HSBC reports that India is focusing on selective semiconductor localization by leveraging existing chemical strengths. The strategy aims to attract global partners for proprietary technologies instead of pursuing full domestic self-sufficiency. This pragmatic approach focuses on segments like chemical blending and packaging to build a sustainable manufacturing ecosystem.
A new report from HSBC outlines India's pragmatic roadmap for the semiconductor industry, emphasizing that the country is prioritizing strategic integration over total self-sufficiency. Rather than attempting to manufacture every component from scratch, the India Semiconductor Mission 2.0 is designed to target specific areas of the value chain where domestic industrial capabilities can be effectively scaled.
Focusing on Chemical and Industrial Strengths
India’s current strategy leans heavily on its existing foundation in the chemical sector. By upgrading domestic manufacturing processes, companies can transition from industrial-grade to semiconductor-grade production for specialized materials. A key example is Hexamethyldisilazane (HMDS), an adhesion promoter currently produced in India for pharmaceutical and industrial uses. Upgrading this capability to meet the stringent purity requirements of semiconductor fabrication is considered more economically viable than creating new supply chains from the ground up. This approach also extends to supporting systems like water treatment and industrial gas supply, which are essential for the operation of fabrication plants.
Balancing Local Production and Global Partnerships
For stages of chip manufacturing that require deep, proprietary intellectual property, India is opting to collaborate with global leaders. Photolithography—a critical process in chip fabrication—is a prime example. Instead of trying to replicate highly complex photolithography technologies, the strategy aims to attract international firms to set up blending and dilution facilities near local fabrication plants. By doing so, India can integrate these specialized processes into its domestic ecosystem while benefiting from global technological expertise.
Challenges in Foundational Materials
While the focus on chemical blending and packaging offers a realistic growth path, the report highlights notable gaps in foundational materials. The manufacturing of raw silicon wafers, which serves as the base for chip fabrication, remains dominated by international giants like Shin-Etsu Chemical and SUMCO. India currently lacks the manufacturing capacity for these foundational materials, and the immediate focus remains on building the surrounding support ecosystem rather than competing directly in the production of raw wafers.
Investors monitoring the semiconductor space should keep track of how domestic chemical companies successfully transition their production lines to meet high-purity standards. The long-term success of this localization strategy will depend on the ability of local firms to attract international joint ventures and the speed at which the surrounding infrastructure for fabrication plants can be commissioned.