As 2023 comes to a close, India’s efforts to build the country’s first fab have had mixed results. On the one hand, there has been a growing interest in the country from players like Foxconn, and on the other, India doesn’t seem to have moved closer to its ambition of building a chip plant in the country.
Like several other nations, India decided to acquire chip-making capabilities in the post-COVID-19 era as the pandemic revealed fault lines in the global semiconductor supply chain. As the chip shortage wrecked several industries, the Indian Government felt it was time to reduce dependence on other countries for chips. The US Government also introduced the CHIPS Act in 2022 to strengthen the domestic manufacturing of semiconductors.
The government announced the India Semiconductor Mission (ISM) in 2021 with a $10 billion incentive to attract chip makers to India. Three applicants, Foxconn-Vedanta, IGSS Ventures and ISMC, were interested but were unable to secure a technology partner. This led to the government inviting fresh applications earlier this year. The biggest setback in this exercise was Foxconn and Vedanta, the strongest contenders for setting up a fab unit, calling off their $19 billion partnership.
At the same time, India was able to attract $2.7 billion in investment from US-based Micron to build a chip packaging unit. India and the US have signed a Memorandum of Understanding to collaborate to build a chip supply chain to bring down dependency on China.
Skilled workforce, limited financial incentives and complicated tax structure
In spite of several efforts, India’s chip ambitions are far from being realized. It faces several challenges as it moves on the road to become self-reliant. Apart from infrastructure elements, like reliable power and water resources, building a fab demands several supply chain components to come together.
Besides, building a fab unit is a highly complex process and demands skilled talent. While India has a large number of engineering graduates, there is a gap between their skill sets and the industry demand. The lack of a semiconductor ecosystem also means that it is extremely tough for the country to attract a skilled workforce. The government has recently introduced the Chips-to-Startup (C2S) program with the vision of training 85,000 engineers.
“Equally important is a skilled workforce in engineering, materials science and electronics, given the complexity of fab manufacturing processes compared to device assembly, like smartphones or PCs. While India excels in manufacturing, transitioning from device assembly to fab construction presents challenges,” says Helen Chiang, Asia Pacific semiconductor research lead and Taiwan country manager at IDC.
Another reason is the lack of financial motive. While India is a massive market, the incentive offered by the Indian Government is not in line with those offered by other countries. “The financial benefits should be lucrative to motivate them to venture into unknown territory. India's economic benefits are weak compared to the US CHIPS Act or the EU Chips Act,” says Kanishka Chauhan, Senior Principal Analyst at Gartner.
“There is an urgent need to simplify the process and clarify tax, land, and resources policies, etc. India has a presence of chip design companies, and I think we have a fair start in terms of talent for chip design. However, India lacks the talent required for the operation of fabrication facilities. All of that talent would require significant investment in training and close cooperation with manufacturing partners,” adds Chauhan.
What can India do to build chip ecosystem?
Even as the development of a fab unit seems distant, India can take a number of steps to put its foot in the door where the global semiconductor ecosystem is concerned. “In terms of local fab development, the high entry barriers might make India initially focus on semiconductor assembly and testing. This approach can capitalize on local expertise in system/module manufacturing and gradually build an ecosystem, transitioning to full-scale fab development,” says Chiang of IDC.
Developing a semiconductor ecosystem will involve efforts from both the Government as well as private players. From the government side, it should offer better economic incentives and give more clarity on taxation, imports, labor policies and availability of resources like land and water. It must also aggressively look at leveraging diplomatic ties.
“The private players looking for partners must assure a symbiotic relationship. Large Indian conglomerates, when partnering with foreign fabs, should contribute something meaningful to the table. They should leverage the presence of design companies in India and the electronic manufacturing ecosystem to establish deeper ties within the industry so that they understand the needs of the hour and make better decisions,” says Chauhan of Gartner.
Recently, Reliance Industries, India’s biggest business conglomerate, was in the news for exploring a foray into chip manufacturing. Similarly, Tata Group, one of the largest Indian business groups, is also trying to set up a fab unit in the country. These efforts by private enterprises, along with the incentives offered by the government, can together go a long way in helping the country realize its chip-making vision.
Gagandeep Kaur is an independent journalist and founder and CEO of Deepworkz Media Services in New Delhi, India..