ELECTRONICS AND SEMICONDUCTOR INDUSTRY

Published on 18 Feb 2025

Significance and Potential of the Industry

India’s semiconductor market could value about $64 billion by 2026, three times its value in 2019, the industry has the potential to be a significant growth driver for the Indian economy.
Semiconductor fabs and associated industries are capital intensive but also generate significant employment opportunities, both direct and indirect.
The new fabs that are coming up there to create 42,000 new permanent jobs by 2027
Semiconductors play a crucial role in strategic sectors like defence, space, and communications.
The current global leaders in semiconductor manufacturing are nations like Taiwan, South Korea, and the US.
Despite India’s robust IT sector, its footprint in semiconductor manufacturing is limited.
By bolstering its semiconductor industry, India can reduce its dependence on imported electronics, thus improving its trade balance.
The Modified Semicon India Programme and the India Semiconductor Mission scheme are aimed at attracting significant investment in the sector

Locational Factors shaping the Industry

Proximity to Markets: Setting up facilities near major consumption centres reduces transportation costs and improves delivery times.

Example: Foxconn, a major electronics manufacturer, set up a facility near Chennai, targeting not only the large South Indian market but also easy access to export hubs.

Availability of Skilled Workforce: Localities with established engineering colleges or research institutions provide a readily available talent pool.

Example: Samsung, a leading semiconductor player, established its largest R&D unit outside Korea in Bengaluru, leveraging the city's talent pool in chip design and engineering.

Infrastructure & Power Supply: Reliable power supply and well-developed transportation networks are crucial for smooth operations.

Example: The Noida SEZ boasts a dedicated power grid and well-connected highways, attracting companies like Dell and HP for IT hardware manufacturing

Government Incentives: States with special economic zones (SEZs) offering tax breaks and subsidies attract investment.

Example: Maharashtra's package aims to lure chipmakers like Vedanta-Foxconn to Pune.

Environmental Regulations: Locations with lax environmental regulations might be initially attractive, but stricter future policies can disrupt operations.

Example: The upcoming Semiconductor Fabs Scheme by the Indian government prioritizes setting up fabs in locations with robust environmental regulations

Challenges faced by the Industry

High Investment Costs: Setting up semiconductor fabrication plants (fabs) requires massive investments (billions of dollars), deterring private players.
Competition from Established Players: Competing with giants like Taiwan, South Korea, and the US who have economies of scale, advanced technology, and strong supply chains is difficult.
Skilled Workforce Gap: While India has a strong IT talent pool, a shortage of skilled workers specifically trained in advanced chip manufacturing exists.
Lack of Robust Supply Chain: An integrated domestic supply chain for raw materials, equipment, components, and testing facilities is crucial, but currently lacking.
Uncertain Policy Environment: Policy inconsistencies and a complex regulatory framework can discourage long-term investments in the sector.

Measures to resolve challenges

Financial Boost: Leverage PLI schemes (like the $76 billion program) and tax breaks to attract companies like Vedanta-Foxconn for fab projects.
Skilling the Workforce: Partner with IITs and private institutions (e.g., scholarships for chip design programs) to bridge the skilled worker gap.
Domestic Supply Chain Focus: Incentivize domestic manufacturing of raw materials (e.g., silicon wafers) and collaborate with established players (like TSMC) for technology transfer.
Policy Stability & Ease of Doing Business: Implement long-term policy frameworks and streamline regulations to create a business-friendly environment, similar to dedicated electronics manufacturing zones (SEZs) with simplified procedures.

R&D Investment: Increase funding for R&D initiatives to develop indigenous chip technologies, reducing reliance on foreign imports

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