- Analysts say that India can play a big role in the semiconductor industry.
- India is taking steps to bring the manufacturing of chips in the country.
- New Delhi’s strategy is two-fold – wooing foreign companies and building on areas where India has an advantage, such as chip design.
Analysts say India could play a bigger role in the semiconductor industry as the world’s fifth-largest economy looks to boost its domestic chip sector.
With other countries like the US, India wants to build strategic alliances around semiconductors, a key technology that goes into many of the devices we use, from smartphones to refrigerators.
But India is also taking steps to bring the manufacturing of chips to the country and has set incentives for the industry.
“I think India has an important role to play,” Prannoy Kotasthane, chairperson of the High Tech Geopolitics Program at the Taxila Institution, told CNBC’s “Beyond the Valley” podcast published last week.
The issue for many countries to boost their chipmaking skills is that there are very few companies and countries that dominate the industry. For example, Taiwan and South Korea make up about 80% of the global foundry market. Foundries are facilities that manufacture chips designed by other companies.
India has generally not been in the mix of top countries in terms of semiconductors. So there are not many huge Indian chip firms and certainly no leading-edge manufacturing companies.
While India may not have native semiconductor firms, its plans under Prime Minister Narendra Modi’s government depend on trying to attract foreign giants.
Therefore, New Delhi’s strategy appears to be twofold – wooing foreign companies and building on areas where India has an advantage.
The need for large amounts of capital, time taken to set up factories and uncertainty over trade, tax and business environment have often deterred companies from setting up in India.
“Previous attempts in India failed because of apprehensions in these cases,” Kotastane said.
However, there are signs that things are changing.
“The track record has not been great but the new government is moving in the right direction… [with] Neil Shah, partner at tech consultancy Counterpoint Research, told CNBC that the policies were in place to boost and attract major quasi and fab companies.
There are many forces in India that can support its bid to become a global chipmaking hub.
“India’s strength when it comes to semiconductors is the huge domestic consumption market, which is the second largest populous economy in the world,” Shah said.
The analyst also said that incentive schemes will help. “Also, India has loads of English speaking engineering talent and [a] Cheaper labor force is making it cost-effective,” Shah said.
That well-educated and cheap labor force can help India in a specific area of the semiconductor supply chain – chip design – an area that requires a large number of skilled workers.
“I have no doubt that India has a big role to play,” Kotastane said.
He said, “India has semiconductor manpower. Semiconductor design requires a large number of skilled engineers and this is where India’s strength lies.”
Kotasthene said eight of the world’s largest semiconductor firms have design houses in India. Even in the early stages, India is trying to encourage its domestic companies to make technology.
“What we are seeing now from the Indian government is trying to take the next step. We have design centers of international firms, but India does not have much intellectual property, which can be called Indian.. .Because these are companies from other countries that are doing this.So now, the next step is to try to create an ecosystem where there is some Indian IP (Intellectual Property) by Indian companies.
While design is one area where analysts say India can find success, manufacturing is a bit more difficult.
In terms of the most cutting-edge chips, such as in the latest flagship smartphone, Taiwan’s TSMC dominates the manufacturing sector.
There is no fab or semiconductor fabrication plant in India, which manufactures chips. However, the government has tried to woo foreign chipmakers. ISMC Digital, a consortium of investors, is planning to build a $3 billion manufacturing facility in India. Tower Semiconductor, an Israeli company, will be the technology partner in that project.
Meanwhile, Taiwanese firm Foxconn, which assembles Apple’s iPhones, and Indian mining company Vedanta Together they have built a chipmaking facility worth $19.5 billion in India.
These factories will be among the first semiconductor manufacturing plants in India. New Delhi is undoubtedly trying to woo giants like TSMC and Intel into India as well.
However, the ISMC digital plant will be making older generation chips, often called trailing-edge semiconductors, rather than state-of-the-art components made by the likes of TSMC. These trailing-edge chips are still important, but it hinders India’s ability to become a global hub for the latest chips, especially as competition between countries increases.
“Trailing-edge fabs are equally important. Demand for these won’t disappear anytime soon. Future applications such as 5G radios and electric vehicles will continue to require manufacturing on these nodes. Most current defense applications also require trailing-edge chips.” require,” Kotasthene said.
“Many countries are attracting leading node foundries with big stimulus packages. So India may have to lower its expectations,” he said.
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