India Emerging as Semiconductor Hub Amid Policy Support and Investments: Jefferies Report

A recent report by Jefferies highlights India's rapid strides in semiconductor manufacturing, driven by favorable government policies, growing demand, low-cost production capabilities, and strategic partnerships with Western nations.

The report underscores key advantages such as fiscal incentives, low manufacturing costs, and a skilled design workforce, which position India to replicate its success in the automobile sector within the semiconductor industry. "We believe India has strong potential to replicate its manufacturing success in autos to semis, led by policy support, rising demand, low cost, and strategic goodwill with the West," the report stated.

India’s semiconductor ambitions are gaining momentum, with over USD 18 billion in investments across five major projects, including Tata Electronics' USD 11 billion chip fab in collaboration with Taiwan’s PSMC, slated to commence operations in 2026. The report, based on interactions with government officials, notes that India aims to quadruple electronics production to USD 500 billion by 2030.

In FY 2024, India's electronics imports reached USD 60 billion, accounting for 25% of the country's trade deficit, second only to oil. In response, the Indian government has been aggressively promoting domestic electronics manufacturing to reduce import dependence.

A significant USD 10 billion incentive program, launched in 2021, covers 50% of project costs for chip and display fabs and testing facilities, with some states offering additional 20% incentives, bringing total fiscal support to 70%. This push has already resulted in five semiconductor-related projects under construction, expected to generate around 80,000 direct and indirect jobs.

The report highlights India's holistic approach to expanding the entire semiconductor supply chain, including chemicals, gases, components, and equipment. Union Minister for Railways, Electronics, and IT Ashwini Vaishnaw reiterated the government's commitment to building a complete ecosystem, leveraging India's design expertise and attracting global players.

While India's semiconductor sector remains in its early stages, the report notes that instead of competing with the world’s most advanced nodes, India is strategically focusing on proven technologies, a strategy similar to its automotive industry's growth. It recalls India's challenges in the 1980s auto sector, which were overcome through progressive policies and market expansion, making the country the fourth-largest vehicle producer and an automobile exporter.

However, the report also highlights challenges such as an underdeveloped supply chain, limited manufacturing expertise, and stiff global competition, which could hinder growth. Despite these hurdles, India’s strategic efforts and policy initiatives indicate strong potential for the nation to emerge as a key player in the global semiconductor market.

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