Semicon India Programme – Aiming to be Aatmanirbhar in Semiconductors

Spearheaded by the India Semiconductor Mission (ISM) the Semicon Program has seen serious and large players throwing their hats into the ring

By Voice&Data team (with inputs from Jose JN)

In the mid-1960s California-based Fairchild Semiconductor came up with a proposal to set up a chip manufacturing factory in India. Semiconductor manufacturing was still at a nascent stage but it was clear that it was a product for the future. The proposal from Fairchild did not see the light of day due to a slow approval process. Six decades later, after having missed generations of chip designing technology, India has embarked on a multi-billion dollar plan to attract investments into semiconductor production.

On February 19, 2022, the government announced that it had received proposals from five companies in total, 3 for setting up electronic chip manufacturing plants and 2 proposals for setting up display manufacturing plants - for a total investment of Rs. 153000 crore.

The three proposals received for semiconductor fabrication units (called Fabs) include a joint venture between Anil Agarwal-led Vedanta group and Taiwanese electronics manufacturing giant Hon Hai Precision Industry Co., Ltd, better known as Foxconn; Singapore-based IGSS Ventures, and ISMC, a venture by Abu Dhabi-based Next Orbit Ventures.

The three players have proposed separately to set up electronic chip manufacturing plants with a $13.6 billion investment and have sought the support of $ 5.6 billion from the Centre under its Rs 76,000 crore Semiconductor India Programme (see article: Mission for Self Reliance in the Semiconductor Ecosystem — Voice&Data January 2022).

“The applications have been received for setting up 28 nanometers (nm) to 65 nm semiconductor fabs with a capacity of approximately 120,000 wafers per month,” the government statement said. The government is providing financial support of up to 40 percent for chips above 28 nm to 45 nm and up to 30 percent for setting up manufacturing units for 45 nm to 65 nm wafers.

In addition, Vedanta and Elest are the two companies that proposed to set up display manufacturing units, also known as Display fabs — used in mobile phones, laptops, etc. Besides electronic chip and display plants, four companies — SPEL Semiconductor, HCL, Syrma Technology, and Valenkani Electronics — have registered for semiconductor packaging. Ruttonsha International Rectifier has registered for compound semiconductors. Three companies — Terminus Circuits, Trispace Technologies, and Curie Microelectronics — have submitted applications under the Design Linked Incentive Scheme. The total investment, if these proposals are accepted by the government, is expected to be to the tune of $20.5 billion (Rs 1,53,750 crore).

“India has to become self-reliant – and it is possible by the end of this decade — one of the key factors for that will be the semiconductor fab.”

K Krishna Moorthy, CEO & President IESA

The Opportunity

At stake is the Indian semiconductor market which stands at $15 billion in 2020 and is estimated to reach $63 billion by 2026. Nearly every device from a microwave to washing machines to cars and mobile phones needs a semiconductor chip inside. Going forward as digital technology permeates machines and industrial tools, the need for microprocessors will only increase.

“Electronics and hence Semiconductors are becoming the new Gold or oil, whichever you wish to look at it. Not only electronics systems like TV and Phones but almost everything that we will use in this decade will be touched by Electronics. IESA (India Electronics and Semiconductor Association) estimates electronics consumption to exceed US $ 300 billion by 2025. About 25-30% of the system cost is the semiconductor value which means approximately US $75-90 billion by 2025.

Today a major part is imported. So if India has to become self-reliant – and it is possible by the end of this decade — one of the key factors for that will be the semiconductor fab. I also need to emphasize the importance of this for strategic sectors like Defence and Space as well,” K Krishna Moorthy, CEO & President of IESA told Voice&Data.

India has been importing billions of dollars worth of semiconductors every year which has worsened the trade deficit. According to the Observatory of Economic Complexity, in 2019, India imported $3.14B in Semiconductor Devices, becoming the 11th largest importer of Semiconductor Devices in the world. India imports semiconductors primarily from: China ($1.97B), Singapore ($293M), Hong Kong ($221M), Thailand ($137M), and Vietnam ($131M). As a result of this dependence on other countries, India bore the brunt of the recent shortage in chipsets as the Covid-19 pandemic disrupted the global supply chain. Auto players in India, for example, had to scale down some of the high-tech features to counter this shortage.

“The global disruption of supply chains has helped us realise the need for sustainable supply chains in diverse locations. India is poised to be a competitive destination for Semicon manufacturing thanks to its enormous potential in terms of talent, locations, and favorable government policies. India’s government is focused on AatmaNirbharta and one means to achieve this vision is by being self-reliant when it comes to the electronics sector. With this in mind, the government has launched various initiatives which are helping the country grow into a competitive milieu for Semicon manufacturing. Considering India’s potential in the segment, we expect several multi-national companies to soon tap India as a potential link in the global semiconductor supply chain,” says Anku Jain, Managing Director, MediaTek India

“The time is right for India to make its mark on the global Semicon fab map, especially given the short supply of chips and global supply chain disruptions affecting the sector.”

Anku Jain, Managing Director, MediaTek India

Past Attempts

However, this is not the first time that India has been trying to get a semiconductor manufacturing unit set up in the country. The country has been attempting the building a semiconductor manufacturing facility since 2006 to no avail. Some analysts doubt the pragmatism of the efforts as the risks are too high and the investment required, too huge. In 2014-15, two groups, one led by Jaiprakash Associates (Jaypee) and the other by Hindustan Semiconductor Manufacturing Corporation (HSMC), had shown interest in building a semiconductor unit in the country but both groups pulled out after they found the project unviable. So will the latest bids from Vedanta-Foxconn and others become successful?

Pareekh Jain, Founder, and Lead Analyst, EIIR Trend told Voice&Data that there are multiple things that have changed since the last time India tried to get investments into semiconductor manufacturing.

“Three things are different now. One is the scale of incentives to the tune of $10 Billion for the semiconductor sector. Second is the growing importance of Indian market which no big global firm can ignore. We have seen some success in mobile production in India because of the Indian market and hope the semiconductor scheme will also be successful. Third is timing with geopolitics and supply chain disruptions and the trend is to have more regional and local production in many sectors including semiconductors. We are seeing initial success and the Indian government has already received proposals of $20.5 billion for semiconductor production and more will follow.”

“Whether it is Governors of US states or Mayors of Chinese provinces all of them fight with each other to ensure they are able to lure the industry in their regions.”

Rajeev Khushu, Chairman, Board of Directors, IESA and Director Corporate Affairs and Government Relations of Texas Instruments India

According to MediaTek’s Anku Jain, the time is right for India to make its mark on the global Semicon fab map, especially given the short supply of chips and global supply chain disruptions affecting the sector. “News reports state that major companies like Apple, Samsung, Dell, HP, Acer, and Asus are interested in manufacturing their electronic products in India. If the mega cluster becomes functional, and the government initiatives retain support for the sector, there is no reason why India should not become the preferred sourcing destination for components,” Anku Jain told Voice&Data

Agree Pareekh Jain, who believes that the Indian market will grow faster than the world market because of three reasons: “faster growth in manufacturing, growth of semiconductor components in all products as products are becoming smarter, and also relocation of manufacturing from other countries in all sectors driven by PLI and Aatmanirbhar Bharat. Be it automotive, mobile, electronics, white goods, defense. All will require more and more chips.”

Geopolitical Impact

The other major reason for optimism is that many manufacturers are looking to move out of China due to the ongoing geopolitical situation. From the start of the US-China trade war in 2017, supply chains began to shift, and the Covid-19 pandemic has accelerated the push to diversify and incorporate more flexibility in supplier selection.

“India is still a developing economy but this offers us the possibility to adapt and expand faster than developed countries. This is a factor that enables us to perform well on the global platform when it comes to Semiconductor manufacturing. MediaTek India is strongly positive about India’s potential and we aim to enable the national Semiconductor ecosystem in every way possible,” says Mediatek’s Jain.

Challenges Galore

Despite the optimism, everyone acknowledges that it is not going to be a smooth ride especially since other countries like the US are miles ahead of India when it comes to offering incentives for manufacturers. Korean major Samsung announced that it would build a new semiconductor manufacturing facility in Taylor, Texas for a $17 billion investment. In September, Intel announced that it will spend $20 billion to build two new chip factories, called fabs, in Chandler, Arizona. Like any other manufacturing sector, fabs will require land, specialized labor specialized machinery. Here the scale of investment is high compared to other manufacturing sectors. Also, fabs require continuous power and water supply which government should take care of. Specialized labor will be a big challenge after investment. “Semicon fab is capital intensive and it is also R&D intensive activity where constant innovation and new technology development needs to happen on a continuous basis. So at the highest level Capital and talent are going to be the challenges. Indian infra also is not fully mature for a 24/7 high technology manufacturing activity like a semiconductor fab. The other challenge could be trained manpower availability in short term since India today does not have fab with these levels of complexity,” said Moorthy.

Policy Intervention

Experts say that in addition to the incentive scheme announced by the government, the Indian government at the center and various state governments should come in to help more to overcome the challenges.

“India already has the right environment, which, when combined with strategic resource allocation and government support and initiatives like ‘Make in India,’ it will surely be a game-changer.”

Sanjay Gupta, Vice President, and India Managing Director, NXP India

“Whether it is Governors of US states or Mayors of Chinese provinces all of them fight with each other to ensure they are able to lure the industry in their regions. Chief Ministers of the Indian Union have to pick up these skills so that they can woo this industry. Roads ports or airport infrastructure or electricity and water subsidy or skill development will act as a catalyst to get global Silicon players into that state,” says Rajeev Khushu, Chairman of the Board of Directors at IESA and Director of Corporate Affairs, and Government Relations of Texas Instruments India. Many states, for example, Karnataka, have already announced incentives even before the Government of India announced the policy in December 2021. The state incentives include subsidies for land, power, clean water availability, and ease of getting approvals.

Optimistic Outlook

Overall, the industry is optimistic about having a fabrication unit in the country soon. Vedanta Group, for instance, has earmarked $15 billion to develop its semiconductor manufacturing business over the next 10-15 years. Of this around $7-8 billion will be invested in the first plant proposed to be set up as a joint venture (JV) with Foxconn. Another $3-4 billion will be invested to set up a display fab. The company will be manufacturing 28 NM nodes of the chipset. The company will be looking to cater to smartphone makers and consumer electronics segments including laptops and televisions apart from ICTs, defense, and some use cases of the automotive sectors. To settle on a location for the facility, Vedanta Group is currently in talks with the Gujarat, Telangana, Maharashtra, and Karnataka state governments among others, evaluating incentives and access these regions could provide. The factory is expected to be built and become operational by 2024-25; post that the company will take another six-eight month to ramp up the facility and start production.

The good thing going for India is that it already has world-class design and R&D expertise in semiconductors because Indian engineering service providers provide chip design services to all global customers. Also, almost all semiconductor firms have their R&D centers in India. “First we need big fabs then the ecosystem around them will emerge. As we have seen in the auto industry-first OEMs will come and then component and ancillary units will come. A similar trend is being seen in the mobile industry. After OEMs, the focus is on component manufacturing and ancillary industry,” said Pareekh Jain.

Currently, the global semiconductor market is valued at about $440 billion. The Indian market is $15 billion (3-4 percent of the global market). In five years the global market is expected to reach $700 billion and India at around $65 billion (about 9-10% of the world market).

While India might not overtake China or Taiwan yet but there is an opportunity to be a significant player – driven by domestic demand, geopolitics, and a spurt in local and regional demand in neighboring countries.

“India has several advantages when it comes to the Semicon fab segment. First, the country is home to the largest young workforce in the world, making it easy to access skilled talent. Indians are keen on reskilling and upskilling and they are capable of competing at a global level. India is already home to the R&D bases of several multi-national companies, including MediaTek. This has provided international technology exposure to Indian employees,” said Mediatek’s Anku Jain.

According to Sanjay Gupta, Vice President, and India Managing Director, NXP India, India already has the right environment, which, when combined with strategic resource allocation and government support and initiatives like ‘Make in India,’ will surely be a game-changer. ”The semiconductor industry is expected to play a pivotal role in the growth and development strategy of the country. This will also increase the role of start-ups and axillary businesses, creating a multiplier effect towards generating an inclusive and vibrant ecosystem,” Gupta said.

feedbackvnd@cybermedia.co.in