Today’s contemporary technological advances are undoubtedly pervasive and these impacts across critical sectors of telecommunications, automotive engineering, medical technology and consumer electronics all rely on the core semiconductor industry. These microelectronic devices serve as the key components that make possible the operation of a range of items, from simple hand-held devices to high-end artificial intelligence-operated systems.
Historically, India has primarily played the avatar of a consumer in the hierarchy of this global production ecosystem. But with its progressive policy initiatives, expanding electronics manufacturing capacity and its skilled employee pool, India now has the opportunity to reposition itself as a key player on the global semiconductor supply chain. However, despite these prospects, the lack of developed advanced domestic manufacturing capabilities coupled with undeveloped export frameworks (especially with respect to the European Union (EU)) restricts India’s full attainable capability.
The Status of Semiconductor Technology and Products in India
In specific, India's semiconductor ecosystem has grown rapidly; the market was valued at around $34.3 billion in 2023 and will reach $100.2 billion by 2032. Phenomenological growth, which includes the rise in domestic demand and transformative governmental policies, supporting the development of indigenous production capabilities, drives this trajectory. Several dimensions define the current landscape.
The Government of India launched the Semicon India with an outlay of ₹76,000 crore to create an enabling ecosystem of robust domestic semiconductor and display manufacturing. Semiconductor fabrication, assembly, testing and packaging are supported with fiscal incentives. The electronics manufacturing growth in India (from $60 billion in 2017-18 to $101.9 billion in 2022-23) is a testimony to the synergetic relationship between electronics production and semiconductor demand. By expanding in this manner, a more integrated domestic semiconductor supply chain is laid.
In acknowledgement of the importance of talent in this highly technical sector, the All India Council for Technical Education (AICTE) in 2022, made provisions for educational courses specifically designed to churn out Semiconductor Engineers from Indian higher education institutions. However, even with such impactful initiatives, the sector’s development in India is limited by important constraints- particularly the lack of commercial scale semiconductor fabrication plants (Fabs). This limitation therefore necessitates import reliance to meet domestic semiconductor deficit, which amounted to ₹ 1,29,703 crore during 2022-23. While lighter on the wallet, the restrictions imposed by the need for indigenous fabrication capabilities prevent India from churning out the more sophisticated semiconductors needed for technologies including artificial intelligence, 5G, and electric vehicles.
The Export Dynamics of Indian Semiconductors to the EU
According to Observatory of Economic Complexity, the largest portion of India’s semiconductor exports went to markets like United States ($431 million), Hong Kong ($11.6 million), South Africa ($5.88 million), United Arab Emirates ($5.01 million) and Turkey ($4.45 million). This was the export trend in 2022.
With the EU, despite its huge demand for semiconductor parts, Indian exports to this bloc were minimal. This limited scale of exports to the EU can be attributed to several interlinked factors. Due to the lack of India's fabrication infrastructure and its short supply chain, it is unable to produce high end semiconductors which are needed to meet the stringent technical and quality standards of the EU market. India’s standards, certification protocols and trade policies are relatively more divergent when compared to the EU’s. Many Indian manufacturers find the investment in additional testing, certifying and process realignment prohibitive, when they need to be in compliance with EU standards.
There is also the fact that the semiconductor supply chain and its trade ecosystem are controlled by a handful of nations with almost a form of oligopolistic control. India being in a nascent position within this hierarchy limits its penetration power to establish supply chains serving the EU. Addressing these structural challenges becomes critical to enable India to use the EU as a viable export destination for its semiconductors.
Mitigating Strategies to Strengthen Semiconductor Exports to the EU
India needs to adopt a multi-pronged policy, focusing to reform systemic inefficiencies, addressing specific technical bottlenecks and taking advantage of market opportunities to achieve substantial increase in semiconductor exports to the EU. The prime importance lies in the erection of advanced semiconductor fabrication plants. India can bring forward the establishment of high-end manufacturing capabilities with help of strategic partnerships with the global technology leaders, under the Semicon India program. This strategy must have incentives for joint ventures and technology transfer as part of this initiative.
Smooth market access between India and the EU can be enhanced by strengthening of trade agreements between India and the EU, and by developing regulatory alignment. One such commendable step towards semiconductor ecosystem collaboration was taken through the recent Memorandum of Understanding (MoU) between India and European Commission. Such frameworks need to be operationalized to address compliance and logistical barriers.
Also, it is absolutely necessary to invest in Research and Development (R&D) in semiconductor technologies. Collaborative R&D with academic institutions, industry stakeholders and international partners is definitely more likely to make high quality products that comply with EU’s stringent requirements. Long term growth requires leveraging of India’s demographic dividend to create a globally competitive workforce. Tax benefits, subsidies, one-stop shops and streamlined approval processes can help incentivize private investments that will stimulate this sector’s growth. As in done in certain other sectors, Public Private Partnerships (PPPs) can be utilized to close infrastructural and technological gaps.
The Europe India Centre for Business and Industry (EICBI) wields the capacity to influence regulatory frameworks well suited for smoother bilateral trade. With respect to the semiconductor trade scene between India and the EU, EICBI holds a strategic spot. As a transnational organization with expertise in the EU-India economic corridor, EICBI aims to bring policymakers, industry leaders and academicians from both regions together to listen to trade impediments and co-create solutions to these impediments.
Utilizing its accreditation by the European Parliament, EICBI aims to advocate for policies that are in line with India’s objective of increased semiconductor exports and the EU’s need to meet its growing demand. Indian semiconductor enterprises of all scales can take advantage of EICBI’s market intelligence, regulatory compliance knowledge and partnership facilitation expertise to mark their presence in the EU semiconductor market.
Conclusion
To become a global semiconductor powerhouse, India’s domestic production has to be overcome multiple challenges. Trade practices have to be aligned to international standards, innovation has to be encouraged, and regulatory changes have to be ushered in quickly. India’s semiconductor industry stands to derive immense strategic benefits from its access to the EU, which has the world’s most advanced technological landscape and some of the biggest market appetite for technology consumption. Targeted strategies must be employed to increase India’s export footprint in this highest value sector, if it has to keep up with the global semiconductor race. Doing this will be a pivotal step towards becoming a titan in the global semiconductor ecosystem, a position which India truly has the potential to achieve.
References:
IBEF. (2024). India’s Semiconductor Push: Building a Robust Chip Manufacturing Ecosystem. India Brand Equity Foundation. https://www.ibef.org/research/case-study/india-s-semiconductor-push-building-a-robust-chip-manufacturing-ecosystem
Government of India taking steps to encourage domestic manufacturing of semiconductors & promote country’s digital transformation and self-reliance. (2024, July 31). PIB. https://pib.gov.in/PressReleasePage.aspx?PRID=2039638
PTI. (2023, August 9). Domestic electronic manufacturing rises to Rs 8.25 lakh crore; semicon import at Rs 1.29 lakh crore in 202. The Economic Times. https://economictimes.indiatimes.com/industry/cons-products/electronics/domestic-electronic-manufacturing-rises-to-rs-8-25-lakh-crore-semicon-import-at-rs-1-29-lakh-crore-in-2022-23/articleshow/102576654.cms
Semiconductor Devices in India. (2022). The Observatory of Economic Complexity. https://oec.world/en/profile/bilateral-product/semiconductor-devices/reporter/ind
Commission and India sign agreement on semiconductors. (2023, November 24). European Commission. https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4380
All India Council for Technical Education launches curriculum designed for B. Tech Electronics VLSI Design & Technology and Diploma in IC Manufacturing. (2023, February 18). PIB. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1900384
Europe India Centre for Business and Industry. (2024). EICBI. https://www.eicbi.org/
This article is written by EICBI Research Intern Ravi Rawat
Comments