SEMICONDUCTOR MANUFACTURING IN INDIA

Published on 01 Mar 2025

India's semiconductor manufacturing industry is emerging as a crucial sector for the country’s technological and economic advancement. As of 2024, India’s semiconductor market is valued at approximately $20 billion and is projected to reach $40 billion by 2026, driven by increasing domestic demand and government initiatives. The sector is pivotal for various high-tech industries, including electronics, automotive, and telecommunications.

Opportunities of semiconductor Industry in India

• Growing Domestic Market: India’s electronics market is projected to reach $400 billion by 2025, increasing the demand for semiconductors in sectors like consumer electronics and automotive.

• Government Support: The Indian government has launched a $10 billion Semiconductor Mission to attract global semiconductor companies. 

• Example:  Intel is exploring investment opportunities in India, supported by these incentives.

• Strategic Location: India’s location provides logistical advantages for global supply chains. Its proximity to key markets in Asia and the West enhances trade and distribution efficiency.

• Skilled Workforce: India has over 2.5 million engineers and technicians, providing a robust talent pool for the semiconductor industry, supporting both design and manufacturing sectors.

• Investment Potential: Significant foreign direct investment (FDI) has been committed to India’s semiconductor sector, such as Foxconn’s $1 billion investment plan for semiconductor and electronics manufacturing.

• Innovation and R&D: Research and development hubs like the Indian Institute of Technology (IIT) are advancing semiconductor technologies, driving innovation within the sector.

• Supply Chain Diversification: India’s push to develop a domestic semiconductor industry aims to reduce reliance on imports, which was over 90% of the country’s semiconductor needs in 2023, enhancing supply chain resilience.

• Infrastructure Development: The Karnataka Electronics Manufacturing Cluster and other Special Economic Zones (SEZs) offer dedicated infrastructure and favourable conditions for semiconductor manufacturing, facilitating industry growth.

Challenges faced by semiconductor industry in India

• High Capital Costs: Establishing semiconductor fabs requires substantial investment, often exceeding $5 billion. 

• Example: Setting up a state-of-the-art 300mm wafer fab could cost around $10 billion, which is a significant barrier for new entrants.

• Supply Chain Dependencies: India imports about 90% of its semiconductor components. In 2023, the country imported semiconductors worth approximately $19 billion, highlighting the heavy reliance on global supply chains.

• Infrastructure Constraints: The current infrastructure lacks advanced facilities such as clean rooms and specialized equipment. 

• Example: India’s semiconductor manufacturing infrastructure is limited compared to Taiwan, which hosts some of the world’s leading fabs like Taiwan Semiconductor Manufacturing Company (TSMC).

• Skilled Workforce Shortage: Despite having over 2.5 million engineers, India faces a shortage of specialized talent in semiconductor manufacturing. Only 10% of these engineers have experience in semiconductor-specific fields, impacting industry growth.

• Technological Gaps: India predominantly produces older semiconductor technologies, such as 28nm process nodes. 

• In contrast, leading manufacturers like TSMC and Intel have already advanced to 5nm and 3nm nodes, putting India at a competitive disadvantage.

• Regulatory Hurdles: Complex regulatory processes can delay semiconductor projects. 

• Example: Obtaining environmental and land-use clearances can take up to 12 months, affecting project timelines and increasing costs.

• R&D Investment Deficit: India’s semiconductor R&D investment is relatively low, with about $300 million annually compared to over $30 billion by leading semiconductor hubs like the U.S. and Taiwan, impacting innovation.

• Global Competition: India faces fierce competition from established semiconductor hubs. 

• Example: Taiwan’s TSMC holds over 50% of the global semiconductor market share, presenting significant challenges for India to establish itself in the global market.

Government Initiatives and other measures

• Semiconductor Mission: The Indian government has launched a $10 billion Semiconductor Mission to support the establishment of semiconductor fabs and assembly units.

• Example: Intel is exploring investment opportunities in India under this mission, which is expected to enhance local manufacturing capabilities.

• Production-Linked Incentive (PLI) Scheme: The PLI scheme offers incentives of up to 50% on capital expenditure for setting up semiconductor production facilities, aimed at boosting domestic manufacturing.

• Example: The scheme is designed to attract major global players like TSMC and Foxconn to establish manufacturing units in India.

• National Semiconductor Policy: This policy provides a strategic framework to develop the semiconductor ecosystem, focusing on infrastructure, R&D, and talent development.

• Infrastructure Development: Special Economic Zones (SEZs) and industrial parks are being developed to provide dedicated infrastructure for semiconductor manufacturing.

• Example: The Karnataka Electronics Manufacturing Cluster offers state-of-the-art facilities for semiconductor production and related activities.

• Research and Development Support: Increased funding for semiconductor R&D is being provided through initiatives like the National Research Foundation (NRF) to support technological advancements.

• Skill Development Programs: Training programs are being implemented to enhance skills in semiconductor design and manufacturing, addressing the industry's technical requirements.

• International Collaborations: India is fostering partnerships with global semiconductor manufacturers and technology providers to bring advanced technology and investment.

• Example: Collaborations with companies like Intel and TSMC are encouraged to establish advanced semiconductor manufacturing facilities in India.

• Regulatory Streamlining: The government is working to simplify regulatory approvals and reduce bureaucratic delays for setting up semiconductor facilities.

Importance of Lithium in India’s economic development

• Expansion of Electric Vehicles (EVs): Lithium-ion batteries are crucial for the EV sector. India aims to have 30% of all new vehicles be electric by 2030. 

• Example: The EV market, valued at $6 billion in 2023, is projected to grow to $20 billion by 2030, driven by advancements in lithium battery technology.

• Energy Storage Solutions: Lithium-ion batteries are essential for energy storage, supporting India’s renewable energy goals. With target of 500 GW of renewable energy capacity by 2030, efficient storage solutions are necessary. 

• Example: The use of lithium-ion batteries in grid storage projects, such as the 1 GW battery storage project in Andhra Pradesh, highlights their importance.

• Reduction of Import Dependency: Developing domestic processing and manufacturing capabilities will reduce this dependency and improve trade balance.

• Example: India imports over 90% of its lithium needs. In 2022, the country imported lithium worth approximately $1.2 billion.

• Technological Advancements: Lithium-ion technology is integral to high-tech sectors. 

• Example: Major Indian electronics companies like Samsung and LG use lithium batteries in their consumer products, contributing to India’s growing technology sector.

• Investment Opportunities: India has identified lithium-rich areas in Karnataka and Rajasthan, attracting investments from global players. 

• Example: Australian mining company Pilbara Minerals is investing $150 million in lithium exploration and processing in India.

• Job Creation: The lithium sector has significant job creation potential. Establishing a domestic lithium battery manufacturing industry could create around 50,000 jobs in mining, processing, and production, supporting local economies.

• Strategic Resource Management: Securing lithium resources enhances India’s position in the global supply chain.

•  Example: India’s interest in lithium-rich countries like Argentina and Bolivia aims to establish strategic partnerships and influence global markets.

• Boost to Manufacturing Sector: The development of a lithium battery manufacturing ecosystem supports India’s "Atmanirbhar Bharat" initiative. 

• Example: The establishment of a $1 billion lithium battery plant in Gujarat by AESC and Nissan is a step toward strengthening domestic production capabilities.

Constraints in lithium supply in India

• Limited Domestic Reserves: India has limited known lithium reserves, with significant deposits only recently discovered in Karnataka and Rajasthan. These reserves are not yet fully developed or commercially viable.

• Example: The lithium deposit in Karnataka has an estimated reserve of 14,000 tons, which is minor compared to global leaders like Australia, which holds over 5 million tons of lithium reserves.

• High Import Dependence: India imports over 90% of its lithium requirements, making it highly dependent on foreign sources for its supply needs.

• Example: In 2022, India imported lithium worth approximately $1.2 billion, primarily from Australia and Argentina. 

• Processing and Refining Capabilities: India lacks significant lithium processing and refining infrastructure, leading to higher costs and dependence on foreign processing facilities.

• Example: Most of India’s imported lithium is sent to countries like China for processing before it arrives in India. This additional step increases the overall cost and supply chain complexity.

• Exploration and Mining Technology: India’s technology for lithium exploration and mining is less advanced compared to leading producers, affecting efficiency and development speed.

• Example: Australia uses advanced lithium mining techniques, such as direct extraction technologies, which are not yet widely used in India. 

• Regulatory and Policy Challenges: The regulatory environment for lithium mining in India can be cumbersome, with complex procedures for obtaining licenses and environmental clearances.

• Example: The process for acquiring mining licenses and environmental clearances for the Karnataka lithium project has faced significant delays, impacting project timelines.

• High Production Costs: Developing lithium resources in India involves high production costs due to the need for importing specialized equipment and technology.

• Example: Setting up a lithium processing plant in India can cost significantly more than in countries like Chile, where infrastructure and technology are already established, leading to higher overall costs.

• Supply Chain Disruptions: Global supply chain issues, including geopolitical tensions and trade restrictions, can disrupt the availability and cost of lithium imports for India.

• Example: Trade tensions between Australia and China in 2021 led to supply chain disruptions that affected lithium prices globally, impacting India’s import costs and availability.

• Infrastructure Limitations: There is a lack of specialized infrastructure for the transportation and storage of lithium resources in India.

• Example: Limited specialized storage facilities for lithium in India mean that imported lithium often faces logistical challenges, such as delays and increased costs in handling and storage.

Tags:
Economy

Keywords:
Industries Semiconductor Lithium PLI Semiconductor mission

Syllabus:
General Studies Paper 3