It is difficult to talk about technology, trade or even international politics now, without the topic of semiconductors coming up at least once (or potentially multiple times). And India is making significant strides in establishing itself as a player in the global semiconductor industry. 

So, what are semiconductors? They are the foundation of modern computing. Your laptop, mobile phones, smartwatches and even refrigerators require these tiny chips. Regardless of how well you understand the mechanics of the technology, you can rest assured they are extremely important. Consequently, countries which design or produce these tiny chips also occupy an important position in shaping the technological world.

With growing recognition of the importance of semiconductors, India is now looking to shift from being a passive consumer to an active player in the global semiconductor value chain. This is evident from the recent surge in investments and initiatives aimed at fostering a domestic semiconductor ecosystem.

India's Semiconductors Journey

While the media may have been inundated with news of semiconductor plants only very recently, the Indian government's commitment to attracting foreign investment in semiconductor manufacturing isn’t new. The India Semiconductor Mission (ISM) was launched in 2021, offering substantial financial incentives, including up to 50 per cent reimbursement of project costs, to companies setting up fabrication plants in India. This is a fairly aggressive strategy that now appears to be paying off, going by the way companies are lining up to set shop. 

Tata Electronics, in partnership with Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC), will establish India's first state-of-the-art semiconductor fabrication plant in Gujarat. The other two projects — Tata Semiconductor Assembly and Test Private Limited (TSAT) in Morigaon (Assam) and CG Power in Sanand, Gujarat — are ATMP (assembly, testing, marking and packaging) plants.

The Semiconductor Value Chain

A thriving semiconductor ecosystem requires a multi-layered approach. You will typically find the following kinds of plants in most semiconductor powerhouses:

Design: Chip design is a crucial part of the semiconductor industry. Companies like Arm, known for its energy-efficient processor designs, have built successful businesses by licensing their intellectual property (IP) to other companies. India, with its large pool of skilled engineers, has the potential to become a global hub for semiconductor design.

Manufacturing: This is the most capital-intensive part of the semiconductor industry, requiring sophisticated facilities known as fabs. Fabs are expensive to build and operate, with construction costs running into billions of dollars. The choice of technology node also plays a crucial role, with advanced nodes requiring increasingly complex and expensive equipment.

Assembly, Testing, Marking and Packaging (ATMP): Once chips are manufactured, they need to be assembled, tested and packaged, before they can be used in electronic devices. This is a highly specialised process that requires significant investment and expertise.

These parts of the value chain signify different outputs that are produced by the semiconductor plants the likes of which are currently being set up in India. However, in addition to this, there are some intangible factors that are necessary to build a semiconductor industry, chief of which are talent and R&D. A skilled workforce is essential for every stage of the semiconductor value chain, from research and development, to manufacturing and beyond. Countries with a strong talent pool in STEM fields have a significant advantage in the semiconductor industry. This talent pool can then go on to positively contribute to R&D in the country. 

Companies at the forefront of semiconductor innovation invest heavily in R&D, constantly pushing the boundaries of what's possible. For example, ASML, a Dutch multinational, invested billions of dollars over nearly two decades to develop its extreme ultraviolet lithography technology, a crucial enabler of advanced chipmaking. Its long-term vision paid-off, establishing ASML as a critical player in the global semiconductor industry.

The current investments are crucial first steps in building a domestic semiconductor industry. However, to truly become a global semiconductor powerhouse, India needs a more comprehensive and strategic approach — one that goes beyond merely opening new projects all over the country.

India's Long-Term Strategy

So where does India currently stand in this ecosystem? While India has made significant progress in attracting investment in manufacturing, particularly in the assembly and testing segments, it lags in crucial areas like R&D and design. While the existing system looks at attracting investments and setting up more plants in India, it is difficult to see how these individual set-ups add up into a comprehensive national strategy. 

Every step of the semiconductor value chain requires intense investments of time, capital and talent, at a scale that makes mastering all facets of the value chain virtually impossible. This is the main reason why the current semiconductor value chain is mostly split, with some countries like the US mostly working on designing chips, while countries like Taiwan focus on fabricating the chips. 

It makes sense for India to pick one part of the value chain that it wants to specialise in, and focus its time and attention there. It is clear from the current state of affairs that India plans to develop its own technological capabilities over the next few years to occupy a major space in the global semiconductor race. However, this may be difficult to achieve without a comprehensive plan that focuses on certain parts of the value chain, instead of diluting efforts in production by creating all kinds of plants (assembly, fabrication, etc.), while also neglecting the non-production parts of it, like talent acquisition and retention, and R&D.

By taking these steps, India can build a robust, innovative and globally-competitive semiconductor industry. Although the journey from being a chip assembler to a semiconductor powerhouse is challenging, and requires sustained effort and a long-term vision, the potential rewards — both economic and strategic — make it a journey worth taking.

(The writer is an India Technology Fellow with the Pacific Forum. Views expressed are personal)