India’s Ambitious Project to be a Global Semiconductor Powerhouse

Zoho, a Chennai-based software-as-a-service company, recently announced plans to launch a commercial semiconductor manufacturing unit in Tamil Nadu. This move aligns with India’s goal to become one of the top five global semiconductor chip producers by 2029, highlighting the country’s efforts to enhance its capabilities in this critical sector.

This raises a crucial question: What has been holding India back, and why is it so difficult to set up massive chip manufacturing facilities like those in Taiwan?

First, let’s understand how semiconductor chips are made. The process starts with design, requiring skilled engineers, extensive R&D, and access to intellectual property. For instance, Intel spent years designing the Pentium Processor, involving conceptualizing the chip’s architecture, figuring out the layout for logic gates and memory cells, and extensively testing it.

However, designing is just the beginning. Mass production of these chips requires a Fabrication unit (or Fab). This is where plain silicon transforms into modern-day miracles through photolithography, etching, deposition, and doping. Despite sounding straightforward, only a few companies possess the knowledge and resources to design and manufacture chips at scale.

So, why can’t India join these select few? The primary challenge is the expense. Setting up a fabrication unit can cost between $10 billion and $20 billion, which is no small change. Even with the resources, it takes time to manufacture state-of-the-art microchips. For example, TSMC, which produces an estimated 90% of the world’s super-advanced semiconductor chips, took over three decades to progress from 3 micrometers to 3 nanometers.

To overcome these hurdles, India must start somewhere, likely between 28 and 180 nanometers. These larger-feature chips remain popular for display drivers, audio chips, and automotive applications. The strategy should be to start big and work downwards.

Moreover, semiconductor manufacturing requires advanced machinery, intricate quality control processes, clean rooms, ultra-pure water, chemicals, gases, and highly skilled engineers. Government support can significantly aid this endeavor. If the state bears some costs or incentivizes private players to set up a fab, the dream of becoming a semiconductor powerhouse could materialize sooner.

In March 2024, India took a significant step towards this goal by laying the foundation for three semiconductor plants: a chip fabrication plant in Dholera, Gujarat, and two ATMP (assembly, testing, marking, and packaging) facilities in Sanand, Gujarat, and Morigaon, Assam. The first chip from the Dholera facility is expected to roll off the factory line by December 2026, marking a milestone in India’s manufacturing history.

India will likely invest over $10 billion in the fab, a joint venture between Tata Electronics and Powerchip Semiconductor Manufacturing Corporation (PSMC), a Taiwanese company known for its expertise in manufacturing memory chips. PSMC will provide the know-how for setting up and operating a fab that will produce 28 nm chips.

While these aren’t the super-advanced chips used in AI applications, it’s a significant start. With more investments from Indian entrepreneurs, India could soon produce 22 nm or even 20 nm chips.