Semiconductors are the lifeforce of the ongoing tech revolution. As it happens, India has emerged as a major chip designer in the world, with more than 90% of semiconductor companies having their R&D centres in India. According to the India Electronics and Semiconductor Association (IESA), semiconductor consumption in India was around $21 billion in 2019, growing at the rate of 15.1%. The semiconductor R&D alone generates almost $2.5 billion in revenue, including electronic products and embedded systems.
Having said that, compared to other developed countries, India still lags in semiconductor manufacturing. The requirements for electronics and semiconductors for different sectors, including defence, IT, manufacturing, are critical for the future of India’s economy. But as of now, we are entirely dependent on imports.
This week, Analytics India Magazine got in touch with Sanjay Gupta, the Vice President and India country manager of NXP, a semiconductor manufacturer, to understand what it takes to run a semiconductor fabrication plant in India and how the new developments of the industry will boost innovation in the country. Sanjay is spearheading four diverse R&D locations in India, comprising nearly 2,000 employees and representing all NXP product groups.
AIM: What are the critical challenges for setting up a semiconductor fabrication plant in India?
Sanjay Gupta: Although India has done well in terms of chip design and manufacturing of electronics, the establishment of Semiconductor Wafer Fabrication (FAB) units in India has long been challenging. This is due to several factors, not just the country’s shortage of resources. It is also difficult to compete with neighbouring countries such as China and Vietnam, which, due to better cost-efficiency, have become the favoured destinations for global chip manufacturers.
The fact that it needs huge investment is one of the main obstacles in setting up FAB production units. In addition to the enormous cost of running in billions of dollars, it takes hundreds of gallons of pure water to produce even a single chip, which may also be challenging to find in India. Semiconductor FABs have investments starting at about $8 billion. They have very high operating costs, and technology usually needs to be replaced every 3-4 years.
Another big challenge is an undisturbed electricity supply. India is still not on par with big players like China which is also building an indigenous chip programme to adopt local semiconductors in 70% of its products by 2025.
AIM: How the government’s initiative to set up semiconductor FAB facilities in India will boost innovation?
Sanjay Gupta: For the past many years, India has been performing well in design and corroboration for the semiconductor industry, with most global companies having R&D centres in India. The Government of India’s proposal to come up with semiconductor FAB facilities will further boost India’s overall manufacturing ecosystem for telecom and networking gear, components, and tech products.
India, with its diverse market ecosystem, has enormous opportunities for businesses across sectors. This, coupled with a reforms-driven government, cost efficiencies, technical competencies, and the biggest pool of R&D engineers in India, both in software and chip design compared to other countries, will give impetus to innovation and R&D in India. This will also work as a platform for more and more companies to invest in manufacturing as well as research facilities.
AIM: What is the significance of the government’s initiative to increase the production of mobile phones, IT hardware, automotive and industrial electronics, medical electronics and IoT?
Sanjay Gupta: The government’s move to foster the production of electronics and related components at a time when the consumption of electronics is increasing rapidly in the country is a significant move. In the wake of the COVID pandemic, working and learning from home has become a reality. This has resulted in a surge in demand and usage of electronic devices, including mobile phones, computers, laptops etc., amongst corporates and institutions across industries, including education and healthcare.
It is clear that the government is keen to incentivise and attract investment in setting up electronics manufacturing and semiconductor fabrication units in India. In this direction, the government has approved a Scheme for the Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and a Production Linked Incentive (PLI) scheme for 13 critical sectors like telecom, automobiles and pharmaceuticals etc. These policies are being mapped out to promote an efficient, equitable and resilient manufacturing sector in our country. This will further give stimulus to PM Modi’s ‘Make in India’ initiative and Atmanirbhar Bharat Abhiyan.
The government’s plan to encourage electronics manufacturing would reduce the import bills and increase the exports, therefore positively impacting the balance of trade. This would also significantly contribute to GDP growth and help in creating a more stable economy. Interestingly, the electronics industry has vast potential to generate large scale employment opportunities for the country’s youth. Additionally, the production and exports of electronic goods at a large scale will exhibit the power of Indian industry to foreign competition.
AIM: Do you think this move will position India as a global hub for electronics system design and manufacturing?
Sanjay Gupta: So far, India has seen a monumental rise in electronic manufacturing and is progressing from Semi Knocked Down (SKD) to Completely Knocked Down (CKD) stage of manufacturing. Interestingly, for the past many years, semiconductors have played a pivotal role in the advancement of electronics and continue to play an even greater role with the introduction of new technologies and applications, including IoT, artificial intelligence, 5G, smart cars, smart factories, data centres, robotics, etc.
The government is working to bring investments in India to help make India a global hub for Electronics System Design and Manufacturing (ESDM) and curate a favourable environment for the industry to compete globally. To make this a reality, the government has come up with National Policy on Electronics 2019 (NPE 2019) to facilitate forming Semiconductor FAB facilities and its ecosystem for the design and fabrication of chips and chip components in India. The government has also pioneered the production-linked incentive (PLI) scheme to galvanise domestic manufacturing and cut down import bills by focusing on sectors like mobile phones, allied equipment, and medical devices. The total outlay on the PLI scheme over the next five years would be INR 1.97 lakh crore and is expected to fuel the overall manufacturing ecosystem in India for telecom and networking gear, components, and tech products. It will work as a catalyst to help companies across the globe move their manufacturing and large parts of their supply chain to India.
Indian Electronics market has been growing at a good pace and is expected to grow in the same manner. To further accelerate the ESDM sector and its growth trajectory, the government has made electronics production an important pillar of initiatives such as Make in India, Digital India and Start-up India.