The Emergence of Indian Semiconductor Industry: Potential to Generate 250,000 Jobs and Skills in Demand

CXOToday has engaged in an exclusive interview with Kathir Thandavarayan, Partner, Consulting, Deloitte India

• With the Indian semiconductor market set to reach US$55 billion by 2026, what are the key factors according to you that are affecting this growth? Do you think the industry would also have to deal with some hurdles/challenges in the coming years and what is it that could be to overcome them?

Response: The Indian semiconductor market is set to grow from US$27 Billion in 2022 to reach US$55 billion by 2026, displaying an excellent rate of 20% CAGR during the period. This growth is driven by three key factors – increasing semiconductor content in regular products, advent of 5G and IoT and demand for smartphones.

Modern automobiles including EVs have the capability of communicating with other vehicles while assisting the driver, which essentially requires high real-time sensing and computing capabilities. Similarly, our electronics are getting smarter. These applications are driving the increase in semiconductor content of the devices.

Further, the advent of 5G and IoT has multiplied the demand of these advanced devices and the low data prices in India (US$0.17/GB) has ensured the access in the remote corners of the country. Over the next decade, there will be a ten-fold rise in the amount of data that has to be stored globally in all modes, which will lead to a demand for more complex and cutting-edge semiconductor memory chips.

In addition, the number of smartphones in India would reach a staggering 1 billion by 2026. With enhanced technology and applications, smart phones would also drive the demand for semiconductors.

While we are observing promising growth in the semiconductors, there are crucial challenges ahead for the semiconductor industry, particularly in manufacturing. Building a semiconductor fab is highly capital-intensive requiring billions of dollars. Further, a semiconductor fab requires up to three to four years to become fully operational, thus having long gestation period to realize return on investments. The market for both chipmakers and chipmaking equipment is currently dominated by a handful of players, which can restrict new entrants, thereby facing steep competition. A semiconductor fab is faced with multiple regulatory challenges in the form of regulations on handling hazardous and toxic materials, and occupational health and product standards.

These challenges require coordinated effort from the industry and the government. With comprehensive policies to boost semiconductor manufacturing in form of PLI and DLI schemes, the industries can avail up to 50% of the project cost and thus sharing the risk of high upfront investment. Semiconductor companies not only need to innovate in the product development phase but also need to optimize their manufacturing processes to keep producing globally viable products. Collaboration with countries of matured semiconductor ecosystem can facilitate faster knowledge and technology transfer and manufacturing stabilization.

• According to the report, the future is hopeful as the Indian semiconductor industry is set to play an important role in enhancing the global value chain. Can you elaborate on this statement and share your views on how can India leverage this to strengthen its positioning in the national as well as global market?

Response: Currently, with 91% of the semiconductor used in India being sourced from overseas, the Indian electronics market is severely dependent on the semiconductor imports. This dependency on the East Asian economies like Taiwan and South Korea is observed across US and EU as well. These underlying risks in the semiconductor value chain were exposed during the semiconductor shortage crisis in the past two years and thus, all major economies are looking elsewhere to improve the resilience of the semiconductor value chain.

With India embarking on its semiconductor manufacturing journey, it is expected that about 2.5 million wafers would be produced in India as early as 2026 in the mature technology nodes. Eventually, the industry would foray into the manufacturing of advanced nodes further enhancing participation in global value chain. Apart from manufacturing, multiple companies have proposed to set up Outsourced Semiconductor Assembly and Test (OSAT) facilities in India to support the new semiconductor fabs coming up in the US and EU. India can tap    into this opportunity by becoming a preferred partner for the semiconductor fabs and position itself as a sought-after location for setting up the fabs itself.

According to government forecasts, the Indian market’s share for electronics goods will increase to around US$133 billion with exports accounting for 62% in 2027. This can enable India to become a net exporter of electronics by 2027.

The comprehensive policies of the government  are not only incentivizing the set-up of semiconductor fabs in the country but are also encouraging the traditional engineering centers in India to move into more value-added research like chip designing. With the c push in the form of Design Linked Incentive scheme, a host of startups would be encouraged to carry out research in the field of material science, system-on-chip (SoC), system modeling, electromagnetics, plasma chemistry, lithography, microelectronics, silicon processing, smart factory automation specialists, and chip designing.

The future is hopeful as the Indian semiconductor industry is set to play an important role in enhancing the global value chain from manufacturing as well as design perspectives.

• With India witnessing a talent crunch in the technology space, the report insights present a ray of hope with the expectation of how the emerging semiconductor industry would generate 250,000 direct and indirect jobs across the entire value chain in India. What according to you are some of the skills that would be in demand and how can the industry do better to aid the ecosystem with a skilled workforce?

Response: The semiconductor manufacturing process is extremely intricate and requires the finest technical competence. At present, top semiconductor companies have one of their largest international R&D centers in India, primarily employing niche talent. To bridge the wide talent gap arising out of the need for 250,000 skilled workers in the semiconductor industry, there is a strong need to promote skill development. Numerous Indian technicians, engineers, and researchers must be quickly trained and reskilled in the areas most relevant to chip designing and semiconductor manufacturing. In this regard, the industry, academia, and government should work in tandem to create a talent pipeline for the semiconductor industry.

The semiconductors have short technology life cycles and consequently the industries have to constantly innovate to stay relevant in the global scenario. With this in perspective, the engineering curriculum in the country needs to evolve with the changing industry trends. The industries need to have strong collaboration with universities with the inputs for enhancing scope of studies flowing from the industries. The universities should create opportunities for the researchers to have real time connect with the changing technology landscape through sponsored PhDs in the fields relevant to the semiconductor industry. The government can aid the ecosystem by easing the flow of talent from overseas and promoting funded research in the country. India can align with countries like US and EU which house the top semiconductor design companies to create mechanisms by which the global talent could be leveraged by the industries in India.

Finally, the industry can take certain steps to leverage the existing workforce. They can focus on creating internal mobility of talent to the important avenues of technological innovation for optimum utilization of the skills of its workforce and create an environment of growth. Reskilling and upskilling of its existing workforce right from the technicians, engineers to the PhDs can propel the manufacturing into more advanced nodes. The semiconductor companies would not only compete among themselves for top talent, but also with hyper-scalers like Amazon, Google, Meta, Microsoft in hiring the best talent.