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India to become Global Semi-Conductor Hub

By News Canvass | Mar 04, 2024

  • India has made significant strides in the semiconductor sector in the last two years during which the government received investment proposals of Rs 2.50 trillion from global chip makers.
  • This news has captured attention of many. In the interim 2024 Union Budget, India increased the allocation for the scheme to support semiconductor and display manufacturing by 130 percent to INR 690.3 million
  • As per the finance documents produced by the central government, the revised estimateof expenditure for the ‘Modified Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India’ in FY24 is INR 150.3 million But what are semi-conductors and Why India needs it?? Let us understand the concept in detail.

What are Semi-Conductors?

  • A semiconductor is a substance that has specific electrical properties that enable it to serve as a foundation for computers and other electronic devices. It is typically a solid chemical element or compound that conducts electricity under certain conditions but not others. This makes it an ideal medium to control electrical current and everyday electrical appliances. 
  • A substance that can conduct electricity is called the conductor and a substance that cannot conduct electricity is known as the insulator. Semiconductors have properties that sit between the conductor and insulator. A diode, integrated circuit (IC) and transistor are all made from semiconductors. 

Why Semi-conductor is important??

  • The semiconductor industry is important for a variety of reasons. Firstly, it is a significant contributor to the global economy. The industry is worth billions of dollars, and its products are used in virtually every aspect of our daily lives.
  • Secondly, the semiconductor industry is critical for technological advancement. As technology continues to advance, the demand for semiconductors is only set to increase. Finally, the semiconductor industry is essential for national security. Semiconductors are used in military equipment and other critical infrastructure, making their availability crucial for national security.

Technological advancement

  • Semiconductors are critical for technological advancement. The industry has been instrumental in the development of modern electronics, and its products are used in everything from smartphones to computers to medical equipment. As technology continues to advance, the demand for semiconductors is only set to increase.
  • One of the most significant advancements in recent years has been the development of the Internet of Things (IoT). The IoT is a network of interconnected devices that communicate with each other and the internet. The IoT has the potential to revolutionize a variety of industries, from healthcare to manufacturing to transportation. However, the IoT is only possible because of the semiconductor industry. Semiconductors are used to create the sensors, microcontrollers, and other electronic components that make the IoT possible.
  • Another significant technological advancement that is set to drive demand for semiconductors is artificial intelligence (AI). AI is already being used in a variety of industries, from healthcare to finance to transportation. AI requires significant processing power, which is only possible because of the semiconductor industry. As AI continues to advance, the demand for semiconductors will only increase.

National security

  • Semiconductors are essential for national security. They are used in military equipment, such as radar systems, and other critical infrastructure. The availability of semiconductors is crucial for national security, as a shortage could lead to a significant disruption in military operations.
  • The importance of semiconductors for national security has become increasingly apparent in recent years. The United States and other countries have become increasingly concerned about the reliance on foreign semiconductor manufacturers. The US government has taken steps to encourage domestic semiconductor manufacturing, and other countries are likely to follow suit.

Economic impact

  • The semiconductor industry has also had a significant impact on the global economy. The industry has created millions of jobs around the world and has generated billions of dollars in revenue. In addition, the industry has enabled the development of new industries and has driven economic growth in many regions.
  • The semiconductor industry is a major contributor to global trade, with semiconductor products accounting for a significant portion of exports from many countries. In the United States, for example, semiconductor products account for approximately 16% of all exports, making it one of the largest export industries in the country.
  • The industry has also been a major driver of innovation and entrepreneurship. Many of the world’s leading technology companies, such as Intel, Samsung, and Qualcomm, have their roots in the semiconductor industry. These companies have not only created jobs and generated revenue, but they have also developed groundbreaking technologies that have transformed entire industries.

 Market for Semi-Conductors

  • More than 75% of the global semiconductor fab capacity is in Asia (the front-end), but the region’s market share is even higher (90%) in chip assembly and testing (the back-end). Except for large IDMs, most chip players have been outsourcing AT processes to third-party vendors, or OSATs. The majority of the big OSATs are based in China and Taiwan, commanding roughly 80% of the OSAT market share in 2022. Although the United States is aiming to bolster domestic AT capacity, almost all actual AT work is done in Asia.
  • The lines between traditional front-end and back-end are increasingly blurring, with each attempting to capture more of the value chain. Advanced packaging is also increasingly becoming a strategic enabler to build the most sophisticated leading-edge chips. Going forward, as the United States and Europe look to expand domestic chip fabrication capacity, they should look to build up their back-end capacity to avoid lengthening and making their supply chains more complex.
  • To help stay on the leading edge of product performance and flexibility, IDMs in the United States and South Korea are increasing efforts to bolster their packaging capabilities, which are usually provided and enabled by their respective assembly operations and facilities. Concurrently, leading fabless companies are pushing for nearshore AT. Further, complex gen AI chips are fueling demand for advanced packaging, exposing an acute capacity shortage for this technology.
  • In 2024, the back-end AT market could experience significant transformation, as prominent IDMs and foundries move even further into advanced packaging, while traditional OSATs also continue to enhance their packaging capabilities. Simultaneously, US- and EU based semiconductor companies are expanding their front-end wafer fab facilities on their home turfs.
  • Alongside this expansion, steps are being taken to shift their back-end AT services to new countries. For instance, new AT capacity is being built in Vietnam, Malaysia, India, and Poland, reflecting how IDMs and OSATs are diversifying and de-risking their supply chain; this trend is in line with Deloitte’s perspective in the 2023 global semiconductor industry outlook.
  • But the emerging AT facilities face distinct challenges. New advanced packaging technologies and test solutions should be delivered with high-quality performance within stringent time-to-market constraints. Also, such technologies often require distinct skills and experiences. For example, packaging and testing engineers need to have specializations in electrical and electronics engineering, material sciences, capacity planning, and yield processes.
  • Additionally, back-end players are challenged to provide a range of novel but intricate advanced packaging options; for example: 2.5D/3D, fan-outs, chiplets, SiP, and hybrid bonding. In 2024, IDM AT units and pure-play OSATs could look to shortlist from those several options, and gain mastery of specific packaging technologies.
  • They should be agile and constantly innovate to help allow branded semiconductor companies to launch superior products more rapidly and at competitive performances and prices. One other aspect that AT facilities should consider is the energy, materials, and other resources used in assembly, test, shipping, and distribution operations—which are often equally important parts of the semiconductor sustainability equation.
  • To stay competitive in the dynamic AT landscape throughout 2024 and beyond, OSATs and captive AT facilities should strengthen their core enterprise IT systems. Additionally, integrating AI and ML into their operations can help develop advanced packaging technologies and features, improve demand planning, manage inventory effectively, and streamline information flow across the extended supply chain. Testing is also expected to gain prominence, as complex chip and module designs could require captive AT and OSATs to advance capabilities like system-level test, adaptive or dynamic test, and AI/ML-based bin prediction.

How India is becoming a key player

  • India has witnessed a remarkable surge in electronics consumption in recent years. The Indian semiconductor industry is projected to achieve a market value of $55 Bn by 2026, driven primarily by the demand for semiconductors in smartphones and wearables, automotive parts, and computers and data storage, which together make up over 60% of the market. 
  • However, India’s dependency on imports for these crucial components has exposed its vulnerability to global supply chain disruptions, exemplified during the COVID-19 pandemic. India’s heavy reliance on semiconductor imports, constituting 95%of its supply from countries like China, Taiwan, South Korea, and Singapore, exposed vulnerabilities during disruptions like the pandemic. 
  • The microchip shortage resulted from a surge in demand, driven by the digital shift caused by COVID-19, affecting consumer electronics and remote work requirements. Concurrently, production disruptions in key manufacturing nations due to lockdowns and labour shortages, especially in Taiwan, a major producer responsible for over 60%of global foundry revenue, severely impacted semiconductor availability. 
  • Additionally, as other industries dependent on microchips slowed production due to the pandemic, it exacerbated the gap between demand and supply. The imbalance led to a scramble among semiconductor producers and suppliers, triggering hoarding and worsening the supply crisis, ultimately impacting electronic production in India. 
  • The effect of semiconductor shortage was highlighted in the year 2022, witnessing a loss of about 170,000 units by Maruti Suzuki India. This crisis underscored the urgent need for India to establish domestic semiconductor production capabilities.
  • Recognizing the need to reduce its dependence on imported semiconductors, the Ministry of Electronics and Information Technology (MeitY) has unveiled a $10 Bn commitment towards the India Semiconductor Mission (ISM). 
  • This move underscores the government’s ambition to establish a presence in the semiconductor sector. The investment encompasses funding, manufacturing incentives, and the Design Linked Incentive (DLI) program, designed to support emerging Fabless startups in creating products for both domestic and international markets.
  • For instance, Micron Technology has revealed plans to invest upwards of $800 Mnin the establishment of a fresh semiconductor assembly and testing facility in Gujarat, India. This move is poised to bring about a substantial transformation in India’s semiconductor sector, simultaneously leading to the generation of numerous high-tech and construction employment opportunities.

Persisting Challenges

  • Setting up semiconductor fabs is a daunting task, primarily due to their capital-intensive nature, as the costs involved are substantial, which may dissuade potential investors. However, it’s essential to recognize that these investments are not solely for the present; they serve as the seeds for a high-tech future. 
  • The significant funds channelled into these fabs today will ultimately yield cutting-edge technology and contribute to the emergence of a technologically empowered nation in the years to come. Moreover, semiconductor fabs demand critical resources such as clean water, uninterrupted power, and specialized human expertise. 
  • These prerequisites are not mere immediate necessities but rather the foundational building blocks of a technologically advanced future. The infrastructure investments made today will continue to underpin India’s semiconductor industry for an extended period, ensuring its growth and sustainability.

 Future of Semiconductor and India

  • The semiconductor industry is poised to continue its growth and innovation in the coming years. Advances in artificial intelligence (AI), the internet of things (IoT), and 5G technology are expected to drive demand for semiconductors and enable the development of new applications and industries.
  • AI, in particular, is expected to have a significant impact on the semiconductor industry. AI algorithms rely on large amounts of data and require significant computing power, which can only be achieved through the use of advanced semiconductors. As AI becomes more ubiquitous, the demand for semiconductors is expected to grow significantly.
  • As the industry continues to grow and evolve, it is driving advancements in fields such as artificial intelligence, the Internet of Things (IoT), and renewable energy. The semiconductor industry is also a major contributor to the global economy, generating billions of dollars in revenue and creating millions of jobs worldwide.
  • These technologies rely heavily on semiconductors to process and transmit data, and advances in semiconductor technology are key to unlocking their full potential. For example, the development of more powerful and efficient semiconductors is enabling the creation of more advanced AI algorithms and the deployment of IoT devices on a scale previously unimaginable.
  • Perhaps most importantly, the semiconductor industry is playing a critical role in the transition to a more sustainable future. Advances in semiconductor technology are driving the development of renewable energy technologies such as solar power, wind power, and energy storage systems. Semiconductors are essential to the functioning of these technologies, and as they become more efficient and cost-effective, they are helping to drive the transition to a low-carbon economy.


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