Semiconductor Manufacturing: A Path to Sustainable Economic Growth for India – CII Blog
The semiconductor industry, often hailed as the backbone of modern electronics, is pivotal for global economic growth and technological advancement. Recognizing this necessity, India has embarked on a long-term venture to establish itself as a significant player in the semiconductor manufacturing industry. This journey, while laden with challenges, holds immense potential.
India’s Ambitious Semiconductor Projects
Recently, the Government of India approved three major investment projects worth ₹1.25 Lakh Crores. These projects include one fabrication (fab) facility in Gujarat and two Assembly, Testing, Marking, and Packaging (ATMP) facilities in Assam and Gujarat. These investments are expected to create around 80,000 job opportunities, comprising 20,000 direct jobs and 60,000 indirect jobs. However, this job creation capacity has sparked debate among economists and policymakers.
The Economics of Job Creation
Former RBI Governor Raghuram Rajan highlighted concerns regarding the cost-effectiveness of such investments. With the current figures, each job created in the semiconductor sector costs around ₹4 Crores to the government. In comparison, job creation in sectors like housing and general manufacturing requires significantly lower investments of ₹38,000 and ₹12.5 Lakhs per job, respectively, according to the NCAER Report.
Yet, this comparison does not capture the complete picture. Semiconductor manufacturing demands a highly skilled workforce, which justifies the high remuneration and investment costs. Moreover, sectors like housing employ only about 1% of their workforce in a formal setup. Thus, a nuanced view is essential to appreciate the long-term benefits of semiconductor investments.
The Strategic Importance of Semiconductor Manufacturing
Currently, Taiwan dominates the semiconductor market, producing over 60% of the world’s semiconductor chips. China holds a 31.4% share in global semiconductor sales. This heavy dependence on Taiwan poses a significant risk, especially given the strained China-Taiwan relations. Any major conflict could severely disrupt the global semiconductor supply chain, leading to a worldwide economic slowdown.
Semiconductors are crucial for various sectors, including automotive, electronics, and space exploration. Disruptions in semiconductor supply would have far-reaching economic implications. Additionally, the global market size for semiconductors is projected to grow at a compound annual growth rate (CAGR) of 14.9% from 2024 to 2032, highlighting the immense potential in this field.
India’s Path to Self-Reliance in Semiconductors
Given these risks and opportunities, India must strive for self-reliance in semiconductor manufacturing. This self-reliance, or Aatma Nirbhar Bharat, is essential for safeguarding India’s economic future. The forward and backward linkages of semiconductor manufacturing can catalyze job creation across various sectors by enhancing the capabilities and outputs of industries dependent on semiconductors.
By fostering a robust semiconductor ecosystem, India can stimulate employment growth not only within the semiconductor sector but also across diverse fields such as consumer electronics, automotive, telecommunications, healthcare, renewable energy, IT, and R&D. Establishing semiconductor production facilities requires highly specialized infrastructure, creating opportunities in sectors like transportation, ports, and chemicals.
The Role of Education and Skill Development
Design plays a crucial role in the semiconductor value chain, contributing to 50% of its overall value. India boasts around 4 million engineering students across various streams, providing a vast talent pool ready to be trained. However, the semiconductor industry in India is expected to face a shortage of around 300,000 professionals in the next five years. To mitigate this, the government must focus on upskilling students through initiatives like Chip2Startup (C2S) and collaborations between Indian institutes and semiconductor research institutions.
Exploring Different Models
India can explore two primary models for entering the semiconductor industry: the Integrated Device Manufacturer (IDM) Model and the Fabless Model. Each model has unique costs and benefits, and India needs to determine which approach best aligns with its goals and capabilities.
The Bigger Picture
Rather than focusing solely on short-term gains and costs, India should aim to become a global semiconductor hub. The vast scope of semiconductor manufacturing will play a critical role in achieving the nation’s vision of ‘Viksit Bharat’ (Developed India) by 2047.
In conclusion, semiconductor manufacturing offers India a unique opportunity to secure its technological and economic future. Despite the high initial investment, the long-term benefits of job creation, economic growth, and global strategic positioning make it a worthy endeavor. By building a robust semiconductor ecosystem, India can pave the way for sustainable development and prosperity.
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