As the world’s fifth-largest economy, India wants to become a chip powerhouse and get a piece of this hot global track. Like the U.S., India has been seeking to build strategic alliances around semiconductors and has also moved to bring chip manufacturing into the country, with incentives in place for the industry. However, there are neither large chip design companies nor industry-leading chip manufacturing companies, so why does India dare to have such ambitions?
No leading local semiconductor companies, then seek the entry of foreign technology giants – this is one of the key strategies of the Modi government to develop the chip industry. Last December, India gave the green light to a $10 billion incentive program for the semiconductor industry to attract semiconductor and display makers, aiming to make India a key player in the global supply chain. More recently, India has also pledged to expand incentives with plans to provide financial support of up to 50 percent of project costs to eligible manufacturers.
Developing areas in which India has an advantage
Huge capital investment, the time required to set up a plant, and uncertainty in the business, tax, and trade environment are the main roadblocks to entering India to invest in a plant.
“Because of these problems, previous attempts in India have failed.” One analyst said.
However, there are signs that things are changing.
Analysis by a partner at technology consulting firm Counterpoint Research says it is not entirely impossible for India to become a global chip manufacturing hub.
“India, the world’s second most populous economy, has a huge domestic consumer market for semiconductors,” he said.
“In addition, India has a large pool of English-speaking engineering talent and (cheap) labor, making it cost-effective,” he added.
This well-educated, cheap labor could help India stand out in a specific area of the semiconductor supply chain – chip design – which requires a large number of skilled workers. “Semiconductor design requires a large number of skilled engineers, and that’s where India has an advantage.”
In addition, some analysts say that eight of the world’s largest semiconductor companies have set up design houses in India. Although still currently in the early stages, India is working hard to develop domestic companies to build technology.
“What we are observing now is that the Indian government is trying to take the next step. But while there are design centers of multinational companies, India does not have much of its own intellectual property. So the next step should be to build the ecosystem so that Indian companies have some of India’s own IP (intellectual property).”
India’s IT and electronics minister has said that there are nearly 55,000 semiconductor design engineers working for different companies in India. As part of the semiconductor initiative, India has launched a design-led program “in the next five to six years we will become the great semiconductor design capital of the world”.
Little win for manufacturing
While analysts believe that India has some advantages in developing chip design, chip manufacturing is difficult.
China, Taiwan and South Korea, mainly in East Asia manufacturers dominate the global semiconductor supply chain, while India does not have any manufacturing chip factories.
India itself is well aware of the situation is not conducive to its ambition to develop semiconductors, the government began to foreign chip manufacturers to show goodwill, one after another announcing a series of cooperation plans. ISMC Digital, a consortium of investors, is planning to build a $3 billion manufacturing plant in India, and Israeli company Tower Semiconductor will become a technology partner for the project. Meanwhile, Foxconn, which assembles iPhones for Apple, and Indian mining company Vedanta have entered into a partnership to build a $19.5 billion chip manufacturing plant in India.
The said plant will be one of the first semiconductor manufacturing plants in India, which also hopes to attract giants such as TSMC and Intel to choose India to invest in building factories.
However, even if ISMC Digital is put into production in India, the chips it makes belong to the low-end chips, and TSMC and other companies’ advanced process chips can not be the same, when the country’s competition intensifies, which may limit India’s potential to become a global chip manufacturing center.
“Many countries are attracting chip giants with lucrative incentive programs, so India may have to lower its expectations,” the analyst added.
