The Indian semiconductor market, currently valued at USD 41.2 billion, is projected to grow at an impressive compound annual growth rate (CAGR) of 19 per cent (Image Source: iStock)
India’s ambition to be a semiconductor production hub is gathering momentum with the announcement of its first semiconductor fab in 2024 and growing Assembly, Testing, Marking, and Packaging (ATMP) and Outsourced Semiconductor Assembly and Test (OSAT) facilities. With investments exceeding Rs. 1.26 lakh crore, the country is turning into an irresistible destination for the global investments in the semiconductor market.
Valued at USD 41.2 billion presently, the Indian semiconductor market is set to maintain a CAGR of 19 percent, propelled by a surge in demand from automotive, electronics, telecommunications, and renewable energy sectors. The forthcoming Union Budget 2025 can provide a platform to assist in carrying the momentum forward and help create a roadmap for sustainable competitiveness.
Key Areas of Focus for the Union Budget 2025
1. Scaling of the Production-Linked Incentive Scheme
The PLI scheme has played an instrumental role in attracting global manufacturers and blossoming a domestic ecosystem. By building on this success, leaders of the sector expect an additional allocation of USD 20 billion over the next few years just to remain competitive against global giants.
For instance, the US has allocated USD 52 billion under the CHIPS Act, while China has set aside USD 47.5 billion to achieve self-sufficiency in semiconductors.
A significant incentivising pool could draw even more investments into the semiconductor value chain and help India secure a better position in terms of its global ranking.
2. Followed by Support for Domestic Manufacturers and Start-ups
Fresh export incentives and tax hopes could be a boon for local manufacturers and start-ups. Export-processing needs to be simple, and FTAs with key markets need to be fast-tracked to quickly bring Indian businesses into the global arena.
Rationalizing import duties that do not contribute to further manufacturing/development may lend a price advantage to the sector.
3. Infrastructural Development for Specialized Needs
Semiconductor manufacturing requires infrastructure of pure water, uninterrupted power supply, and good logistics to succeed. The industry expectations are that states would receive some incentives to build semiconductor clusters in the region.
Setting up green energy plants dedicated to semiconductor manufacturing could help satisfy the sector’s energy-intense needs. It could also help achieve sustainability goals.
4. Spurring R&D
A targeted approach towards semiconductor R&D is required in India to emerge as a powerful player in the global arena.
Enhancing the funding for semiconductor research would help accelerate the growth of innovative chip design and manufacturing processes. Dedicated research hubs, in the form of collaboration among academia, industry, and start-ups, could further hasten developments.
India’s demographic dividend, with a median age of 28-29 years old and over 20 percent of the global semiconductor design workforce, has great potential. Revamping the existing skilling initiatives towards advanced technologies would potentially exploit this young demographic to its full potential.
Global Benchmarks and Roadmap for India
Taiwan’s and South Korea’s impressive investments in R&D, a stupendous skilling initiative, and the careful nurture of the ecosystem were the foundation for global dominance of semiconductors that India could utilize for home-grown innovation and stronger global investments.
Taiwan focused on advanced chip manufacturing while South Korea invested in research infrastructure that India could imitate.
Partnerships with global players can also further technology transfer and capability building.
