Are India’s ambitions of becoming a global chip manufacturing hub achievable?

India’s push to become a semiconductor manufacturing hub is underway, but there is still a long way to go. It will have to try to catch up with countries that are already well established in the sector, analysts say.

The South Asian country’s ambitions took a big leap this month, with the announcement that Indian mining company Vedanta and Taiwan’s Foxconn will develop a semiconductor manufacturing plant, one of the country’s first, in the state of Gujarat.

The two companies intend to invest 1.54 trillion rupees ($19 billion) in the complex.

“That’s a very positive development — the Indian government has been trying to get investment in this space for a long time,” said Subhabrata Sengupta, CEO of Avalon Consulting, a strategy and management consulting firm.

“Now the question is the execution and if this will stimulate the development of [an] ecosystem like Taiwan.”

Obstacles include the huge amounts of investment needed to set up chip manufacturing plants and India’s newness in the industry, he added.

Taiwan is by far the world’s largest producer of semiconductors. Its contract chipmakers are projected to account for 66 percent of the global market share by revenue this year, up 2 percentage points from a year earlier, data from market research firm TrendForce showed.

South Korea and China are also important countries in the global semiconductor supply chain.

Chips play a fundamental role in products such as smartphones and electric cars.

With demand for such products growing, global semiconductor sales reached $152.5 billion in the second quarter of 2022. This was 13.3% higher than the same period last year, the Semiconductor Association said. Semiconductor Industry.

India is eager to secure a slice of the growing market, and to that end, Prime Minister Narendra Modi’s government has laid out its ambitions to become a hub for chip production.

To speed up its plans, India unveiled a $10 billion incentive program for semiconductor and display makers in December last year. The idea is to attract global manufacturers, bring much-needed knowledge and create opportunities for local businesses.

The Indian government also sees indigenous chip manufacturing as essential to its plans to massively scale up the country’s electronics manufacturing industry, as part of its “Make in India” initiative.

During the Covid-19 pandemic, as demand for electronics increased amid supply chain disruptions, challenges highlighted the benefits of local semiconductor production. Car and electronics makers in India, and around the world, saw production disrupted by shortages.

“Industries have been suffering due to a global shortage of semiconductor chips,” said Sanjay Kumar Kalirona, CEO and co-founder of Gizmore, a smart audio and accessory brand.

“India is well prepared to make the most of the current situation.”

He added that local semiconductor manufacturing would “help overcome the supply chain problems” that India had to deal with, and that there could also be some “cost advantages” for the sector.

The global semiconductor manufacturing market is expected to more than double this decade to $1 trillion by 2030. India has an opportunity to reap around $80 billion from the market, forecasts a report released earlier this year by the Electronics and Semiconductors Association of India.

“Going forward, with the additional focus of the Indian government on building an overall ecosystem for semiconductors in the country, the country will witness a rapidly expanding electronics manufacturing and innovation ecosystem,” Counterpoint Research said on 16 June. September.

“By doing so, it not only aims to become an important destination for manufacturers and investors, but also to secure its strategic position in the global value chain.”

Backed by the government’s chip manufacturing push, plans for the sector are beginning to take shape.

In May, the government of the southern state of Karnataka said it had signed a preliminary agreement with international semiconductor consortium ISMC to set up a semiconductor manufacturing unit. ISMC is a joint venture between Next Orbit Ventures in Abu Dhabi and Israel’s Tower Semiconductor, which was acquired by Intel, the American chip company.

The state government said the consortium would invest $3 billion in the plant.

In July last year, Singapore-based IGSS Ventures said it had signed an initial pact with the state government in Tamil Nadu, India, to develop a 300-acre “high-tech semiconductor park.”

IGSS group chief executive Raj Kumar described India as “a late start” at the time. “We are confident that this strategic approach will see India take its rightful place as an alternative and competitive semiconductor destination,” he said.

However, the biggest announcement to date has been plans by Vedanta and Foxconn to set up a display and semiconductor plant in Gujarat. Vedanta president Anil Agarwal noted on Twitter that “India’s own Silicon Valley is one step closer now.”

“India will meet the digital needs of not only its people, but those of all seas,” he tweeted. “The journey from being a chip taker to a chip maker has officially begun.”

Industries have been suffering due to the global shortage of semiconductor chips…India is well prepared to make the most of the current situation.

Sanjay Kumar Kalirona, CEO and co-founder of Gizmore

The neighboring state of Maharashtra, of which Mumbai is the capital, had also been vying for the opportunity in the sector, which brings a lot of economic benefits.

The new plant, which the companies aim to have operational by 2024, is expected to create nearly 100,000 jobs.

“We are determined to make our country more self-sufficient in technology and curb our dependence on imports from other countries,” Gujarat Chief Minister Bhupendrabhai Patel said in announcing the deal.

“We hope that the center will be the beginning of a bright future and attract investment from other multinational companies in the future.”

Brian Ho, vice president of Foxconn Semiconductor Group, said that “improved infrastructure and strong and active government support increase confidence in the creation of a semiconductor factory.”

However, it is still very early. Since India is so new to the sector, there are a number of hurdles the country still needs to overcome before it can become a significant part of the chip manufacturing supply chain.

India’s semiconductor manufacturing to date has been largely focused on production for its state-controlled defense and space sectors.

“It is critical that the government and industry together create a strong indigenous technology ecosystem for the success of the Indian semiconductor industry,” said Saket Gaurav, President and CEO of Elista, an electronics, home appliance and IT brand in India. India. But he is hopeful that India can eventually emerge as one of the world’s biggest chipmakers.

Since the commercial industry is in its early stages in the country, this means there is a “lack of ecosystem and expertise,” Sengupta said.

“India has a large pool of engineers working in the semiconductor industry around the world” and there is “an opportunity to attract that talent back,” he noted.

Meanwhile, access to raw materials and a water supply are among other considerations, industry experts say.

India’s efforts to become a semiconductor hub come as the US and EU are also focusing on expanding their chip-making industries. But experts say there are still gaps to be filled.

The United States, under the previous administration of Donald Trump, began cutting off China’s access to American technology, including chip-making equipment. Next month, the Biden administration plans to expand restrictions on shipments to China of chip-making tools and semiconductors used in artificial intelligence from the US, according to a Reuters report.

“Crucially, through agreements like [the Vedanta-Foxconn plant]India may be able to reduce global dependence on China,” said Gizmore’s Mr. Kalirona.

He added that the move showed the Indian government was helping to “move the needle in the right direction.”

“We believe the Foxconn-Vedanta deal will be one of many in the space and there will be many more to come,” Kalirona said.

Updated: September 19, 2022, 6:00 am

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