India’s Chip-Making Industry: Overcoming Challenges on the Road to Success
India has designated a large area of land in the prime minister’s home state as the location for a semiconductor fabrication plant, estimated to cost approximately $20 billion. As part of the plan, India has entered into partnerships with manufacturing giant Foxconn and commodities powerhouse Vedanta Group.
This MoU is an important step accelerating India’s semi-conductor manufacturing ambitions. The investment of Rs 1.54 lakh crore will create a significant impact to boost economy and jobs. This will also create a huge ecosystem for ancillary industries and help our MSMEs. https://t.co/nrRbfKoetd— Narendra Modi (@narendramodi) September 13, 2022
The partnership would represent the largest corporate investment in India to date, as part of the country’s efforts to increase high-value manufacturing, an area in which it has previously lagged behind its regional rivals.
How India is planning to become an advanced semiconductor manufacturing hub, similar to China’s Shenzhen.
India has ambitions to become a leader in advanced chip making, and has identified the state of Gujarat, specifically the region of Dalera, as a potential location for this development. Gujarat has a reputation for being business-friendly and does have a significant manufacturing industry. However, Dalera itself is largely undeveloped, with Prime Minister Modi envisioning the transformation of the region, which is currently a marshland, into a futuristic advanced manufacturing hub.
The effort is being supported by a $10 billion incentive program that includes a range of subsidies and financial incentives for chip manufacturers to set up fabrication plants, also known as “fabs.” This includes a rebate of 50% of upfront capital costs, which is seen as a generous but necessary incentive given that India does not currently have a well-established semiconductor manufacturing ecosystem.
To attract major players to the industry, there must be incentives to entice them to invest in India, as there is significant competition from other countries offering similar programs. However, the main challenge is the complex and difficult nature of semiconductor manufacturing, which requires a highly trained and experienced workforce and incurs significant upfront costs. Experts say that semiconductor fabrication requires billions of dollars of investment just to get started, and it can take years to set up and potentially break even.
What advanced technology manufacturing capabilities does India currently possess?
India has not yet established a strong reputation in advanced manufacturing. While there have been recent successes in the manufacturing sector, particularly in the production of cars and the assembly of mobile phones, the country has not yet proven itself at the highest levels of high-tech manufacturing. Additionally, India has a longstanding reputation for being a difficult place to do business, which poses challenges in terms of shifting this perception.
Why does India want to pursue advanced chip making?
There are several contributing factors to India’s desire to pursue advanced chip making. One of the main motivations is the country’s desire to reduce its reliance on Chinese imports, particularly electronic imports, in light of the recent pandemic and deteriorating relations with China. Additionally, the pandemic has disrupted global supply chains and made transportation more expensive, making it more attractive for India to produce as much as possible within its own borders in order to hedge against these risks.
While it may be several years away, there is a firm commitment to move forward with plans to invest in and establish advanced chip manufacturing in India. Foxconn and Vedanta, two major companies, have been involved in the process of selecting a location and are expected to begin construction early next year. However, it may take until 2025 for the first chips to roll off the production line and several more years before the operation is fully up and running.
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