Semiconductors

Semiconductors

Semiconductors are an essential component of electronic devices, enabling advances in communications, computing, healthcare, military systems, transportation, clean energy, and countless other applications. According to a report by Novonus, the semiconductor industry in India accounted for a CAGR of 26.72% in FY 2020.

According to the India Electronics & Semiconductor Association, the Indian Electronic System Design and Manufacturing (ESDM) market was expected to grow at US$ 400 billion by 2020 from US$ 76 billion in 2013. In the interim, the consumption of semiconductors has also shown a steady climb. The semiconductor industry was also estimated to grow at US$ 52.58 billion in 2020 from US$ 10.02 billion in 2013. The electronics sector attracted FDI worth US$ 1.70 billion between April 2000 and December 2016, according to DIPP.

India is poised to increase its share in the global manufacturing of mobile phones, IT hardware, automotive electronics, industrial electronics, medical electronics, Internet of Things and other devices shortly as it aspires to set up $400 billion of electronics manufacturing by the year 2025. The ESDM industry will also benefit from the government’s “Make in India” campaign and is projected to see investment proposals worth US$ 1.5 billion over the next two years, according to the India Electronics and Semiconductor Association (IESA), an industry body . The Indian government has allowed 100% FDI under the automatic route in the ESDM sector.

The cloud and data centre have been a strong and significant area as the world is adopting a holistic remote work and schooling environment. Other similar transformational areas have propelled the demand in the second half of the year 2020. After months of economic stagnation owing to the covid-19 pandemic, the smartphone industry has started to show recovery towards the end of 2020. The outbreak of the virus has also accelerated digital transformation. Companies are now rethinking their current business model. Many of them are involved in the healthcare sector or the online learning space. Similar companies require semiconductor technology and certain memory and storage facilities that this industry provides.  

The introduction of cloud computing, 5G for wireless capabilities and industrial internet of things along with autonomous driving (in near future) will further accelerate the semiconductor industry. The trade war between the US and China has compelled several countries across Asia to develop better resilient and transparent supply chains. Many in India have also invested to reduce redundancy across their supply chain so they can build and deliver products in multiple different areas. 

IESA Chairman Satya Gupta says, “any chip getting done in the world will have some contribution from Indian semiconductor ecosystem. More than 90% of semiconductor companies have their R&D Centres in India where cutting-edge chip development work takes place”.

 Market dynamics:

  • The mobile devices are expected to grow at a high CAGR of 33.4% between 2013 and 2020. 
  • Share of mobile devices in semiconductor revenue is expected to grow from 35.4% in 2013 to 50.7% in 2020. 
  • The telecommunication segment grew at a high CAGR of 26.8% between 2013 and 2020. 
  • Over the next seven years, IT & OA segment is estimated to grow at a CAGR of 18.2%
  • The consumer electronics segment is expected to grow at a CAGR of 18.8%. Nevertheless, its contribution to the total semiconductor revenue has reduced from 5.6% in 2013 to 3.5% in 2020.
  • Automotive electronics segment is expected to grow at a fast clip of 30.5% CAGR from 2013 to 2020. Consequently, its revenue contribution has risen from 3.2% in 2013 to 3.9% in 2020.

Semiconductor Fabs

Fabs are factories where things like integrated circuits are manufactured. Setting up of these factories require continuous power support and gallons of water along with billions of dollars of investment. With the implementation of fabrication capabilities in India, the country could achieve a degree of self-sufficiency in electronics. The Union Cabinet has reconstituted an empowered committee on setting up semiconductor wafer fabrication manufacturing facilities in the country. In efforts of showing their full support, the Indian government has declared that financial and tax incentives would be provided to registered entities who agree to set up semiconductor wafer fabrication units in India. However, the amount to be invested by the government remains undecided as of now. 

The companies have also been asked what support they would require from state governments in terms of extent, value, and nature of the land; availability and cost of provisioning water; and power tariffs. Furthermore, they are required to provide details on the kind of support they will require from the government such as Grant-in-Aid (GIA), Viability Gap Funding (VGF) in the form of equity and/or Long-Term Interest-Free Loan (LIFL), tax incentives, infrastructure support, etc.