India to Emerge as a Global Semiconductor Hub?

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  • 22 Mar 2024
India to Emerge as a Global Semiconductor Hub?

Kotak Insights | Date 22/03/2024

Rs 1.25 lakh crore.

That’s the monumental investment the Cabinet approved last week for three semiconductor plants in India.

This comes as the Prime Minister of India addressed ‘India’s Techade: Chips for Viksit Bharat’ program on 13th March, 2024, and laid the foundation stone for these pivotal projects.

The facilities launched under this program are –

  • Semiconductor Fabrication Facility in Gujarat
  • Outsourced Semiconductor Assembly and Test (OSAT) facility in Gujarat
  • OSAT facility in Assam

Let us understand more about this development, India’s vision of becoming a semiconductor hub, and how it could impact the economy.

India’s Vision of a Global Semiconductor Hub

You see, it has been the Prime Minister’s vision to position India as a global hub for semiconductor design, manufacturing and technology development.

Talking of the recent past, the launch of the India Semiconductor Mission (ISM) in 2022 is a strategic move to build a robust semiconductor ecosystem, essential for powering all electronic devices in India.

But firstly, it’s essential to grasp the fundamental importance of semiconductors, commonly referred to as chips, in today’s world. These components are the lifeblood of most electronic devices, from smartphones and laptops to automobiles.

The Covid-19 pandemic highlighted the fragility of the global semiconductor supply chain, heavily dependent on a few countries, leading to a worldwide reassessment of semiconductor strategies.

Against this backdrop, the ISM was launched on December 15, 2022 with the aim of establishing a robust semiconductor ecosystem within the country.

This initiative, housed under the Digital India Corporation, is tasked with catalysing semiconductor manufacturing, packaging, and design capabilities in India.

The initiative also gained financial support in December 2022, with the announcement of a Rs.76,000-crore incentive package to encourage the establishment of semiconductor and display fabrication plants. This financial boost aimed to attract significant industry players and stimulate investment in India's semiconductor infrastructure.

Since then, there have been many developments in the semiconductor space. And the recent approval of the above three facilities, with a huge investment and manufacturing capabilities, signifies a big stride forward for India.

A Look at the Three Facilities

The Dholera Special Investment Region (DSIR) in Gujarat will host a semiconductor fabrication facility established by Tata Electronics Private Limited (TEPL) under a Modified Scheme for Semiconductor Fabrication in India. With a staggering investment of over Rs.91,000 crore, it marks the country's first commercial semiconductor fabrication facility.

In Morigaon, Assam, another OSAT facility will be set up by TEPL under a Modified Scheme for Semiconductor Assembly, Testing, Marking, and Packaging (ATMP), with an investment of approximately Rs.27,000 crore.

Similarly, the OSAT facility in Sanand, Gujarat, will be established by CG Power and Industrial Solutions Limited under the same scheme for ATMP, with an investment of about Rs.7,500 crore.

These facilities are expected not only to strengthen India's semiconductor ecosystem but also to generate employment and stimulate growth in related sectors such as electronics, telecom, and much more.

The Broader Implications for India

According to a report by Deloitte, the semiconductor industry in India is expected to play an important role in enhancing the global value chain, expanding to a market size of US$ 85 billion and generating employability for 600,000 people by 2030.

Note that only a handful of nations manufacture semiconductors today. So, there’s a need for a reliable supply chain after the disruptions caused by the coronavirus pandemic.

India's entry into semiconductor manufacturing positions it among a select group of nations capable of producing these critical components.

The strategic move to establish three big projects, amplified by the Prime Minister's vision of 'Made in India' and 'Designed in India' chips, aims to propel the country towards self-reliance and modernization.

The initiative is further supported by Production Linked Incentive (PLI) schemes and the creation of electronic clusters, fostering the growth of the electronic ecosystem.

These developments are expected to establish India as a semiconductor hub.

Conclusion: A New Chapter in Chip Manufacturing

While India had capabilities in chip design, it would be opening a new chapter of chip fabrication now.

Chips find applications in critical industries like defence, aerospace, drones, communication networks, and much more.

With the government's proactive involvement in the semiconductor industry, India aims to reduce its dependence on imports.

Moreover, the above strategic move not only positions India as a key player in the global semiconductor supply chain but also opens up opportunities in associated industries.

In all, by fostering a robust semiconductor ecosystem, India is set to enhance its standing in the global tech landscape, driving job creation, technology diffusion, and economic growth.

We will be back with another exciting story next week!

Until then…

Stay Tuned!

Sources and References:

Disclaimer: The content of this blog is intended solely for educational purposes and should not be regarded as financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The securities and assets mentioned serve purely as illustrations only and should not be taken as recommendations for investment. Please note that the information presented is compiled from several secondary sources available on the internet and may change over time. We strongly advise consulting with a qualified financial advisor prior to making any investment decisions. Read the full disclaimer here.

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