[Chip Talk] India's Semiconductor Attraction 'Unprecedented'... '50%+α Subsidy for Factory Establishment'

Memorandum of Understanding Signed for US-Korea Semiconductor Supply Chain Cooperation
Abundant IT Workforce and Skilled Technicians, Large Market Are Advantages
Challenges Remain in Resolving Basic Infrastructure Such as Electricity and Industrial Water

As part of the hegemonic competition between the United States and China, the U.S.-led relocation of semiconductor supply chains out of China is being vigorously promoted, with India emerging as a new alternative region to China. The U.S. is actively cooperating with India on semiconductor supply chains, and India is also launching comprehensive support programs to expand its semiconductor supply chain, anticipating rapid growth.

India's strengths lie not only in its domestic market but also in its large overseas presence of information technology (IT) personnel, abundant semiconductor-related research organizations and workforce, and a massive domestic market comparable to China. However, there are concerns that India must first establish the basic infrastructure to handle the enormous amounts of electricity and industrial water essential for the semiconductor industry.

◇ U.S.-India Semiconductor Supply Chain Cooperation MOU Signed

On the 10th (local time), Gina Raimondo, U.S. Secretary of Commerce (left), and Piyush Goyal, Indian Minister of Commerce (right), signed a memorandum of understanding (MOU) on semiconductor supply chain cooperation between the U.S. and India in New Delhi. [Image source=U.S. Department of Commerce]

According to U.S. IT media TechCrunch on the 19th (local time), the U.S. Department of Commerce announced that on the 10th, Secretary Gina Raimondo visited New Delhi, India, and signed a memorandum of understanding (MOU) on semiconductor supply chain cooperation with Indian Commerce Minister Piyush Goyal. Under this MOU, the two countries plan to share information on subsidy policies and other matters going forward.

At a press conference following the MOU signing, Secretary Raimondo said, "The United States views India as a trusted technological partner in the semiconductor field," adding, "We will strengthen our cooperative relationship with India and hope India fulfills its aspiration to play a greater role in the semiconductor supply chain." She further emphasized, "However, we are not seeking decoupling from China," and explained, "This is about protecting ourselves and our allies from China's explicit attempts to access U.S. technology for military purposes."

International society and the semiconductor industry anticipate that the U.S. will begin a full-scale medium- to long-term relocation of supply chains from China to India. India has previously joined both the U.S.-led military consultative group QUAD and the Indo-Pacific Economic Framework (IPEF).

The Indian government is also participating in the U.S. semiconductor supply chain relocation plan and is planning various support policies to foster its own semiconductor industry. Accordingly, it announced last year plans to support semiconductor production facilities worth approximately $10 billion (about 13.2 trillion KRW).

◇ Massive Market and Workforce Support Policies Are Strengths

India's advantages as a next-generation semiconductor supply chain hub are primarily its vast and rapidly growing market and abundant IT-related workforce.

With a population exceeding 1.4 billion, the second largest in the world after China, and a large number of IT professionals, India’s strengths are highlighted. According to the Indian economic media The Economic Times, about 150,000 IT engineers graduate annually from over 650 universities across India, actively working both domestically and abroad. Indian professionals account for approximately 20% of the global semiconductor design workforce.

India's semiconductor market is also growing rapidly. Consulting firm Deloitte India recently released a report stating, "India's semiconductor industry, currently valued at around $20 billion, could rapidly grow to $55 billion by 2026 and $85 billion by 2030," forecasting that industries applying semiconductors in smartphones, electric vehicle components, computing, and data storage will lead the market.

Deloitte India expects the power semiconductor market in India to expand significantly as demand for electric vehicle semiconductors increases. Deloitte India projected, "India's power semiconductor market, which was about $100 million for gallium nitride (GaN) semiconductors and $1.1 billion for silicon carbide (SiC) semiconductors in 2020, will grow to $900 million for GaN and $4.3 billion for SiC by 2024."

The India Electronics and Semiconductor Association (IESA) estimates the overall semiconductor and application market in India at about $120 billion and plans to accept investment applications from major overseas semiconductor companies within this month. The Indian government intends to provide subsidies covering up to 50% of the investment amount for so-called 'greenfield investments'?companies investing from land acquisition to facility establishment?and local governments plan to offer additional subsidies ranging from 10% to 25%.

◇ Basic Infrastructure Such as Electricity and Industrial Water Is a Challenge

[Image source=Reuters Yonhap News]

However, many challenges remain for India to attract semiconductor investments. Above all, establishing basic infrastructure such as abundant industrial water and stable power supply, which are essential for semiconductor manufacturing, is a prerequisite.

According to the British BBC, India still relies on coal-fired power generation for about 52% of its total electricity production. Last year, from April onwards, a heatwave caused a surge in cooling power demand, leading to planned power outages of up to eight hours per day in major cities, resulting in a severe power shortage. The situation has worsened since the outbreak of the Russia-Ukraine war, which caused a sharp rise in prices for key energy fuels such as oil, gas, and coal.

This is why global semiconductor companies have been hesitant to establish factories in India despite the Indian government's full support measures. According to CNBC, Intel, one of the world's largest semiconductor companies based in the U.S., remains cautious about entering the Indian market. Intel previously considered building semiconductor plants in India in 1969 and 2005 but withdrew those plans. At that time, although the central and local Indian governments offered substantial support, discussions on actual subsidies stalled, and the lack of basic infrastructure and difficulty in finding semiconductor raw material and component suppliers were cited as major obstacles.

There are also calls to further reduce dependence on China for existing semiconductor manufacturing components. The diplomatic media outlet The Diplomat pointed out, "Most of the metals and alloys required for India's semiconductor manufacturing processes are imported from China," adding, "It will be difficult for India to challenge China's dominance in the semiconductor industry before these related industries are developed."