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Semiconductor manufacturing is at the forefront of Industry 4.0 and Industry 5.0, blending advanced automation with human-centric innovation. As Industry 4.0 leverages smart factories, AI, and IoT to optimize production efficiency, semiconductor manufacturing mirrors this with highly automated processes and precision-driven technologies.

In parallel, Industry 5.0 emphasises the collaboration between humans and machines to enhance customization and innovation—a critical aspect of the semiconductor industry, where cutting-edge design and rapid technological advancements shape the future of key industries.

India is on the lookout for self-reliance with a sustainable growth strategy – through strong financial backing and incentives from the government, extensive talent pool development, and collaborative research models. With China holding a significant share in the global semiconductor space, there is a plan to outlay 18 new fabs in 2024, highlighting a major expansion effort. On the contrary, India focuses on innovation, supply chain resilience, and global collaboration.

China’s dominance and challenges in semiconductor manufacturing

The Chinese semiconductor industry has expanded over the last twenty years, thanks to generous state investments, a comprehensive infrastructure, and a strategically well-balanced industrial policy. SMIC (Semiconductor Manufacturing International Corporation) and Huawei Technologies are showing considerable success in chip design, manufacturing, and assembly.

However, China faces several challenges that have exposed vulnerabilities in its semiconductor strategy.

Heavy dependence on foreign technology

Despite being one of the prominent global manufacturing hubs, China is dependent heavily on the U.S., South Korea, and Taiwan, as it lacks advanced semiconductor manufacturing equipment and intellectual property. This dependency was further highlighted by the recent restrictive export controls imposed by the U.S. government on specific advanced technologies and systems, particularly those related to high-performance chips and AI-based processes.

Geopolitical instability

Trade tensions coupled with geopolitical competition have also caused disruptions in the supply chain. For example, U.S. sanctions on SMIC and Huawei have restricted China from gaining advanced semiconductor technology and pushed it to rethink its total self-reliance model.

Rising labour and manufacturing costs

Given that the wages and operating costs are rising in China’s eastern provinces, firms are starting to consider relocating semiconductor component production to lower-cost areas. This has allowed new regions to be incorporated into the global supply chain, like Southeast Asia, Mexico, and probably India.

India’s semiconductor potential: A tailored approach

India’s semiconductor strategy, though still at its infancy stage, is distinctively placed to gain from the experiences of movement both from the U.S. and China. As the government has begun efforts to boost the manufacturing sector, and with programs such as ‘Make in India’ and the ‘Production Linked Incentive (PLI) Scheme’ already underway, there is now a focus on semiconductors being an area where India hopes to dominate in the near future.

India’s strategy revolves around three key pillars:

Strategic investments in infrastructure and talent

There is a pressing need for India to develop its semiconductor ecosystem, but such an arrangement requires robust infrastructure. The Indian government has committed capital to this end and has allocated $10 billion for the development of semiconductors and display manufacturing facilities as part of the SemiconIndia initiative. 

India also has an added advantage in terms of a qualified workforce in semiconductor design and software engineering. Companies such as Qualcomm, Texas Instruments, and Intel now have significant R&D activities in India employing numerous engineers.

Supply chain resilience and diversification

The global semiconductor shortage brought about by the COVID-19 pandemic, highlighting the story of the global supply chain shortcomings. India has a more diversified and collaborative approach towards supply chain management.

In stark contrast to China which is aiming a self-seeking approach towards vertical integration, India actively pursues embedding itself within the global supply chain through collaboration with nations like Japan, the U.S., and Taiwan. These partnerships will enable India to procure the most advanced technologies and ensure a regular supply of raw materials, including the rare earth elements essential for chip manufacturing.

Due to India’s political neutrality and the ability to generate strong diplomatic relationships, it is successfully attracting investments from multinational corporations and reducing its dependence on China-centric supplies.

Leveraging domestic demand and global partnerships

India’s growing digital economy, spearheaded by 5G telecommunications, electric vehicles (EVs), and smart cities, among others, will create enormous requirements for semiconductors in the next few years. The government’s initiatives to boost local production of electronics, such as the National Policy on Electronics, will also contribute to the increasingly hot market for semiconductors in India.

In addition, the Government of India has stressed the need to build global partnerships. India is remaining competitive by partnering with Japan in areas like chip design and materials; and with Taiwan in semiconductor manufacturing capabilities.

Comparative analysis: India vs. China

India’s semiconductor growth strategy differs fundamentally from China’s in its focus on innovation, collaboration, and sustainability.

Investment in R&D: When structures such as manufacturing and infrastructure in China’s models have been state-backed, India is pumping huge resources and finances into the semiconductor industry’s R&D. The robust culture of startups and software engineering can allow the country to prepare itself as one of the leading designers and manufacturers of next-generation semiconductors particularly for AI, Internet of Things (IoT), and autonomous systems.

Global supply chain integration: A diversification strategy, coming to the forefront, for escalating labor costs in China, Covid-19 disruptions, and multi-state trade tensions – urged MNCs to seek alternative manufacturing and sourcing options in other Asian countries, ‘China “plus one”’. Geopolitically, this allows India to leverage its position to attract businesses, mitigating their risk of operations, which ultimately reduces the chances of supply risks for India.

Sustainability focus: India’s semiconductor strategy is also in line with its sustainability approach. The country is looking towards the introduction of renewable resources in the sector of semiconductors which will help reduce the carbon footprint that this industry has. Policies like Green Manufacturing will enable India to be remade into a global center for green economizing.

Challenges ahead for India

While India’s semiconductor strategy shows immense promise, several challenges remain:

High capital costs: It is indisputable that establishing semiconductor plants (fabs) needs billions of dollars in investment. However, the capital-intensive nature of the industry may deter private players unless there is solid government backing. In fact, the average cost of building a fab ranges somewhere around $10 billion with an additional $5 billion needed for machinery and equipment.

Technological know-how: There is an abundance of intricacy and knowledge transmission involved in semiconductor manufacturing which requires years of expertise and know-how. India will have to accelerate its efforts in establishing technology capabilities and forming alliances with global leaders like TSMC from Taiwan to reduce the knowledge gap.

Infrastructure and policy hurdles: The state governments of Gujarat, Odisha, and Uttar Pradesh have sanctioned policies for the effective implementation of the Semiconductor India Program. Policies in the form of subsidy on land acquisition, reimbursement of stamp duty, access to good quality water at subsidized rates, facilitation in land acquisition, and much more are being brought in place. Deepening of regulatory processes while maintaining policy consistency would be of great importance in attracting foreign investments.

Summing up

India’s semiconductor journey is at an interesting juncture. Given a framework that promotes collaboration, a plan for innovation, and the building of resilient supply chains – India could become an important player in the global semiconductor industry.

Cumulatively, while China leads the pack, India’s more intelligent, greener approach is to not only secure its own semiconductor requirements but also assist in the overall global semiconductor supply chain.

(Rahul Garg is the CEO and Founder of Moglix.)