India’s Emerging Market: Semi-Conductor Sector

The semi-conductor industry has faced acute shortages since 2020, on account of Covid-19, the global supply chain of semi-conductors was largely affected and many countries including India recognized the importance of global supply chains and the chalking out of concrete action to diversify supply chain partners especially in the case of semiconductors.

The importance of semiconductors is known world-wide as they form an essential element in electronic devices in several sectors including healthcare and medical devices, communication, computing, defense, transportation, clean energy, and key emerging technologies like artificial intelligence and quantum computing.

Currently valued at around USD 2 trillion (Rs. 150 lakh crore), the global electronics market is expected to grow significantly given the increasing demand of upcoming technologies including 5G, IoT, Artificial Intelligence, Robotics, Smart Mobility, Smart Manufacturing, etc.

India’s Role

Up until recently, India had a very small part to pay in the sector of semiconductors. The country had only 3 such facilities promoting semiconductors and very little advances were made primarily due to the fact that conductors were mainly imported.

As Covid-19 hit India, the demand for semi-conductors significantly rose as massive digitization took place, but with very few companies present, the supply could not satisfy demand. Due to this disruption in supply chains, an imbalance was formed, with trusted sources of semiconductors holding strategic importance, key to the security of critical information infrastructures.

The Change

In December 2021, India took a big leap forward when the Indian government cleared a Program for the Development of Semiconductors and Display Manufacturing Ecosystem in India. The government also unveiled a $10 billion (amounting to approximately Rs. 76,000 crore) production-linked incentive scheme to attract semiconductor and display manufacturers. The government funding is intended to be provided over a span of six years and that over 20 units across different parts of India shall be set up within the next two years.

The scheme is expected to bring in investment to the tune of 1,70,000 crore to the country and shall be used in making products ranging from automobiles to electronic gadgets. India’s push in electric vehicles is collated to the semiconductor industry as nearly 80 percent of the functionality of electric vehicles comes from software, including battery optimisation, heat management, performance etc.

In total, the government has committed to support Rs 2,30,000 crore in order to position India as a global hub for electronics manufacturing with semiconductors as the foundational building block.

The government also intends to provide additional support of infrastructure through the EMC2.0 scheme, which gives additional support for R&D, skill development and training along with incentives offered by the State Government.

Soon after the announcement of the program on semi-conductors, the Ministry of Electronics & Information Technology on December 21st 2020, notified four specific schemes to reduce India’s dependency on imports and build an ecosystem for the production of semiconductors. On December 30th, the ministry released the guidelines for these schemes.

The most important feature of the program is to support all the major stages of semiconductor productions, design; specialised fabs for compound semiconductors, silicon photonics and sensors; Assembly, Testing, Marking and Packaging (ATMP) units; display fabs; and semiconductor fabs.

Starting from January 1st, 2020 for an initial period of 45 days which has since been extended from time to time, the government has started to invite applications from companies interested in benefitting from the schemes, receiving proposals worth $20.5 billion from five companies for setting up semiconductor and display fabrication units. Vedanta, followed by a joint venture of Vedanta and Foxconn and a consortium led by Abu Dhabi-based Next Orbit Ventures and IGSS Ventures of Singapore are the three companies that submitted applications for semiconductor plants. Talks with international companies such as the U.S. chip-maker Intel which has also expressed interest in setting up a semiconductor manufacturing plant in India, have also begun.

In lieu of the above, the government has set up an independent institution to lead the semiconductors scheme in India called as the India Semiconductor Mission (ISM) that is in the process of coordinating with companies that have also reached out to provide access to the scheme.

Conclusion

Presently, India is increasing its presence in the semiconductor manufacturing sector. However, along with the incentives provided by the government it is essential to surpass some basic hurdles. Along with growth, India has also considered the environmental impact as it fosters a semiconductor ecosystem. The semiconductor market of India is estimated to reach $63 billion by 2026 compared to $15 billion in 2020.

We at D’Andrea & Partners Legal Counsel constantly monitor the latest developments in the Indian market. If you want to inquire more information related to this issue, feel free to get in contact with us:info@dandreapartners.com.