Is semiconductor manufacturing in India an unworkable project?

The Minister of Commerce and Industry Piyush Goyal had recently asked Indian industry to set up a semiconductor fabrication plant in India, but experts in the sector seem unsure if it’s a pragmatic proposition as the risks are too high and the investment required is too huge.

This comes as a strategic call in the wake of India-China standoff as the government considers the establishment of such facilities as being integral to the development of the electronics industry.

This is not the first time there has been an attempt to set up a semiconductor fab in the country. India has been trying to get a private semiconductor fab since 2006, but all the previous efforts have failed.

Semiconductor manufacturing comprises the front-end fab manufacturing and the back-end assembly, including packaging and testing. There are only a handful of companies globally that do front-end manufacturing at scale.

India has done well in design and verification for the semiconductor industry, with most of the global semiconductor companies having an R&D footprint in India, but 100% of our chips, memory and display are imported into the country. Just on semiconductor chips alone, we are probably looking at around $10-12 billion of imports this year at a minimum.

PVG Menon, President & CEO, VANN Consulting Pvt. Ltd. and former President, India Electronics & Semiconductor Association (IESA) says, “The past track record of the government does not inspire any confidence that the private sector partner will be treated well. When one or two attempts fail, one can blame the private sector, but when successive attempts fail, one has to start critically examining government policy.”

Menon says that the government support to the private sector players is crucial to set up high technology manufacturing like fabs, as has been the case in some countries like the USA, Taiwan, South Korea, Japan and China.

“In India, the govt has tended to view each private sector proposal with extreme suspicion. If the govt constantly wants to play the role of a suspicious policeman, rather than the role of a facilitator, then I am afraid we are very far away from setting up National Technology Infrastructure Assets with the help of the private sector,” he says.

India has two fabs — SITAR, a unit of the Defence Research and Development Organisation (DRDO) in Bengaluru and a semiconductor laboratory in Chandigarh, which build silicon chips for strategic purposes like defence and space and not for commercial use.

Semiconductor fabs have investment starting around $8 billion, and the numbers climb rapidly upwards. They have very heavy running costs, and technology needs to be upgraded typically every 3-4 years, say industry watchers.

Menon says an extremely aggressive and consistent fiscal support package will have to be made available to develop the semiconductor manufacturing ecosystem. “Past history cannot be wished away and I would say that the industry will wait to see the details before they put money on the table.”

Venkata Simhadri, CEO, Moschip says the government needs to understand what the country needs and the type of semiconductor fabs they are talking about.

“Having a land bank is the least important requirement for setting up a fab. It costs billions of dollars to set up a cutting edge CMOS fab and there are only 2-3 companies in the world having that technology and there is no strong motivation or reason for them to set up their fabs in India. In addition, they can’t just rely only on the local market to fill up the capacity in the fab,” he explains.

Simhadri says the the government should Instead focus on developing the fabless semiconductor eco-system in India. “For example, the leading semiconductor companies like Qualcomm, Broadcom and Meditek don’t have their own fabs. India can focus on creating similar companies to develop products focused on Indian market.”

“Government shall come up with a ‘Fabless semiconductor policy’ and a “dedicated fund” to support this initiative. The growing demand for semiconductor components in IOT devices, solar equipment and electric vehicles does not need cutting edge CMOS fabs. Specialty fabs like Gallium Nitride and Silicon Carbide may have enough demand locally and cost much less to set up. In the short term, India should focus on these specialty fabs and come up with a clear support plan,” he adds saying it’s not just about providing land bank.

The Indian semiconductor component market is expected to be worth $32.35 billion by 2025, growing at a CAGR of 10.1% between 2018 and 2025, according to IESA.