Over the past five years, the deeptech sector in India has seen impressive growth, with funding skyrocketing from USD 1.3 billion in 2019 to USD 10 billion in 2023. At the core of deeptech is the semiconductor industry, which supplies the essential components for sectors like automotive, communications, computing, energy, and healthcare, making these tiny chips indispensable in modern technology.

Given their widespread use, it’s clear that India’s deeptech ambitions heavily depend on these semiconductors. Despite this, India still relies largely on imports; in fact, the imports of semiconductor devices reached nearly USD 4.55 billion in 2022. This article explores the reasons behind this reliance, the challenges faced by the Indian semiconductor industry, and the strategic steps being taken to foster indigenous growth.

The Backbone of Deeptech: Semiconductors

Semiconductors are the backbone of modern technology, driving advancements in various high-tech industries. From automotive systems and communications infrastructure to healthcare devices and renewable energy solutions, semiconductors are critical components. They enable the functionality of complex electronic systems, making them indispensable for innovation and technological progress.

Despite the growing demand for semiconductors, India remains heavily dependent on imports. In 2022, India imported nearly USD 4.55 billion worth of semiconductor devices. This dependence poses significant risks, especially given the global supply chain disruptions caused by the COVID-19 pandemic. The chip shortage, exacerbated by labor issues, geopolitical uncertainties, and disruptions in manufacturing, highlighted the vulnerability of relying on foreign semiconductor supplies.

Challenges in the Indian Semiconductor Industry

The high costs associated with Electronic Design Automation (EDA) tools and the difficulty in retaining skilled talent are major hurdles for the Indian semiconductor industry. EDA tools are essential for designing and testing semiconductors, but their high costs can be prohibitive for many companies. Additionally, the competition for skilled talent is fierce, with many engineers being lured by opportunities abroad.

The Indian fabless ecosystem, while promising, is still in its infancy. With annual revenues under USD 50 million, product development remains challenging due to tight timelines and rapidly evolving technology. This results in lengthy development periods and a higher risk of failure, which deters venture capital investment. Product deployment also depends heavily on chip fabrication by foundries, which often reject low-volume orders or charge high prices.

Geopolitical tensions have further complicated the semiconductor industry by disrupting international chip procurement. These disruptions make it harder for Indian fabless companies to find global manufacturing partners, adding another layer of complexity to the industry’s challenges.

Strategic Priorities for Indigenous Semiconductor Growth

India, while still in its nascent stages compared to global competitors, possesses a unique advantage due to its abundant talent and skilled labor. Recently, India has directed its focus towards semiconductor manufacturing, particularly in semiconductor fabrication and the assembly, testing, marking, and packaging (ATMP) stages crucial for producing advanced semiconductor packages. A significant example is the USD 2.75 billion ATMP facility in Gujarat, where the government has contributed around two-thirds of the funds.

By building on its existing semiconductor design and electronics manufacturing capabilities, India aims to establish itself in the manufacturing-centric aspects of production. This strategic focus on both fab and fabless sectors seeks to reduce reliance on imports and foster a robust indigenous semiconductor ecosystem, enhancing technological prowess and driving innovation.

The Indian government is playing a pivotal role in boosting the semiconductor sector. Significant subsidies, covering 40–50% of the costs for setting up semiconductor fabs, underscore India’s growing prominence as a serious contender in the global industry. In February 2024, the government greenlit three semiconductor units as part of the Development of Semiconductors and Display Manufacturing Ecosystems. 

To further enhance India’s semiconductor design ecosystem, the country has introduced the Design-Linked Incentive (DLI) scheme. This scheme targets domestic companies engaged in semiconductor design and IP development, aiming to accelerate their growth. Additionally, Indian startups in this sector receive crucial support, including infrastructure assistance such as acquiring licenses for EDA tools.

Building a Robust Semiconductor Supply Chain

With the rise of IoT, 5G, AI, and automation in various industries, the demand for chips is skyrocketing. This surge in demand is a positive development for the fabless chip sector but necessitates a more effective domestic supply chain. Companies are investing in infrastructure, R&D, and better strategies in the semiconductor supply chain sector. Instead of handling shortages everywhere, chip suppliers are now closely monitoring their inventories to meet the high demand in some areas while avoiding an oversupply in others.

Investing in research and development is critical for sustaining growth in the semiconductor industry. Companies are focusing on developing advanced technologies and innovative solutions to stay competitive. Collaboration with global technology firms and research institutions is also essential for leveraging cutting-edge advancements and fostering innovation.

The Future of India’s Semiconductor Industry

The semiconductor industry is projected to reach substantial revenue by 2024, driven by increasing demand and strategic investments. India’s ambitious goal of becoming the third-largest global economy is closely linked to its success in the semiconductor sector. By cultivating a strong semiconductor manufacturing base, India aims to boost its high-tech manufacturing capabilities and drive economic growth.

India aims to cultivate at least 20 lakh skilled deeptech engineers by 2030 to sustain the momentum in the semiconductor sector. Educational institutions and industry partnerships play a crucial role in training and upskilling the workforce. Initiatives focused on STEM education and vocational training are essential for developing the talent required for the semiconductor industry.

Aligned with the Make in India initiative, India’s push towards semiconductor manufacturing underscores its commitment to self-reliance and global competitiveness. By entering the semiconductor product space, India strengthens its foothold in high-tech manufacturing and catalyzes innovation across the deeptech ecosystem. This self-reliant approach aims to mitigate the risks associated with global supply chain disruptions and ensure a steady supply of critical components.

Conclusion

India’s journey towards becoming a global leader in deeptech is intrinsically linked to the growth of its indigenous semiconductor industry. The challenges are significant, but so are the opportunities. By leveraging its abundant talent, strategic government support, and a focus on both fab and fabless sectors, India is poised to transform its semiconductor landscape.

The path forward involves addressing high costs, enhancing the fabless ecosystem, and navigating geopolitical complexities. With robust government support, strategic investments, and a commitment to innovation, India’s semiconductor industry is set to play a pivotal role in the country’s technological and economic advancement. As the demand for advanced semiconductors continues to grow, India’s efforts to build a self-reliant and globally competitive semiconductor ecosystem will be crucial in driving the next wave of deeptech innovation.