As the world advances in digital technology, semiconductors, or “chips,” have become the foundation of almost every device we use, from smartphones and computers to autonomous vehicles and AI-driven machines. The global semiconductor industry is worth billions of dollars, and India, recognizing its strategic importance, has set ambitious goals to become a significant player in this domain.
If you’re considering entering India’s semiconductor sector, here’s a comprehensive guide covering everything from government incentives to essential steps for establishing a successful semiconductor business.
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India’s growing semiconductorsmarket
India’s semiconductor market, valued at around $23 billion in 2024, is expected to reach $80 billion by 2028, growing at a compound annual growth rate (CAGR) of 17%. This growth is driven by rising demand for electronics, the rollout of 5G networks, advancements in artificial intelligence (AI), the Internet of Things (IoT), electric vehicles, and more. Additionally, the semiconductor shortage during the recent global crisis has highlighted the critical need for self-sufficiency in chip manufacturing, prompting the Indian government to prioritize semiconductor manufacturing domestically.
Government initiatives and incentives for semiconductor manufacturing
India has rolled out significant incentives to promote domestic semiconductor manufacturing, with the aim of reducing reliance on imports and developing a robust local supply chain. Here are the key initiatives:
A. Semicon India Program
Launched in December 2021, this program provides a massive fiscal boost of INR 76,000 crore to support semiconductor and display manufacturing. It offers incentives to companies involved in:
- Silicon wafer fabrication (fab)
- Display fab for TFT LCDs and AMOLED panels
- Compound semiconductors
- Semiconductor packaging, assembly, and testing (ATMP/OSAT)
The incentives cover up to 50% of the project cost, depending on eligibility and other criteria.
B. India Semiconductor Mission (ISM)
The ISM is the nodal agency responsible for overseeing the Semicon India Program. It manages applications, assesses the technical and financial feasibility of proposals, and facilitates the setup of semiconductor units in India. The ISM also coordinates between companies and the government to streamline the application and approval process.
C. Design Linked Incentive (DLI) Scheme
The DLI scheme provides incentives to companies engaged in semiconductor design. This includes startups and small businesses working on Integrated Circuits (ICs), chipsets, System on Chips (SoCs), and other semiconductor-linked designs. Key components:
- Product Design Linked Incentive: Up to 50% reimbursement of eligible expenses (capped at INR 150 million per application).
- Deployment Linked Incentive: 4-6% of net sales turnover over five years, capped at INR 300 million.
D. State-Level Incentives
States such as Gujarat, Uttar Pradesh, and Odisha have introduced policies to make semiconductor production easier and more profitable. Benefits include:
- Subsidies on land, water, and power
- Reimbursement of stamp duties
- Single-window clearances for permits and compliance
Key steps to starting a semiconductor manufacturing business in India
Starting a semiconductor business requires thorough planning, extensive resources, and a clear understanding of both technical and business requirements. Here’s a step-by-step breakdown:
Step 1: Conduct Market Research
Identify demand for semiconductor products across sectors such as automotive, telecommunications, consumer electronics, and healthcare. Analyze global trends like AI, 5G, and IoT, as they are the primary drivers of demand for advanced semiconductor components.
Step 2: Develop a Business Plan
Outline your business model, target products, technology focus, and funding requirements. Define your vision, mission, goals, and strategies, ensuring alignment with your market analysis. Include projections on costs, revenue, and timelines to help secure investment or government support.
Step 3: Set Up a Legal Entity
Establishing a formal business structure, such as a private limited or public limited company, is required to be eligible for government incentives. Foreign investors typically prefer joint ventures with Indian entities, as these offer shared resources and local expertise.
Step 4: Design the Manufacturing Facility
Planning a semiconductor manufacturing facility requires adherence to stringent industry standards. The setup is typically divided into two main phases:
- Front End of Line (FOEL): This involves wafer fabrication, where silicon wafers are created. Processes include trimming, slicing, polishing, and chemical etching.
- Back End of Line (BEOL): This phase focuses on assembling the semiconductor devices and interconnecting them with wiring and electroplating, often with copper, to complete the circuitry.
Step 5: Source Raw Materials and Machinery
Semiconductor manufacturing is highly resource-intensive, demanding high-quality materials like silicon and specialized machinery for wafer production. India currently relies on imports for several materials and advanced equipment, so setting up reliable supply chains and securing technology licenses are essential steps.
Step 6: Obtain Necessary Permits and Licenses
Manufacturing semiconductors involves obtaining several permits from local, state, and central authorities. These may include:
- Environmental clearance
- Water and power supply permits
- Labor compliance for hiring skilled and unskilled workers
Step 7: Hire Skilled Workforce
Manufacturing semiconductors requires a skilled workforce, including engineers, technicians, and R&D specialists. Collaborating with local universities and training institutions can help source talent for specific roles, while the government also supports skill development initiatives in this field.
Step 8: Marketing and Distribution
With production underway, establish a clear marketing strategy targeting industries such as automotive, telecommunications, and consumer electronics. Develop distribution channels that connect directly with manufacturers in India and abroad who need semiconductor components.
Challenges in semiconductor manufacturing in India
While India is making strides in semiconductor manufacturing, challenges remain:
- High capital requirements: Setting up a semiconductor fab can cost between $5 billion and $7 billion, a significant investment that requires government subsidies and strong financial backing.
- Resource-intensive production: Semiconductor fabs require a stable supply of ultra-pure water and uninterrupted power, which can be challenging given India’s infrastructure constraints in certain regions.
- Skilled workforce shortage: India still faces a shortage of highly specialized talent in semiconductor engineering and fabrication, though initiatives are underway to train and develop a skilled workforce.
- Complex regulatory approvals: The semiconductor industry requires multiple approvals from various government agencies, which can delay projects. Simplifying these processes is essential for accelerating industry growth.
- Dependency on imported technology: Many advanced technologies in semiconductor manufacturing are patented internationally, which makes licensing expensive. Developing indigenous capabilities in semiconductor technology is a key focus for India, but it will take time to reduce reliance on foreign technology.
Key applications of semiconductors
Semiconductors are the “brains” behind virtually every electronic device we use today. Their diverse applications make them crucial across industries, enabling functionalities in everything from smartphones and televisions to automobiles and medical devices. Here’s a closer look at the major sectors driving demand for semiconductors in India and globally:
Consumer Electronics
- Applications: Semiconductors power an extensive range of consumer electronics, including smartphones, laptops, tablets, televisions, refrigerators, washing machines, and more. In these devices, semiconductors manage various functionalities such as processing speed, battery efficiency, and automated features.
- Example: The development of more compact and efficient transistors has revolutionized devices like radios and TVs, transforming them from bulky units into sleek, portable gadgets. Semiconductors are key to innovations like OLED and AMOLED displays, advanced touchscreens, and energy-saving components.
- Future Demand: With the growing adoption of smart home devices and the integration of AI, the consumer electronics sector is set to be a continual driver of semiconductor demand.
Telecommunications
- Applications: Telecommunications rely heavily on semiconductors for devices like smartphones, 5G infrastructure, network equipment, and data storage systems. Semiconductors play a pivotal role in components such as microprocessors, power management systems, and modems, which support high-speed internet, data transfer, and reliable connectivity.
- Example: In smartphones, semiconductors control essential features like display resolution, battery optimization, and 4G/5G reception. They are also integral to routers, servers, and networking equipment that facilitate seamless communication.
- Future Demand: With the rapid expansion of 5G and the expected roll-out of 6G in the future, demand for high-performance semiconductors in telecommunications will only increase.
Automotive Industry
- Applications: As vehicles evolve from analog to digital and autonomous, they require sophisticated semiconductor components. Semiconductors in vehicles are responsible for functionalities such as power management, safety features, in-car entertainment, navigation, and autonomous driving controls.
- Example: Electric vehicles (EVs) and hybrid vehicles rely heavily on semiconductors for battery management, power control units, sensors, and advanced driver-assistance systems (ADAS). Safety-critical components like anti-lock braking systems (ABS) and electronic stability control also rely on semiconductor chips.
- Future Demand: The shift towards EVs and the advancement in autonomous driving technologies is expected to dramatically increase demand for semiconductors in the automotive sector, which could become one of the largest consumers of chips.
Healthcare
- Applications: Semiconductors play an essential role in medical devices and diagnostic equipment, such as MRI machines, CT scanners, pacemakers, and other monitoring equipment. They manage functions like power control, data processing, and connectivity within the medical ecosystem.
- Example: In wearable medical devices (e.g., fitness trackers, glucose monitors), semiconductors facilitate real-time monitoring of vital statistics, enabling remote diagnostics and patient care. Semiconductors are also critical in surgical robots that require precise control and high reliability.
- Future Demand: With an increasing focus on digital health and remote healthcare solutions, the healthcare sector’s reliance on semiconductor technology will continue to grow, especially as wearable health devices become more sophisticated and ubiquitous.
Banking and Financial Services
- Applications: The banking sector uses semiconductors in ATMs, digital payment systems, and secure data storage solutions. Semiconductors support data encryption, access control, and other security features critical to banking infrastructure.
- Example: Semiconductors in ATMs enable secure data processing and user authentication. Chip-based security mechanisms in credit and debit cards, as well as contactless payments, are possible due to advancements in semiconductor technology.
- Future Demand: As digital banking and financial technology (fintech) continue to grow, especially with the shift toward cashless transactions, demand for secure semiconductor solutions in the financial sector is expected to remain strong.
These diverse applications illustrate the essential nature of semiconductors in modern technology. As these industries continue to innovate and expand, they drive ongoing demand for advanced and reliable semiconductor components.
Future outlook for semiconductor manufacturing in India
India’s semiconductor ambitions align with global trends, including AI and IoT adoption, 5G expansion, and smart city projects. The government has recognized the economic and strategic importance of a strong semiconductor industry, not just for meeting domestic demand but also for positioning India as a global supplier. With continued investment in infrastructure, R&D, and human resources, India’s semiconductor industry is poised for significant growth in the coming decade.
India’s semiconductor industry is on the cusp of transformative growth, propelled by both domestic demand and international market opportunities. Here’s an in-depth look at what the future holds for semiconductor manufacturing in India:
Growing Global Demand and India’s Strategic Position
- Geopolitical Advantages: The global semiconductor supply chain is witnessing a shift as companies diversify away from traditional hubs like Taiwan, especially in light of geopolitical tensions and the COVID-19 pandemic’s impact on supply chains. India is emerging as a viable alternative, offering a stable democratic environment, a large pool of engineering talent, and an investment-friendly climate.
- Projected Market Size: The Indian semiconductor market is projected to grow significantly, reaching approximately $80 billion by 2028, with global demand expected to hit the trillion-dollar mark by 2030. India’s strategic location and its skilled workforce position it well to meet both domestic and international semiconductor needs.
Governmental Support and Strategic Initiatives
- Incentive Programs: With initiatives like the Semicon India Program, India Semiconductor Mission, and the Production Linked Incentive (PLI) scheme, the government has laid the groundwork for a thriving semiconductor ecosystem. Fiscal support, state-level incentives, and streamlined regulatory processes aim to attract major global players to set up manufacturing facilities in India.
- Collaborations and Joint Ventures: India is partnering with semiconductor giants such as TSMC, Intel, and Tower Semiconductor to secure technology transfers and build local manufacturing expertise. These partnerships provide Indian manufacturers with access to cutting-edge technology, helping them compete on a global scale.
Building a Self-Sustaining Semiconductor Ecosystem
- Infrastructure Development: Establishing a robust semiconductor manufacturing ecosystem in India requires substantial infrastructure development. This includes setting up specialized fabrication plants, ATMP facilities, and research centers for design and innovation. The government is also focused on creating “semiconductor clusters” with infrastructure support, including stable power, water, and logistics.
- Human Resource Development: Semiconductor manufacturing is a highly skilled industry, requiring expertise in areas like electrical engineering, materials science, and computer science. The government is investing in skill development programs to train 85,000 engineers, technicians, and R&D specialists to build a pipeline of semiconductor professionals. Collaborations with educational institutions, such as IITs and NITs, aim to prepare students for careers in the semiconductor industry.
Addressing Key Challenges
- High Capital and Resource Requirements: Semiconductor fabs are capital-intensive, often requiring investments between $5 billion and $7 billion. Access to ultra-pure water, stable power supplies, and advanced equipment is essential. Meeting these resource requirements will require ongoing government support, as well as investments in local infrastructure.
- Technology and IP Dependence: India currently relies on foreign technology licenses for semiconductor manufacturing. To reduce dependency, the government is focusing on fostering R&D capabilities and encouraging domestic IP creation. Building indigenous technology will take time but is essential for India’s long-term vision of self-reliance in this sector.
Opportunities for Innovation and Global Leadership
- 5G and IoT Growth: The adoption of 5G and IoT is expected to drive demand for specialized semiconductor components. India’s telecom and electronics manufacturing sectors are gearing up for this demand, and local semiconductor manufacturing can play a vital role in fulfilling it.
- Automotive and Electric Vehicles: The automotive industry, particularly in electric vehicles (EVs), presents another significant growth opportunity for India’s semiconductor sector. India’s push towards EVs aligns well with the need for high-power, efficient semiconductor components, positioning the country as a hub for automotive semiconductor manufacturing.
- Healthcare and AI-Driven Applications: With a growing focus on digital health and AI-driven healthcare solutions, India has the potential to be a key player in producing semiconductors for medical devices and AI applications. The development of indigenous AI capabilities, combined with semiconductor manufacturing, could position India as a global innovator in health technology.
To wrap it up
India’s semiconductor industry is set to undergo a significant transformation over the coming decade. With strong government backing, strategic international partnerships, and a focus on infrastructure and workforce development, India has laid the foundation to become a leading global semiconductor player. However, overcoming challenges such as high capital costs, technological dependency, and resource requirements will be essential to achieving this goal.
For entrepreneurs and investors, India’s semiconductor sector presents a lucrative opportunity to tap into a rapidly growing market, backed by government incentives and a clear roadmap for development. By building a strong local semiconductor ecosystem, India can secure its place in the global supply chain, reduce reliance on imports, and contribute to the growth of advanced digital technologies across sectors.
India’s journey toward semiconductor self-sufficiency is not just about economic growth but also about establishing the country as a technology powerhouse for the future.
Starting a semiconductor business in India is a complex but promising venture. The government’s incentives, coupled with the nation’s growing market and rising demand, make India an attractive destination for semiconductor manufacturing. However, entrepreneurs should be prepared for high capital requirements, resource challenges, and regulatory compliance. With the right planning and partnerships, a semiconductor business in India can contribute to the country’s self-reliance while tapping into a booming global market.