India raises stakes in chip industry

The government said that this latest infusion takes the net quantum of incentives for the electronics sector to Rs 2.3 lakh crore. The plan is to make India an international hub of electronic system design and manufacturing. This objective will be achieved by offering companies involved in the space, a globally-competitive incentive package.

India’s entry into this highly competitive, $500 bn market is happening at a time when there is a pandemic-fuelled global shortage of semiconductors, which has brought the operations of many companies involved in the making of automobiles, gaming consoles, medical devices, and other electronic consumables to a standstill. The problem is amplified in India, which has no manufacturing facilities for semiconductors and meets its requirements through imports. At present, the volume of semiconductor imports hovers around $24 bn and this number is expected to touch $100 bn by 2025. The chip shortage has also precipitated a situation in India where over seven lakh car buyers are on a waiting list, as their manufacturers are running short of the necessary semiconductors that go into the automobiles before they are ready to ship.

One of the direct hits to India’s economy comes from the foreign exchange outflows resulting from reliance on digital products such as smartphones, laptops, electronic and IoT devices that utilise semiconductors. During the pandemic, the Indian corporate ecosystem exhibited remarkable resilience by taking all its workflows to a Work from Home scenario. The bad news was that this entailed additional investments in beefing up the ‘home office’ environments, and digital devices played a major role in this.

India’s push for establishing a robust semiconductor manufacturing ecosystem comes close on the heels of the Goliath of the industry making several such inroads into amping up its manufacturing pipelines. In May this year, chipmakers and companies that use these chips had formed a coalition of sorts in the US, in order to seek $50 bn in federal funding — for both R&D as well as manufacturing of semiconductors in the US. President Biden has made this proposal as part of his $2.3 trillion infrastructure package. Chipmakers including Nvidia, Qualcomm and Intel as well as firms reliant on semiconductors such as Apple, Google, Microsoft and AT&T are part of this coalition.

In India, Communications and IT Minister Ashwini Vaishnaw pushed forth the agenda of a semiconductor industry even as the government acknowledged that previous attempts to attract the interest of chip-making companies to invest in India had not borne the desired results. This had set us back by 30 years which can mean the difference between subsistence and obsolescence in cutthroat industries like tech. However, the presence of a local market coupled with appropriate incentives could tilt the scales in our favour. Investment outflow into the country expected on the back of these measures could be over Rs 1.7 lakh crore over a period of three to four years. Bigger fabrication factories (two for semiconductors, and two for displays) will entail heavy investments in the range of Rs 30,000 cr to Rs 50,000 cr and they will come up in about two to three years in India.

The Centre is also expecting as many as 100 units to emerge as part of the local semiconductor ecosystem. For this, a talented pool of human capital is also to be developed, which will see the employment of 85,000 engineers as well as the assimilation of 60 reputed institutes including the IITs and NITs too. To cut a long story short, it’s a phenomenal gamble that India has embarked upon at this point in time, by venturing into the semiconductor space.