In late September, the Biden administration reached an agreement with the Indian government to establish a semiconductor manufacturing plant in India.
This facility is set to produce infrared, gallium nitride, and silicon carbide (SiC) chips. The project is backed by the India Semiconductor Mission (ISM), an initiative aimed at supporting Prime Minister Narendra Modi's efforts to bolster the country's semiconductor industry.
India's rise in the semiconductor value chain
As China shifts from its former role as a manufacturing hub under US influence to becoming one of the United States' top global competitors, India's strategic position in Asia has garnered renewed attention under the Indo-Pacific Strategy established during former President Donald Trump's administration.
Modi has long positioned India as an alternative to China over the past decade. Now, the Indian government is working to build a complete semiconductor value chain, with plans in place to attract more US, European, and Asian semiconductor manufacturers to invest in the country throughout 2024.
India aims to become a potential new hub for semiconductor R&D and manufacturing, where many view the region as the rear base for US semiconductor production under the Indo-Pacific Strategy. Compared to Taiwan, South Korea, and Southeast Asia, India's geographical location is less vulnerable to military conflicts, making it a potentially safer investment destination amid ongoing US-China tensions.
Growing manufacturing and chip design investments
In addition to recent announcements from the US and Indian governments, several notable overseas semiconductor investments have been made in India's semiconductor manufacturing and design sectors. According to Fierce Electronics, the Israel-based Tower Semiconductors has partnered with India's Adani Group to invest US$10 billion in establishing a semiconductor facility in Maharashtra, in western India.
This investment is likely one of the largest in India's semiconductor manufacturing sector, with the first phase projected to reach a monthly output of 40,000 wafers, followed by an expansion to 80,000 wafers, creating over 5,000 jobs. Furthermore, Dutch firm NXP plans to invest US$1 billion to boost its R&D operations in India.
Indian conglomerate Larsen & Toubro (L&T) will invest US$300 million over the next three years to develop IC design projects. Meanwhile, the Indian government recently approved a US$395 million investment from Kaynes Semicon to establish a semiconductor facility in Gujarat.
Analysts at Counterpoint Research have stated that these recent investments highlight the semiconductor industry's confidence in Indian government policies and initiatives. Driven by a growing consumer base, rising demand, and supportive policies, India's semiconductor industry is on an upward trajectory.
The new investments can be categorized into two segments, with Tower focusing on manufacturing and other investments on IC design. Some analysts have noted that Adani Group's entry into chip manufacturing may face challenges, but its progress will be closely watched.
Similarly, L&T's investment reflects India's ambition to build a local IC design capability. This signals a move to reduce dependency on foreign companies in the semiconductor sector.
These developments represent positive strides for India's semiconductor industry. The Indian government has taken several measures to encourage international companies to establish manufacturing units in the country.
ISM, established in 2022, aims to support India's growth as a global center for electronics manufacturing and design. Initially, ISM provided US$10 billion to attract global participants to establish a presence in India. After some trial phases, the country has made gradual progress in building an independent semiconductor ecosystem. ISM's second phase is expected to launch in the next six months.
