Can India attract global chipmakers with its $10bn incentive plan?
India has set its sights on the booming semiconductor manufacturing sector amid surging global demand for consumer electronics and a chip supply crunch. While the country has the potential to achieve this ambition, analysts say it will be an enormous task requiring large amounts of investment.
“The government is laying special emphasis on increasing semiconductor manufacturing activity in India and various policy initiatives have been implemented to achieve this objective,” says Suman Jagdev, a partner at management consulting and advisory services firm Praxis Global Alliance.
The aim of the programme is to attract global chip manufacturers to India and create opportunities for local companies as part of broader plans to expand domestic production of electronics.
The plan would boost electronics manufacturing and bolster India's aim of building a $1 trillion digital economy and gross domestic product of $5tn by 2025, the government said while announcing the programme. Semiconductor manufacturing will “create highly skilled employment opportunities” and have a multiplier effect on the economy, it said.
Chips are used in electronic products including mobile phones and laptops, as well as in cars. The global semiconductor industry, which was plagued by supply challenges in 2021 owing to the Covid-19 pandemic, is poised for a strong 2022, with sales expected to cross $600 billion for the first time driven by “unusually strong” demand for consumer electronics, Allianz subsidiary Euler Hermes said in a report this week.
India's semiconductor demand is expected to rise to $100bn by 2025 from about $24bn a year, driven by growing consumer demand for electronics and the country's plans to expand domestic production of electronic goods, figures published in 2021 by Invest India show.
To date, India's semiconductor manufacturing has largely been limited to production for its state-controlled defence and space sectors. Like many other countries, India is heavily dependent on chips made in Taiwan, which dominates the market.
Indian manufacturers have been negatively affected by the supply chain crunch and many are being forced to delay production of goods as they wait for supplies.
“To mitigate such risks it is important for India to start local fabrication of semiconductors,” says Hemant Mallapur, co-founder and executive vice president of engineering at Saankhya Labs, a Bengaluru-based semiconductor start-up that designs chips.
The semiconductor shortage has brought the crux of the problem into sharp focus, K Krishna Moorthy, president and chief executive of the India Electronics and Semiconductor Association (IESA), says.
“The car makers have started crying from the rooftops, saying 'we are scaling down on production', which means scaling down on revenue to the government, which means reducing employment opportunities, which are all issues of great concern to the government,” he says. A primary driver for India to manufacture chips is to reduce costly imports of semiconductors amid rising demand.
“For India, it is not only the intent to export globally, but the huge consumption within the country that is also a prime mover because of the kind of foreign exchange that gets diluted because we are importing in huge value,” Mr Moorthy says.
“In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure,” it said. “The approved programme will propel innovation and build domestic capacities to ensure the digital sovereignty of India.”
Meanwhile, companies worldwide are increasingly looking to diversify in terms of countries they source supplies from and where they have their manufacturing bases amid continuing trade tensions between Washington and Beijing, which could work to India's advantage, experts say.
“The change in sourcing strategies of corporates that are looking to de-risk their supply chain by reducing over-dependence on a particular manufacturing location will aid in India becoming a manufacturing hub for semiconductors,” says Mr Jagdev. “India is expected to emerge as one of the attractive destinations for companies looking to expand their manufacturing footprint in South Asia.”
Taiwan's Foxconn, a consortium from Singapore and Israel's Tower Semiconductor expressed interest in setting up chip plants in India, Reuters reported last month, citing an unnamed Indian government source.
Between 10 and 12 semiconductor manufacturers would set up factories in the next two to three years, India's Information and Technology Minister Ashwini Vaishnaw said in an interview with Bloomberg Television.
“All the big players are in talks with Indian partners and many want to come directly to set up units here,” he said. “Almost all the big ones are talking to us.”
But the main obstacle for India's plan to expand its semiconductor industry has long been the capital investment required to set up manufacturing plants.
Source: www.thenationalnews.com
