India wants to be a semiconductor powerhouse, but it cannot do it alone

India has big ambitions to become a semiconductor powerhouse as the world’s fifth largest economy pushes for independence in manufacturing.

Indian Prime Minister Narendra Modi has set many goals to boost the country’s semiconductor sector, with the latest and biggest target being to grow the country’s electronics sector from $155 billion today to $500 billion by 2030.

The announcement turned heads and raised eyebrows, and industry experts who spoke to CNBC had opposing views on whether the target was realistic. However, they all agree on one thing: India cannot achieve this goal on its own.

“While the speed of development seems fast and the momentum is there, India has started the development of the semiconductor industry from scratch,” said Eri Ikeda, assistant professor in the Department of Management Studies at the Indian Institute of Technology Delhi. .

Taiwan is currently the world’s largest chip maker, holding approximately 44% of the global market share, followed by China (28%), South Korea (12%), the US (6%) and Japan (2%), data from the consultancy Taiwan Trendforce shows.

Bhatnagar pointed out how Taiwan’s Powerchip Semiconductor Manufacturing Corporation will help India’s Tata Electronics to build the country’s first 12-inch wafer factory in Gujarat. He also noted the American chipmaker Micron Technology set to roll out its first Indian-made semiconductor chip in 2025. Last week, the US chipmaker Analog Devices and Tata Group signed an agreement to explore building semiconductor products in India. These examples, he explained, show collaboration is necessary.

India is increasingly seen as a viable alternative to China for companies looking to diversify their supply chains amid geopolitical risks. However, analysts say India needs to learn the ropes before it can compete with the East Asian giant, especially since the semiconductor manufacturing industry is still in its infancy.

China regained its position as India’s top trading partner in the 2024 financial year, with bilateral trade between the two countries reaching $118.4 billion. India’s imports of telecom parts and smartphones from China totaled $4.2 billion, data from the Ministry of External Affairs showed.

“India is far behind China in semiconductor manufacturing. Although India can move quickly and catch up, China will move faster,” said Rishi Bhatnagar, chairman of the Institute of Engineering and Technology’s tech panel. He added that collaboration rather than competition between the two countries is most important.

“Even China is following technological progress TSMC and others, and build and expand the semiconductor industry by importing a lot of equipment from the US and Japan,” Ikeda told CNBC in an interview.

Although India still has to rely on top chipmakers Taiwan and China, the South Asian country plans to work with the US to counter China, industry experts told CNBC.

Earlier in September, the US State Department announced it would partner with the Indian Semiconductor Mission and India’s electronics and IT governing body to improve the global semiconductor value chain.

It comes just three days before the Biden administration rolls out new export controls on critical technologies, including quantum computing and semiconductor goods, a move that could limit Beijing’s progress in AI and computing.

For the US, India can help diversify chip sources and reduce dependence on Taiwan, Bhatnagar said.

“They invested in a democratically elected country with a legal framework and many English speakers. So when two democracies talk, this is a very different discussion. And we have to accept and agree this is needed when the global scenario has changed,” he said. Bhatnagar.

Earlier this week, Modi met Nvidia’s Jensen Huang and GoogleSundar Pichai, among other tech CEOs at a roundtable in New York after attending the annual Quad meeting. Huang said that “this is India’s moment” and pledged to cooperate with the country, Hindustan Times reported. CEOs of other semiconductor companies such as GlobalFoundries’ Thomas Caulfield and AMDLisa Su also participated.

Other analysts said India’s semiconductor focus could help boost the US’s position in the “chip war” with China, and ultimately help the country.

“India is willing to use US and even Chinese investment for industrial development, with which it may compete if successful,” Ikeda said.

However, he added there are many hurdles before India can compete with China in chips, especially in terms of infrastructure and investment.

“We are supporting (the) semiconductor industry in a big way. We are starting to build up the ecosystem, which is important before we can see more and more foundries coming to the country to make real chips,” Piyush Goyal, India’s trade minister. and industry told CNBC’s Tanvir Gill in an interview.

Although India still has a ways to go before becoming a semiconductor powerhouse, it has several advantages that can be achieved.

Low cost of Indian labor, for example, has been an attractive destination country for companies looking to diversify part of the supply chain away from China.

The minimum monthly wage in New Delhi for skilled workers is 21,215 Indian rupees ($253.85), while workers in Beijing earned 2,420 yuan ($344.30) during the same period. The minimum wage in each state varies between states and provinces.

“If India can become more technologically advanced and meet global demand with cheaper and better quality products, it will have a competitive advantage over China,” Ikeda said.

The world’s most populous country, which Goldman Sachs says will be the world’s second largest economy by 2075, has attracted investors like tech giants Apple and Google. Analysts predict the company will increase production in India.

“Apple has exported more goods from India than it sells in India. The domestic market is huge and the country is young which gives India an edge,” Tarun Pathak, director of research at Counterpoint Research said.

That optimism is expected to be fueled in the next decade as the country continues to make significant strides in connecting and modernizing highways, railways and airports.

In an interim budget in February, Finance Minister Nirmala Sitharaman estimated capital spending would rise 11.1% to 11.11 trillion Indian rupees ($133.9 billion) in fiscal year 2025, mostly focused on building railways and airports.

“The semiconductor industry does not need many large ships and cargos. Chips are small things that can be transported by plane in large quantities,” Bhatnagar said.

With the need for Chips only increasing from here, India can be a solution for many companies looking to reduce costs and meet their needs.

“I will not bet against India. When you look around the world, there are few places where you can see the right infrastructure, economy, stability and workforce to achieve this goal,” Samir Kapadia, CEO of India Index and managing principal at Vogel Group said.