SEMICONDUCTOR MANUFACTURING IN INDIA

INTRODUCTION

Semiconductors are materials whose electrical conductivity lies between conductors and insulators. They form the backbone of modern electronics. Semiconductor devices conduct electric current in solid state and have almost entirely replaced vacuum tubes due to their compact size, efficiency, durability and low power consumption.

India’s semiconductor demand is projected to rise to around USD 80 billion by 2025 and nearly USD 110 billion by the end of the decade. India also has a strong comparative advantage in semiconductor design, with nearly 20 percent of the world’s semiconductor design engineers working in India. However, manufacturing capability remains a critical gap.

APPLICATIONS AND USES OF SEMICONDUCTORS

Modern electronic gadgets  
• Essential for smartphones, computers, laptops, televisions, radios and medical equipment  
• Form the core of processors, memory chips and integrated circuits  

Electric vehicles  
• Semiconductors are crucial for battery management systems, power electronics and sensors  
• A conventional petrol vehicle uses around 300 chips, whereas an electric vehicle can use up to 3,000 chips  

Embedded systems  
• Used in systems that control larger machines and devices  
• Applications include GPS, digital watches, fitness trackers, engine management systems, smart appliances  

Thermal conductivity  
• Certain semiconductors are used in thermoelectric cooling and heat management systems  

Lighting and display technology  
• Used in LEDs, OLEDs and advanced display panels  
• Widely used in televisions, smartphones and digital signboards  

Solar energy  
• Silicon-based semiconductors are the foundation of photovoltaic solar cells  

NEED FOR DOMESTIC SEMICONDUCTOR MANUFACTURING

Strategic reasons  
• Global supply chain disruptions and geopolitical tensions highlight vulnerability of import dependence  
• Chips are critical for defence, aerospace, space and strategic electronics  
• Growing Chinese dominance in semiconductor fabrication poses long-term strategic risks  

Economic reasons  
• Supports Atmanirbhar Bharat by reducing import dependence  
• India currently imports nearly 100 percent of its semiconductor requirements  
• Domestic manufacturing can generate export revenue  
• Local production can reduce costs and stabilize prices  
• Boosts downstream industries such as EVs, renewable energy and electronics  

Social reasons  
• Large employment generation across manufacturing, logistics and services  
• High-end skill development in advanced manufacturing and engineering  
• Opportunity to capture Assembly, Testing and Packaging (ATP) segment which accounts for around 10 percent of value chain  

CHALLENGES IN SEMICONDUCTOR MANUFACTURING

Capital intensive nature  
• Semiconductor fabs require extremely high initial investment  
• Long gestation period before profitability  

Raw material dependence  
• Dependence on silicon and other materials like gallium arsenide and silicon carbide  
• Supply chain vulnerability for high-purity materials  

Infrastructure constraints  
• Requirement of large quantities of ultra-pure water  
• Need for uninterrupted high-quality power supply  
• Advanced logistics and clean-room facilities  

Limited government fiscal support  
• PLI and fiscal support may be insufficient for entire ecosystem  
• Other sub-segments also require sustained funding  

Gaps in value chain  
• Semiconductor ecosystem involves design, fabrication, assembly and testing  
• Fabrication and IP-intensive R&D remain weak in India  

Lack of advanced fabs  
• Existing fabs under ISRO and DRDO are limited in scale and technology  
• Absence of commercial cutting-edge fabs  

Global disruptions and geopolitics  
• COVID-19 lockdowns disrupted global chip supply  
• Russia-Ukraine conflict affected raw material supply  
• Chinese stockpiling and aggressive pricing create competition  

FUTURE PROSPECTS AND WAY FORWARD

Investment and FDI  
• Targeted incentives to attract global semiconductor majors  
• Joint ventures with experienced global players  

Special manufacturing zones  
• Establish semiconductor clusters and dedicated economic zones  
• Improve supply chain integration  

Policy and tax incentives  
• Tax benefits for semiconductor-based defence, renewable and strategic applications  
• Long-term stable policy framework  

International collaboration  
• Technology and knowledge partnerships with Taiwan, Japan and the US  
• Participation in trusted global semiconductor alliances  

Role of states  
• State governments to ensure land, water and power availability  
• Competitive state-level incentives  

Enhanced financial outlay  
• Expansion of fiscal support beyond current allocations  
• Sustained long-term funding approach  

INDIA SEMICONDUCTOR MISSION (ISM)

Overview  
• Total outlay of INR 76,000 crore  
• Fungible across multiple semiconductor and display schemes  

Key components of ISM

Semiconductor fabrication fabs  
• Fiscal support for setting up wafer fabrication facilities  
• Aimed at attracting large-scale global investments  

Display fabrication fabs  
• Support for TFT LCD and AMOLED display fabs  
• Fiscal support up to 50 percent of project cost  
• Maximum support of INR 12,000 crore per fab  

Compound semiconductors and sensors  
• Support for compound semiconductors, silicon photonics and sensors  
• Fiscal support of 30 percent of capital expenditure  

Design Linked Incentive (DLI) Scheme  
• Incentives for semiconductor design companies  
• Support for ICs, chipsets, SoCs, systems and IP cores  

IMPORTANCE OF INDIA SEMICONDUCTOR MISSION

Building innovation ecosystem  
• Promote India as a global hub for semiconductor design and manufacturing  

Collaborative long-term strategy  
• Coordination between government, industry and academia  

Strengthening electronics sector  
• Secure semiconductor supply chain including raw materials and equipment  

Promotion of indigenous IP  
• Encourage domestic intellectual property creation  
• Support technology transfer and commercialization  

International partnerships  
• Enable collaboration with global semiconductor leaders  

CONCLUSION

Semiconductor manufacturing is central to India’s economic growth, technological sovereignty and national security. While India possesses strong design capabilities, bridging the manufacturing gap through policy support, infrastructure development, global collaboration and sustained investment is critical for long-term success.

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Subject: Economics

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