Will US Semiconductor Investment Transform India's Digital Economy?

On his first official state visit to the United States, Prime Minister Narendra Modi extended an invitation to Micron Technology, a prominent American chip maker, to encourage semiconductor manufacturing in India. An invitation was also extended to Applied Materials to contribute to the development of process technology and advanced packaging capabilities in the country. 

During his meeting with Gary E Dickerson, President and CEO of Applied Materials, the Prime Minister also discussed the potential for collaboration between the company and academic institutions in India, thereby, creating a skilled workforce that can uplift the industry.

Why semiconductor manufacturing?

It would not be wrong to say that semiconductors are an indispensable part of our lives today. This is because semiconductor chips are an integral and non-negotiable part of various entities, ranging from automobiles to electronic goods that we use in our daily lives.

India is no stranger to the issues caused due to semiconductor shortages. During the COVID-19 pandemic, where factories were shut down and demand for electronic goods increased, there was a severe dearth of semiconductor chips, placing pressure on the markets of several countries across the world. Stockpiling by Chinese companies in light of the US preventing companies using American technology from selling to China, also added to the pressure. A host of natural calamities that hit a bunch of manufacturing spots ranging from Texas to Taiwan only added to the supply crunch. 

The classic case of demand overriding supply which was magnified during the pandemic, caused several countries including India to look into gaps in their manufacturing sector. To lessen the country's dependence on China, the government has cleared a 10-billion-dollar package to boost the semiconductor industry.

India and semiconductors

According to a report by Journals of India, Taiwan and South Korea houses "nearly all leading edge (sub 10nm) semiconductor manufacturing capacity". Of this, 92 per cent are located in Taiwan alone. While 75 per cent of the semiconductor manufacturing capacity is concentrated in East Asia and China. The same report also cites government data to show that India imports 94 per cent of its electronics and 100 per cent of its semiconductors.

With the present government's continued efforts to broaden the footprint of Digital India, the need for a self-sufficient semiconductor manufacturing industry within the country has gained more prominence. 

“We are very very much looking forward to working together with the prime minister and every one of India to achieve tremendous success together,” Mr Dickerson of Applied Materials said, adding that it is time for India to drive incredible growth.

Micron Technology, which is a global leader in memory and storage, has also expressed to manufacture in India. "We are excited about the opportunities that exist for the future of memory and storage and again, congratulations to Prime Minister Modi for his excellent visit,'' said Sanjay Mehrotra, President-CEO, Micron, according to news agency ANI.

Micron's investment in India comes at a time when Indian demand is projected to explode. The Indian semiconductor market was valued at USD 27.2 billion in 2021 and is expected to grow at a healthy CAGR of nearly 19 per cent to reach USD 64 billion in 2026. But none of these chips are manufactured in India so far.

In addition to Micron, Vedanta and Foxconn have also signed an MoU with the Gujarat government to invest 1.5 lakh crores to set up a semiconductor and display manufacturing plant in India.