Ukraine crisis: A setback for India’s semiconductor industry

In view of the ongoing Ukraine-russia crisis, India may face shortage of the raw material for its semiconductor industry. The country has kicked off local manufacturing of semiconductors to reduce dependency on China and establish itself as global manufacturing hub.

Some raw materials exported from Russia and Ukraine, such as rare gas neon, chemical C4F6 and metals palladium, nickel, platinum, rhodium and titanium are critical for semiconductor manufacturing. Palladium is used in component production, like for the substrate in PCB.

The shortage of raw material could have a cascading impact through the supply chain, and hit those manufacturers in Asia, who are reliant on Ukraine for raw material supply.

Semiconductors are the building blocks of electronic devices ranging from smartphones and cloud servers to modern cars, industrial automation, critical infrastructure and defence system. Indian semiconductor market stands at USD 15 billion in 2020 and is estimated to reach USD 63 billion by 2026. The semiconductor manufacturing is a complex, capital and technology intensive process of fabricating semiconductor wafers.

The government recently set up the India Semiconductor Mission (ISM) and approved Rs 76,000 crore ($10 billion), for the development of semiconductors and display manufacturing ecosystem in the country. The Rs 76,000 crore Production-linked Incentive (PLI) scheme will be spread across six years. As part of the scheme, incentives worth Rs 2.3 lakh crore will be provided to position India as a global hub.

With geopolitical tensions now extending from Asia to Europe and from semiconductor manufacturing to raw material supply, Indian players need to re-evaluate capacity expansion and investment decisions.

With an overall vision to create a vibrant ecosystem for Semiconductor Chip Design in the country, the Ministry of Electronics and Information (Meity) annoucned its Design Linked Incentive (DLI) Scheme in December 2021. The scheme is aimed to extend financial incentives and design infrastructure support to domestic companies, startups and MSMES across various stages of development and deployment of semiconductor design for Integrated Circuits (ICS), Chipsets, System on Chips (Socs), Systems & IP Cores and semiconductor linked design for over a period of 5 years.