Back in the spring, a spate of reports in the industry and mainstream press (and here at EBN) covered India's intentions to get into chip manufacturing. Though India has long had a major presence in software and circuit design, efforts to build a ground-up supply chain have run into land disputes and funding problems. The cost of building a chip factory can run to 11 figures in US dollars.
A few days ago, however, The Wall Street Journal reported (subscription required) that plans to build two fabs have received government approval. One is being built by a consortium headed by the Israeli company Tower. The other is being built by STMicro, a French-Italian effort.
Similar efforts have already been successful in much smaller countries — Malaysia comes to mind. But a key aspect of the Indian effort is different. The goal appears to be to manufacture circuits for a booming domestic electronics market, not the export market. Rather than building the base of a supply chain to compete in the global IT market, India is building toward itself and its own needs.
Does such an effort make sense now? It appears to. The Deccan Herald reported this month that India is consuming $7 billion of (imported) semiconductor-based products a year. That figure is projected to grow more than 700 percent to $55 billion by 2020. The Herald said that Indian design houses would be working with local fabs, rather than sending their designs abroad. Other growing Indian industries fed by the electronics supply chain (such as auto manufacturing, which uses a lot of integrated circuits) would like to cut chip costs.
The unknown in all this is what it means for supply chains outside India over the long term. If the Indian electronics industry became self-sufficient, a domestic IT market that is expected to grow from $24 billion to $42 billion in the next decade would get a lot more competitive. A chipmaker in China or Taiwan currently can count on Indian business generating a major chunk of its demand. Imports make up as much of 65 percent of the electronic goods consumed in India, according to India's Economic Times. That number is expected to fall (quickly) when the subcontinental giant's first two fabs come online.
If that happens, more will come — at least, that's the plan. India's government, seeking to incentivize manufacturing, has taken the normal steps of waiving various taxes. It has lowered tariffs on imports of machinery for chip plants, making it cheaper to build the expensive factories in India (for the moment) than it might be in a competing nation that taxes factory parts more stiffly. The value of the incentives is believed to be as high as $3 billion.
It's no surprise that countries compete for business, but India's potential scale, both as a market and as a manufacturing force, suddenly makes the conversation very different. Targeting 65 percent of the market in the second most populous country on Earth is a swing for the fences (or hitting for six, to use a more regionally appropriate metaphor).
Earlier efforts, going back at least to 2008, have failed. This time, it looks like things are serious. If so, chipmakers in China and Taiwan will have to supply chips better, cheaper, or faster than their new rivals in India, or one of the world's fastest-growing IT markets will be happy to handle the demand itself.