On September 27, India’s Prime Minister Narendra Modi met the Tata Sons and Taiwan-based Powerchip Semiconductor Manufacturing Corporation (PSMC) leadership team to discuss the prospects of semiconductor manufacturing projects in India. A few days before that, during his visit to the United States, Modi urged top tech companies in the U.S. to explore India as a destination for manufacturing and innovation. During Modi’s visit, India and the United States also reached an agreement to work together on setting up a semiconductor fabrication plant in India.
Earlier in August, in his Independence Day speech, Modi called for India to become a global leader in semiconductor production. At the Semicon India 2024 summit, Modi reiterated India’s aspirations to become a semiconductor hub. Clearly, India is making systematic efforts to establish itself as a leader in the semiconductor sector.
The favorable geoeconomic environment marked by de-risking due to China-U.S. trade tensions and robust domestic demand for electronic products presents India with an excellent opportunity to cooperate with foreign partners to become a key node in the global semiconductor supply chain.
Modi’s visit to Singapore from September 4 to 5 becomes significant in this context. His first trip to the Southeast Asian region in his third term, which also included a stop in Brunei, brought substantive gains. The visit saw the elevation of the India-Singapore relationship to a comprehensive strategic partnership, along with the signing of four agreements in semiconductors, digital technologies, health cooperation, and skill development. The highlight of the visit was a Memorandum of Understanding (MoU) between the two sides in the semiconductor sector, which aims to bolster cooperation between India and Singapore. It would help strengthen India’s burgeoning semiconductor industry by facilitating the entry of Singaporean semiconductor companies and related supply chains in India.
Despite being a small city-state, Singapore is one of the leading players in the global semiconductor industry. According to the Singapore government, the semiconductor industry contributes around 7-8 percent to the country’s GDP. Singapore’s semiconductor industry accounts for 11 percent of the global semiconductor market, 5 percent of global wafer fabrication capacity, and 20 percent of global semiconductor equipment production.
Moreover, Singapore’s well-established semiconductor ecosystem consists of several renowned companies – nine of the world’s top 15 semiconductor companies operate in Singapore – and as per the Singaporean government, these companies are keen to participate in the growth of India’s semiconductor industry.
The Singapore government’s business-friendly policies facilitate investments in the semiconductor industry, resulting in a thriving job market in the manufacturing sector in an otherwise service-dependent economy. Therefore, amid the China-U.S. competition, Singapore has been perceived as a safe bet for de-risking and improving supply chain resilience.
However, the increasing cost of production is forcing semiconductor companies to move up in the value chain and diversify labor-intensive operations out of Singapore. For instance, the UTAC Group, a semiconductor test and assembly services provider, has moved its manual and technologically dated operations from Singapore to Thailand. Notably, semiconductor companies in Singapore face severe land and labor limitations, and their expansion in India – with abundant land and skilled labor – can ameliorate this problem.
India’s latest attempt to become a key node in the semiconductor manufacturing ecosystem began in the post-pandemic period. Supply chain disruptions due to the COVID-19 pandemic and China-U.S. trade tensions turned the Indian government’s attention back to developing a semiconductor manufacturing ecosystem in the country after several failed attempts in the past. What was different in this attempt was that it aimed at simultaneously building all the essential stages of the semiconductor supply chain. The Indian government outlined this in December 2021, when it laid down a $10 billion comprehensive program – comprising four schemes covering different stages of the semiconductor supply chain – to develop the semiconductor manufacturing ecosystem in India.
The program intends to lure foreign companies by providing capital subsidies (from both central and provincial governments) to invest in India’s semiconductor manufacturing industry. The provincial governments have also positively received this program. The Maharashtra state government approved a $10 billion semiconductor fabrication unit by the Adani Group and an Israeli firm, Tower Semiconductor. Several foreign companies (Micron, PSMC, Kaynes, etc.) have invested in different stages of the semiconductor supply chain, either alone or as a joint venture with an Indian firm.
Furthermore, the government also established an independent division known as India Semiconductor Mission (ISM) to bolster India’s semiconductor ecosystem. In March 2024, Modi claimed that ISM is poised to see huge growth in the next five years.
In March 2024, the government made some revisions to the original program for the semiconductor industry. The modified program aims to provide a 50 percent subsidy for all node sizes, compared to a 50 percent subsidy for leading-edge nodes (28 nm or lower) and 30-40 percent for trailing-edge nodes (above 28 nm up to 65 nm) in the original program. Further, the modification paves the way for upfront capital disbursal – before production starts – compared to capital disbursal only once the production begins. Through these modifications, the Indian government has acknowledged that it wants to start its semiconductor journey from the lower end (trailing-edge nodes) and climb up (leading-edge nodes), reflecting the government’s seriousness in attracting foreign investments.
India is also partnering with other major semiconductor powers to develop the industry at home by attracting foreign investments. In March 2023, India signed an MoU with the United States on establishing a semiconductor supply chain. Similar agreements have been signed with the European Union and Japan.
India’s journey to become a semiconductor hub will likely face stern manpower challenges, among others. A recent report asserted that India is expected to face a shortage of 250,000-300,000 professionals across the various verticals of the semiconductor industry by 2027. The India Electronics and Semiconductor Association (IESA) plans to send some of its workforce to Singapore for semiconductor training. However, the ability of the government to equip foreign industries with a skilled workforce in large numbers remains to be seen.
The MoUs with Singapore, Taiwan, and the U.S. can allow India to leverage investments that it has made in the semiconductor industry along with strong domestic demand for electronic and electrical products. The government’s ability to create a business-friendly environment for semiconductor companies will determine the pace of India’s journey to become a global leader in semiconductor production.