Semiconductor Industry in India Facing Headwinds

Vishal Pratap Singh

With the newly heralded era of Internet of Things (IoT) dictating that the new generation of interconnected devices be capable of smart-computing, Indian semiconductor industry is set for an exponential growth. Connected, Smart and Power Efficient are the three buzzwords the consumer of this generation is looking for in almost all technology products. Devices that offer high performance consume low power and provide connectivity through audio, video and data are flying off the shelves at a much faster pace.

While two decades ago, technologies were driven by the enterprise to build efficient organisations, over the last decade, with the opening of economies such as India, the end consumers have started driving technological trends. This has created an enormous opportunity for the semiconductor industry.

Growth Drivers
The Indian semiconductor industry has witnessed a significant growth momentum led by multiple factors such as increased consumption of electronic goods, government’s focus on e-governance infrastructure and services, and a huge demand for networking products, especially in the telecom segment.

Intelligent embedded technologies are bringing down the cost of devices, leading to enhanced consumption. Proliferation of smart devices such as smartphones, tablets, smart TVs due to high disposable income, rise in the sale of automotive and consumer goods, growing healthcare network and emerging trends in personal monitoring, marking the influx in the sale of medical equipment are other key factors driving this growth.

An encouragement has been given to broadband penetration, e-governance initiatives, digitisation of cable industry particularly in the area of healthcare and education, distribution issues of the power sector and efficient smart grid solutions to address transmission.

The government is bullish on bringing significant transformation and is supporting adoption of next generation technologies to enable this. Whereas the consumer segment is a key driver of growth for the electronic industry, the Indian government has also played a part in impacting the industry. This has created a demand for intelligent networking products to build a smart and efficient infrastructure.

The advent of new technologies such as 4G and the upcoming 5G is also augmenting this demand. These factors are acting as a force multiplier, contributing towards the semiconductor industry’s growth in India. India has now moved beyond labour cost arbitrage and truly contributes towards product innovation.

“Apart from the rise in consumption, India’s prowess also lies in the Research & Development centres that are driving innovation,” says Rajeev Khushu, IESA Chairman.

Over the last decade, India has emerged as a leading country in electronic design and apart from cost, factors such as scalability of talent, intellectual capital, evolving ecosystem are also responsible for bringing this recognition. The Indian centres are involved in end to end design and are contributing in the global value chain.

Role of Government
There are more gaps needed to be filled yet. The industry report says that high value added manufacturing will run into a declining trend. This can be taken care of with appropriate investment in ESDM (Electronic System Design and Manufacturing) and infrastructure support. One more thing is setting up of semiconductor wafer (or Fab) manufacturing. Fab is a capital intensive business that will not generate short term return, but it can add a lot of value to growth in countries’ infrastructure.

The need of the hour is that government and industry should work together to realise the new horizons and opportunities in this sector. While the policies might be one way to generate interest of the promoters, real value will only come when the government will become a lead investor and drive it. There is no doubt that India is running behind in chasing this dream, but a start has certainly been made.

Challenges in Indigenous Manufacturing of Semiconductors
There have been challenges in setting up of Semiconductor Wafer Fabrication (FAB) units in India for a long time. This is due to multiple factors, including not just the lack of infrastructure but also skilled labour in the country. It is also difficult to compete with neighbouring countries like China and Vietnam which has been favourite destinations for global chip manufacturers due to better cost efficiency.

Because of these reasons Intel stated in 2014 that it had no interest in starting manufacturing in India. “Currently, the Indian Semiconductor Industry is involved in 180 nm node technology for ISRO. To print these nodes, the Semiconductor Laboratory (SCL) in Mohali uses four different types of photoresists that are sensitive to deep ultraviolet (DUV) light. As no Indian manufacturer develops these DUV resists, SCL is fully dependent on foreign vendors,” says Subrata Ghosh, Associate Professor at the school of basic sciences at IIT Mandi.

One of the biggest hurdles in setting up fab manufacturing units is the fact that it requires massive investment. In addition to the huge cost, running in billions of dollars, manufacturing even a single chip requires hundreds of gallons of pure water, which may also be hard to find in India in the required quantities. An uninterrupted power supply is another major hurdle. The conclusion of the issue is that India is still not up to the par in terms of the basic infrastructure needed to pursue endeavours in the chip manufacturing space. There is also constant price pressure from other global players, particularly China which is also building a homegrown chip program for the adoption of local semiconductors in 70% of its products by 2025.

While large scale semiconductor manufacturers face challenges to take off, there are several startups who are involved in manufacturing chips for embedded systems like IoT and telephony on a much smaller scale are also disrupting the scene. It’s not like India does not possess the scientific capabilities to manufacture semiconductor chips.

In fact, the level of technical know-how is so high that the government even considered 2,500 crore rupees feasible study based on Gallium Nitride semiconductor fab at the Indian Institute of Science (IISc) in order to build a local semiconductor industry in the coming future. Gallium Nitride based semiconductors skip altogether the already mature silicon-based fab technology dominated by countries like the US and China.