India and Semiconductors – A $10 Bn War Chest.
4 min read
Brief Global Landscape Overview:
Globally, semiconductors are the 4th most traded product after crude oil, motor vehicle parts, and refined oil. These are just integrated circuits (ICs), or microchips and are most often made of silicon or a compound like gallium arsenide. Nearly 22.5% of global GDP is made up by the ‘global digital economy – as per Accenture research and Oxford Economics.
This ‘global digital economy can be further broken down as follows:
| Semiconductor Applications by Market (2019) via Statista | Market Size |
| Smartphone | 25.3% |
| Personal Computing | 20.5% |
| Servers, Data Centers, Storage | 14.6% |
| Industrial Electronics | 11.7% |
| Consumer Electronics | 10.0% |
| Automotive | 9.8% |
| Wired/Wireless Infrastructure | 8.1% |
Remember the ‘chip shortage’ worrying automobile companies in India amidst conflict with China in 2020? Or is it the cause of the late delivery of the popular ‘Ola Electric’ scooter? Most Cars, Scooters, Bikes are packed with up to 1,400 semiconductor devices each! These chips control every functionality from airbags to engines. The booming landscape of electric vehicles utilizes even more semiconductors than traditional fuel-driven automobiles.
Post-2020, a sudden surge in demand for digital goods and recovering economies put the strain directly on semiconductors. Despite an economic slowdown from the pandemic, an estimated 1.4 trillion units of semiconductor chips were shipped all around the globe in 2020. As per McKinsey, the global semiconductors chip makers’ aggregate annual economic profit, which totaled $3.5 billion from 2000 to 2004, increased more than 10x to $49.3 billion in the period 2016 to 2020! Nearly 65% of this economic profit goes to companies based in the US, China, Taiwan.
How do semiconductor chips go from “Concept” to “Customer”?
- Stage 1: Design – Semiconductor chip designs are created for either specific or general usage.
- Stage 2: Manufacturing (Front End) – Silicon wafers are processed through a series of manufacturing steps then diced into multiple chips.
- Stage 3: Manufacturing (Back End) – Chips are layered, assembled, and mounted onto circuit boards. Packaged chips are tested under different electrical and temperature conditions.
- Stage 4: End Product Integration – Chips are then integrated by electronic manufacturers to create products for consumers.
- Stage 5: Consumption – Products are shipped to companies, retailers, and consumers worldwide.
The Four New Schemes in India
Ministry of Electronics & Information Technology (MeitY) released guidelines of a new scheme to support the 4 main stages. The four schemes are:
- Design-linked incentive (DLI) scheme – A product design-linked incentive on expenditure related to software design, IP rights, testing. Deployment-linked incentive linked to net sales. And, a common infrastructure at the Centre for Development of Advanced Computing (C-DAC).
- Incentives for specialized fabs used in manufacturing (the government will provide financial support by reimbursing 30% of capex to firms fulfilling a few fixed pre-defined parameters).
- For the establishment of display fabs in India, the scheme will offer fiscal support of up to 50% of the project cost to only two companies willing to invest at least Rs 10,000 crore in manufacturing AMOLED / TFT LCD screens in India. (Over 25% displays on smartphones and over 50% displays of LCD / LED TVs that India uses are imported. India is a ~$7 billion display panel market and can grow 2x to ~$15 billion by 2025).
- For the set up of semiconductor fabs in India, the scheme will provide financial support to companies that will invest at least Rs 20,000 crore in a logic/memory, with a monthly capacity of 40,000 wafers. The government will cover up to 50% of project costs for firms manufacturing pre-defined specs of chips.
A few days after the government’s ₹76,000-crore policy boost, Anil Agarwal’s Vedanta group has said that it will invest up to Rs 60,000 crore to set up a sophisticated chip and glass manufacturing ecosystem in India over the next three years. Intel also expressed its interest after this news.
Back in 2014, Intel had stated it had no interest in producing these chips in India due to some specific reasons like:
- Poor infrastructure & frequent power cuts
- Lack of technical expertise
- Unavailability of the purest form of silica
- High capital investments needed
- Absence of High Govt support that’s required
- No clean environments (mandatory 100k times cleaner than an operation theatre) for the SC chips (size of a fingernail) to be made and work perfectly fine.
However, with recent substantial fiscal incentives coupled with radical policy changes, it is certain that India’s semiconductor vision is likely to be fulfilled. This shall also contribute significantly to achieving a $1 trillion digital economy as well as a $5 trillion GDP by 2025. The multiplier effect on allied sectors such as electronics, telecom, automotive, railways, electrical products will be at the heart of India’s Atmanirbhar technology revolution.
