Can India be a player in the computer chip industry?

A reliable supply of computer chips is not merely a convenience for Arnob Roy, the co-founder of Tejas Networks; it’s the bedrock of his company’s operations. Tejas Networks, headquartered in Bangalore, India, is a critical player in the digital infrastructure landscape, providing the essential equipment that powers mobile phone networks and broadband connections. "Essentially, we provide the electronics that carry traffic across telecom networks," Roy explains, highlighting the indispensable role of these components. This intricate operation demands highly specialized chips, meticulously designed for the demanding tasks inherent in telecommunications. "Telecom chips are fundamentally different from consumer or smartphone chips," Roy elaborates. "They handle massive volumes of data coming simultaneously from hundreds of thousands of users. These networks cannot go down. Reliability, redundancy, and fail-safe operation are critical – the chip architecture has to support that."

India’s prowess in the realm of chip design is well-established, with companies like Tejas Networks leveraging this expertise to design many of the specialized chips they require. It is estimated that a significant 20% of the world’s semiconductor engineers are based in India. "Almost every major global chip company has its largest or second-largest design centre in India, working on cutting-edge products," confirms Amitesh Kumar Sinha, Joint Secretary of India’s Ministry of Electronics and Information Technology. However, a critical gap has historically existed: India’s limited capacity in semiconductor manufacturing. This has led to a situation where Indian firms, despite their sophisticated design capabilities, must rely on overseas facilities for the actual fabrication of their chips.

The fragility of this supply chain model was starkly illuminated during the COVID-19 pandemic. As global chip supplies dwindled, companies across a myriad of industries were forced to curtail production. "The pandemic made it clear that semiconductor manufacturing is too concentrated globally, and that concentration carries serious risk," Roy states, underscoring the vulnerability exposed by the crisis. This realization served as a potent catalyst for India to embark on the ambitious endeavor of developing its own robust semiconductor industry. "Covid showed us how fragile global supply chains can be," Sinha reiterates. "If one part of the world shuts down, electronics manufacturing everywhere is disrupted. That’s why India is developing its own semiconductor ecosystem to reduce risk and increase resilience." Sinha is at the forefront of government initiatives aimed at fostering this nascent industry, meticulously identifying specific segments of the production process where India can establish a competitive foothold.

The intricate process of creating a computer chip involves several distinct stages. The first, chip design, is an area where India already boasts significant strength. Following design is wafer fabrication, a highly complex and capital-intensive process. This involves etching intricate circuits onto thin sheets of silicon using extraordinarily expensive machinery housed within massive facilities known as semiconductor "fabs." This crucial stage, particularly for the most advanced chips, is currently dominated by companies in Taiwan, with China actively striving to close the technological gap. The third and final stage encompasses slicing these large silicon wafers into individual chips, encasing them in protective materials, connecting them to external contacts, and rigorously testing them. This final phase, often referred to as Outsourced Semiconductor Assembly and Test (Osat), is the segment of the production process that India is strategically targeting for its initial foray.

"Assembly, test, and packaging are easier to start than fabs, and that is where India is moving first," explains Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA). He anticipates that several such facilities will transition into "mass production" this year, marking a significant step forward.

A pioneering example in this burgeoning sector is Kaynes Semicon, founded in 2023. This company has the distinction of being the first to establish and operationalize a semiconductor plant with the support of the Indian government. Kaynes Semicon has made a substantial investment of $260 million (approximately £270 million) in a state-of-the-art factory located in the northwestern state of Gujarat, dedicated to the assembly and testing of computer chips. Production commenced in November of the previous year. "Packaging is not just putting a chip in a box. It’s a 10 to 12-step manufacturing process," emphasizes Raghu Panicker, CEO of Kaynes Semicon. He further elaborates on its critical importance: "That’s why packaging and testing are as critical as making the chip itself; without this stage, the wafer is useless to industry."

Crucially, Panicker clarifies that his facility will not be producing the most cutting-edge computer chips found in the latest smartphones or utilized for advanced Artificial Intelligence training. "India does not need the most complex datacentre or AI chips on day one," he states. "That is not where our demand is, and that is not where our strength lies today." Instead, Kaynes Semicon will focus on producing chips essential for sectors such as automotive, telecommunications, and defense. "These are not glamorous chips, but they are economically and strategically far more important for India," Panicker asserts. "You build an industry by first serving your own market. Complexity can come later. Scale has to come first."

The journey for Kaynes Semicon has been a steep learning curve, demanding the acquisition of entirely new skill sets and operational paradigms. "We had never built a semiconductor cleanroom in India before. We had never installed this equipment before. We had never trained people for this before," Panicker recounts. He highlights the profound cultural shift required: "Semiconductors demand a level of discipline, documentation, and process control that is very different from traditional manufacturing. That cultural shift is as important as the technical one." The challenge of adequately training personnel has been a significant bottleneck. "Training takes time. You cannot shortcut five years of experience into six months. That is the single biggest bottleneck," Panicker emphasizes.

Back in Bangalore, Arnob Roy of Tejas Networks eagerly anticipates the increasing availability of locally sourced technology. "Over the next decade, we expect a significant semiconductor manufacturing base to emerge in India, and that will directly help companies like ours," he says. Roy acknowledges that this is the nascent stage of a long and arduous journey. "I do see Indian companies eventually designing and manufacturing complete telecom chipsets, but it will take patient capital and time," he concludes. "Deep-tech products take longer to mature, and India is only now beginning to support that kind of investment."