g., The Department of Telecommunications has in the past raised concerns over possible bugs in the telecom equipment sold by the Chinese company.

India’s ambitions to become a major chip hub

• India is striving to become a major semiconductor hub, similar to the United States, Taiwan, and South Korea, by attracting foreign companies to establish operations within the country. 

• Notably, India has approved an $11 billion fabrication plant by Tata Electronics in partnership with Taiwan’s Powerchip and three chip assembly plants by Tatas, US-based Micron Technology, and Murugappa Group’s CG Power with Japan’s Renesas. 

• Additional proposals include a Rs 78,000-crore fabrication plant by Israel’s Tower Semiconductor and a Rs 4,000-crore assembly plant by Zoho, highlighting the country's growing ambitions in the semiconductor industry.

Semiconductor Ecosystem

• Semiconductors are essential components in various modern technologies, from smartphones to medical devices and vehicles.

• Surge in semiconductor demand due to widespread 5G adoption, rising cryptocurrency mining, and government digitization efforts.

• Currently, about 70% of the world’s semiconductor manufacturing is concentrated in South Korea, Taiwan, China, the United States, and Japan.

• There is a global shift away from China’s dominance due to geopolitical pressures and supply chain vulnerabilities.

Status in India 

• India relies on imports to meet its semiconductor device needs due to the lack of domestic fabrication facilities.

• In 2022, the Indian semiconductor market was valued at US$ 26.3 billion and is projected to expand at a CAGR of 26.3% to US$ 271.9 billion by 2032.

• India is starting to establish itself in the international semiconductor market and could become a significant hub for semiconductor manufacturing in the future.

• India has a significant advantage in semiconductor design and intellectual labor.

• Many global semiconductor design engineers are of Indian origin, and companies like Intel and NVIDIA have large facilities in India.

• The semiconductor industry in India is advancing rapidly, with companies like Tata Group projecting that commercial production from their Gujarat and Assam plants will commence by 2026.

• This comes in response to the global chip shortages experienced during the COVID-19 pandemic, underscoring the strategic importance of self-reliant semiconductor manufacturing.

Challenges 

• India faces challenges in becoming a semiconductor superpower due to high costs of land, power, and labor, which have previously discouraged investors.

• Unavailability of  trained workers 

• Another major challenge is the creation of an ecosystem for ancillary industries.

• Lack of ancillary industry becomes a disability for companies which want to set up units in India.

Government Initiatives:

• India Semiconductor Mission (ISM) : It  is a specialized and independent Business Division within the Digital India Corporation. It aims to build a vibrant semiconductor and display ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design. 

• The ‘Make in India’ initiative (2014) aims to enhance manufacturing and establish India as a global manufacturing hub.

• Production Linked Incentive (PLI) Scheme: Offers incentive packages to companies setting up semiconductor manufacturing facilities in India. Aims to boost semiconductor production and create direct and indirect job opportunities.

• Additional Schemes: Design Linked Incentive (DLI): Supports semiconductor design efforts.

• Chips to Startup (C2S): Promotes semiconductor startups.

• Scheme for Promotion of Electronic Components and Semiconductors (SPECS): Supports electronic components and semiconductor manufacturing.

• The government plans to increase the funding outlay for the second phase of its chip manufacturing incentive policy to $15 billion from the $10 billion it had committed for the first phase.

• The Union Cabinet was apprised of a Memorandum of Understanding (MoU) signed in 2023 between the Government of Republic of India and the European Commission on Working Arrangements on Semiconductors Ecosystems, its supply chain and innovation under the framework of EU-India Trade and Technology Council (TTC).

Road Ahead

• India is set for significant growth in the semiconductor industry due to strategic initiatives and partnerships.

• To become a major player, India needs to focus on manufacturing precision at the atomic level, learning from leaders like Taiwan, Korea, and Japan.

• As the Prime Minister emphasized, “India will soon start commercial production of semiconductors and related products and become a global power in this sector,” signaling the nation’s ambitious drive towards technological self-sufficiency under the Atma Nirbhar Bharat and Make in India initiatives.

• With sustained efforts and a proactive stance, India is on course to solidify its position as a leading semiconductor manufacturing hub, contributing majorly to technological advancement and economic growth.