By Gayatri Chitralekhaji
Introduction
India has embarked on an ambitious semiconductor mission to transform itself from a chip design hub into a chip manufacturing power; a prerequisite for being among the frontrunners in the great powers race of the 21st century. Indubitably, this effort holds strategic, economic, and technological significance for the country, and if it bears the desired fruits, for the world. India already contributes about one-fifth of the world’s semiconductor design engineers, with nearly all top global chip firms having R&D centres in the country. Yet despite this knowledge capital, India’s presence in chip fabrication has been negligible. Recognising the critical role of semiconductors in everything from smartphones to defence systems, the government now aims to build a robust domestic semiconductor ecosystem. Our report evaluates India’s missed opportunities in the past, its current talent and IP strengths, the geopolitical and economic drivers behind the mission, the policies enacted to achieve its goals, initial outcomes and global response, and the remaining challenges on the road ahead.
Missed Opportunities, From Fairchild to Falling Behind
India’s semiconductor journey began with early promise but repeated missed opportunities. As far back as 1957, Fairchild Semiconductor, the legendary precursor to Intel, explored setting up its first assembly plant in India, only to be dissuaded by excessive regulations. The Fairchild proposal was effectively “chased away,” and the unit instead went to Malaysia, which became Asia’s largest semiconductor packaging hub. This early misstep foreshadowed a pattern. In the 1960s and 70s, India established public-sector electronics firms and even created a Semiconductor Complex Limited (SCL) in Mohali in 1983 to make chips domestically. For a brief period, India was not far behind global leaders, by 1987 India’s chip fab technology was only about two years behind the latest in the world. However, tragedy and neglect struck, a mysterious fire in 1989 devastated SCL’s facilities, halting production for years. Momentum was lost just as semiconductor tech raced ahead globally. By the 2000s, India again missed the bus. In 2006–2007, Intel was scouting for a new chip manufacturing site. India was in contention, and a major semiconductor fab or assembly plant was proposed in South India, with even a cleanroom set up in anticipation. But the much chastised bureaucratic delays in announcing incentives meant India “dragged its heels”, so Intel chose China’s Dalian for its $2.5 billion fab, costing India a facility and 4,000 jobs. This was neither the first nor the last time grand announcements of “India’s first chip fab coming soon” made headlines, only to fizzle out with nothing on the ground. A similar hype cycle played out around 2013–2014 when consortia were approved to build fabs, one with STMicroelectronics as a partner, but those too never materialised, partly due to lack of sustained political will and the sheer complexity of the task. Each missed opportunity pushed India further behind the cutting edge. In 1980s India was perhaps 2–3 generations behind in chip tech; today officials say the country is 12 generations behind the leading edge. In other words, chips made in India’s existing lab-level fabs, like SCL, are on the order of 180 nm process, whereas leading firms like TSMC are at 5 nm and below, a gap of over a decade in technology. This widening lag is a direct consequence of earlier lapses in vision and investment.
Talent and IP: India’s Semiconductor Knowledge Hub
Paradoxically, even as India fell behind in manufacturing, it became a global hub for semiconductor design and intellectual property development. Today, India boasts an exceptional chip design talent pool that comprises up to 20% of the world’s semiconductor design engineers. Nearly all of the top 25 semiconductor companies, from Intel and AMD to Qualcomm, NVIDIA, and Texas Instruments, have significant design or R&D centres in India. Over decades, firms set up in cities like Bengaluru, Hyderabad, and Noida to tap India’s large cadre of electrical engineers and chip designers. Indian engineers have contributed to the design of cutting-edge processors and chips used globally, effectively making India a “brain centre” of the semiconductor industry. This concentration of talent is one of India’s strongest assets, a form of “IP strength” embedded in human capital and design know-how. However, the absence of domestic fabs means that designs conceived in India are fabricated abroad. The country has produced few homegrown chip products end-to-end. This is something the semiconductor mission seeks to change by leveraging India’s talent into tangible output. The government’s strategy includes incentives for fabless startups and design firms under a Design-Linked Incentive (DLI) scheme. Under programs like SemiconIndia FutureDesign, more than 30 semiconductor design startups have been incubated, including some led by Silicon Valley veterans returning to India, and five startups have already received government funding, with dozens more in evaluation. The idea is to translate India’s design fortitude into homegrown chips and intellectual property that can be manufactured, ideally in India itself. India is also ramping up chip design education as a new “Chips to Startup (C2S)” program across 100+ institutions will train 85,000 engineers in VLSI and embedded system design, aiming to develop dozens of silicon IP cores and prototype chips in the next five years. This talent pipeline, combined with India’s existing 20% share of global chip designers, could create a virtuous cycle, where a thriving local design ecosystem feeds into, and is in turn bolstered by, an emerging local manufacturing base. In essence, India’s knowledge hub status in semiconductors is a springboard, if coupled with the right investments, to becoming a manufacturing hub as well.
Strategic and Economic Imperatives for a Chip Program
Multiple geopolitical and economic factors have converged to make India’s semiconductor push not just aspirational, but necessary. First, the global chip supply crunch of 2020–21, triggered by pandemic disruptions, was an alarm bell. India’s automobile and electronics industries were hit by chip shortages, underscoring the vulnerability of relying solely on imports. With semiconductors now critical for economic security, India sees self-reliance in chips as akin to food or energy security. Second, India faces a mounting electronics import bill. Semiconductors and electronic components are now India’s second-largest import category after crude oil. FY2023 saw electronics imports reached around $76 billion, even surpassing gold imports. India’s own semiconductor consumption is projected to soar to $80 billion by 2026 and over $110 billion by 2030, driven by burgeoning demand for smartphones, computers, electric vehicles, and telecom equipment. Without local capacity, this demand translates into a huge foreign exchange outflow and dependence on external supply chains. Developing domestic fabs and assembly plants would reduce exposure to global supply shocks and cut the import burden. Geopolitically, the U.S.–China tech rivalry and an emerging realignment of global supply chains create an opportunity for India. Major economies are pursuing a “China plus one” strategy or “friend-shoring” to diversify chip production away from geopolitical hotspots. The United States, Europe, Japan, and others have rolled out hefty incentive packages including the U.S. CHIPS Act by the Biden administration, EU Chips Act, etc., to onshore or ally-shore semiconductor manufacturing. India cannot afford to stay on the sidelines of this global restructuring of the semiconductor industry. In fact, partners see India as a potential “trusted geography” for diversifying chip production. India and the U.S. have already launched a high-tech initiative in 2023, as part of their iCET dialogue, that includes cooperation on semiconductor supply chains. Similarly, India signed a semiconductor supply chain cooperation MoU with Japan in July 2023, and is engaging with other like-minded nations to attract technology and investment. These strategic partnerships are driven by a shared interest in building resilient supply chains less prone to disruption or coercion. Another imperative is national security. The electronics that power India’s defense systems, critical infrastructure, and communications can be a strategic liability if the supply is uncertain or controlled by potential adversaries. By developing domestic chip capabilities, even if starting with legacy nodes, India gains more control over components used in sensitive applications such as chips for missiles, satellites, secure communication. Trusted domestic fabs would complement ongoing efforts in indigenous defense and space tech, providing secure chips for these domains. In short, geopolitical risk reduction and technological sovereignty are key drivers for India’s semiconductor mission. Finally, there is a compelling economic development motive. A semiconductor fab is often called the “factory of factories,” it creates a whole supporting ecosystem of high-tech jobs and supplier industries. By one estimate, a single fab can directly employ a few thousand workers and indirectly create tens of thousands of jobs in chemicals, gases, equipment maintenance, logistics, and services. For a nation of India’s scale, integrating into the $600+ billion global semiconductor industry is also about capturing value up the value-chain. After success in software and large-scale assembly of electronics, like mobile phone manufacturing, semiconductors are the next frontier to move up from lowmargin assembly to higher value chip fabrication and R&D. In summary, economic opportunity, supply chain resiliency, and strategic necessity are all propelling India to undertake an aggressive semiconductor program now, after decades of hesitation.
India’s Semiconductor Mission: Policies and Plan of Action
To achieve these objectives, the Indian government in December 2021 approved the Semicon India Program with an outlay of ₹76,000 crore (around $10 billion). This comprehensive program uses generous incentives to attract investors across the semiconductor value chain, from fabs and chip packaging to design. The key components of India’s policy approach include subsidies for chip fabs, wherein, the government will provide financial support up to 50% of the project cost for companies setting up silicon CMOS semiconductor fabrication plants in India. Initially, the incentive structure varied by technology node, with priority for <28 nm nodes, but in mid-2022 it was modified to a flat 50% for any node to broaden the appeal. This level of subsidy is in line with, or even above, global norms given the high capital expense of new fabs. For display panel fabs, a similar 50% of project cost incentive is offered, aiming to create an ecosystem for AMOLED and LCD display manufacturing. Furthermore, support for compound semiconductors & ATMP is also an essential component of the program, recognising that India might more easily compete in older or specialised technologies initially, the program provides 50% capital expenditure support for setting up units in areas like compound semiconductors, GaN and SiC, silicon photonics, sensor fabs, discrete semiconductor fabs, and assembly, testing, marking, and packaging (ATMP/OSAT) units. This encourages companies to establish packaging and test facilities and specialty chip fabs, which have slightly lower technological barriers than cutting-edge logic fabs. DesignLinked Incentive (DLI) Scheme is fulcrum of the program on the design front, the DLI scheme offers to reimburse 50% of eligible expenditure, up to ₹15 crore per application, for development of chip prototypes or products, and an additional “deployment linked incentive” of 6%–4% of net sales for five years, capped at ₹30 crore per company, for those that bring their semiconductor products to market. This effectively de-risks R&D for semiconductor startups and design firms, encouraging the creation of Indian fabless companies that can utilise any new fab capacity. Infrastructure and R&D are also being boosted by the mission, modernising the existing SCL, Mohali fab as a brownfield project. SCL, which had reached ~0.8 µm (800 nm) processes by late 1980s and currently operates at ~180 nm, is slated for an upgrade, funds were allocated in 2022, to improve its capability for strategic needs. Additionally, state governments are complementing central efforts by earmarking land, power, and water at subsidised rates for semiconductor projects. Gujarat announced an attractive semiconductor policy including cheap land and water for fabs in the Dholera Special Investment Region, where one of the first projects is planned. Other states like Karnataka, Tamil Nadu and Telangana have also rolled out red carpets to chip investors, competing to host these high-tech facilities. India is keenly aware that fabs need skilled technicians and engineers in process technology, equipment maintenance, and materials science. To address this, a Semiconductor Talent Panel was set up in 2022 to develop a roadmap for “India as a Semiconductor Talent Nation”. The All India Council for Technical Education (AICTE) has rolled out new curricula for undergraduate and diploma programs in VLSI design and IC manufacturing to prepare job-ready graduates. Simultaneously, as noted, the Chips-to-Startup (C2S) academic program is training 85,000 engineers and developing dozens of chip designs in academic labs. International partnerships are also being leveraged, U.S.-based equipment giant Lam Research has initiated a virtual fabrication training program in India to upskill 60,000 engineers in 10 years on semiconductor manufacturing practices. This focus on workforce ensures that by the time fabs are operational, a talent pool will be available to staff them. In terms of governance, the India Semiconductor Mission (ISM), a specialised agency under the Ministry of Electronics & IT, has been created to drive the program, evaluate proposals, and coordinate with investors. The program is envisioned not as a short-term fix but part of a “20-year plan”, indicating the government’s commitment to stick with it across technology cycles. Initial targets were set to approve a few fab proposals quickly and break ground by 2023 so that the first made-in-India chips could roll out by 2025–26. While aggressive, this timeline was meant to align with the expected upswing in the global semiconductor market in the second half of the decade. Financially, the ₹76,000 crore package is significant, but the government has indicated it is prepared to expand the incentive kitty if credible proposals exceed the initial allocation. In other words, India is willing to put more on the table to ensure the mission’s success, much as other regions have scaled up their chip subsidy programs. This policy resolve, coupled with India’s huge domestic market and talent reservoir, has started to draw the attention of the global semiconductor industry.
Early Outcomes and Global Response
Since the announcement of the semiconductor mission, there has been a mix of enthusiastic interest and sobering challenges in turning plans into reality. In early 2022, India received proposals from three consortia to set up the country’s first large-scale silicon fabs:
1. Vedanta-Foxconn JV: A joint venture between Indian conglomerate Vedanta and Taiwan’s Foxconn, the world’s largest electronics manufacturer, proposed a $19.5 billion investment to build a 28 nm semiconductor fab, and a separate display fab in Gujarat, India. This high-profile deal, announced in 2022 with Prime Minister Modi’s strong backing, was seen as a major step – Foxconn’s manufacturing prowess combined with Vedanta’s capital was to deliver India’s first foundry. However, by July 2023, Foxconn withdrew from the partnership, citing internal venture issues. The abrupt exit, reportedly due to concerns over delays in government approvals and difficulties bringing a technology partner on board, was a setback to India’s chip dreams. Vedanta has stated it remains committed and is lining up new partners to pursue the fab solo, but the incident raised questions. Industry observers noted this “deal falling through” does not reflect well on the venture’s execution and “raises doubts for other companies” considering India. Indian officials, however, stressed this has “no impact” on the mission’s trajectory and that both Foxconn and Vedanta continue to invest in India in other ways .
2. ISMC Analog Fab: Another consortium, ISMC, led by Abu Dhabi-based Next Orbit Ventures with Tower Semiconductor (Israel) as technology partner, proposed a $3 billion fab in Karnataka to make 65 nm analog chips. This would target the automotive and power electronics market. The government has kept this proposal in consideration. A wrinkle arose when Intel announced plans to acquire Tower globally, introducing uncertainty; nonetheless, ISMC has been in a holding pattern awaiting government approval.
3. Singapore’s IGSS Ventures: A third proposal from IGSS Ventures of Singapore also targeted ~65 nm node chips, with an investment around $3 billion, choosing Tamil Nadu as a potential site. Like ISMC, this too has been under review without a final decision as of early 2023.
The slow pace of approvals, with no fab project fully green-lit even a year after the incentives launch, drew some criticism. While countries like the United States and Japan moved faster to kickstart fab constructions in 2022–23, India was still fine-tuning its plans. Learning from this, the government in late 2022 and 2023 adjusted policies, the 50% uniform subsidy, to be more investor-friendly and began actively courting other players in the global industry. Crucially, the world has indeed taken note. In mid-2023, during PM Modi’s state visit to Washington, Micron Technology, one of the world’s top memory chip makers, agreed to set up a major semiconductor Assembly, Testing, Marking, and Packaging (ATMP) facility in Gujarat. Micron announced it will invest $825 million, while the Indian central and state governments will pitch in the rest to reach a $2.75 billion total project for a new chip packaging plant. This facility, now under construction, will be India’s first modern semiconductor assembly/testing unit and is expected to create 5,000 direct jobs and 15,000 community jobs. Although it’s not a silicon wafer fabrication plant, it fills a critical piece of the ecosystem and signals global confidence in India’s plans. Simultaneously, two leading U.S. semiconductor equipment firms made significant commitments. Applied Materials announced a $400 million investment to establish a collaborative engineering center in Bengaluru, a new R&D lab to develop semiconductor manufacturing equipment and processes. This center will support over $2 billion in planned investments and create at least 500 high-tech jobs, strengthening India’s role in the semiconductor supply chain beyond just fabrication. Lam Research, as mentioned, is contributing advanced “Semiverse” virtual fabrication software and partnering with the India Semiconductor Mission and universities to train tens of thousands of engineers. These moves by equipment makers are significant, they not only bring capital, but also know-how and exposure to cutting-edge manufacturing techniques, which will benefit any upcoming fabs. Global semiconductor design companies have also expanded presence in India, reinforcing the design-to-manufacture link. AMD (Advanced Micro Devices) in 2023 announced a $400 million investment over five years to build its largest R&D campus in Bengaluru and hire ~3,000 additional engineers. This followed announcements by Intel, Google, and IBM of new semiconductor research or engineering collaborations with Indian entities as part of broader tech partnerships. The world’s reaction thus far can be summarised as cautious optimism, major industry players are engaging with India, provided the government delivers on infrastructure and expediency. International governments too are supportive. Apart from U.S. and Japan partnerships, European players are watching closely. The Vedanta-Foxconn venture had sought technology licensing from STMicroelectronics, Europe’s top chipmaker; the Indian government even wanted STMicro to take an equity stake to ensure commitment. While STMicro was reluctant to deeply commit in that case, the episode indicates India’s keenness to involve established manufacturers from Europe or Asia for their expertise. Going forward, India is inviting the likes of TSMC, Samsung, Intel and global foundries to consider India as a manufacturing destination, even if initial proposals came from newcomers, the door remains open for the giants once India demonstrates progress on current projects. There are signs of warming, reports suggest TSMC and Intel have sent teams to study India’s potential, and countries like France and Italy have discussed semiconductor cooperation with India in diplomatic forums. The early results of India’s mission include, securing an ATMP plant (Micron), major investments in talent and R&D such as Applied, Lam, and AMD, and initial fab proposals that are navigating challenges but have not been abandoned. The world is responding by way of partnerships, investments, and technology sharing, but also waiting to see if India can remove the roadblocks in time. The coming 1–2 years, as India likely finalises its first fab agreements and these projects break ground, will be pivotal in convincing more global firms to bet on India’s semiconductor future.
Challenges and the Road Ahead
No doubt, India’s semiconductor mission faces formidable challenges, many of which explain why it didn’t happen sooner. The capital intensity is a primary obstacle. Building a state-of-the-art fab can cost $10–15 billion or more, and requires continuous investments to stay technologically current. Even with 50% government subsidy, investors must put huge sums on the line in a highly cyclical industry. Ensuring a reasonable return on these mega-investments in India will depend on stable policies and guaranteed demand. The government’s role in sharing risk is crucial, but so is speed and consistency in decision-making. Delays in approving proposals or disbursing incentives can deter investors, as was partly the case with the Foxconn-Vedanta venture. To avoid “missed bus” this time, India’s bureaucracy will need to show laser-focused execution and cut through red tape at both central and state levels. Another challenge is the lack of existing semiconductor ecosystem. Countries that dominate chipmaking, Taiwan, South Korea, U.S., and Japan, have a mature network of hundreds of suppliers, ultra-pure chemicals, specialty gases, silicon wafers, precision parts, etc. India will essentially be building an ecosystem from scratch. Almost all critical inputs and equipment for fabs would initially have to be imported, and often from a restricted set of suppliers abroad. High-tech lithography tools, come from one company, ASML in the Netherlands, which faces export controls. Navigating these supply chain dependencies and securing the necessary imports on time is non-trivial. Over time, India aims to localise parts of the supply chain, encouraging chemical manufacturing or equipment servicing domestically, but those industries will take root only once fabs are present to create demand. The infrastructure demands of chip fabs are exacting. Fabs need uninterrupted power supply with no voltage fluctuations, abundant ultra-pure water, and excellent transport and cleanroom infrastructure. A single fab can require millions of liters of water per day and stable electricity 24/7, historically, India has had trouble guaranteeing these utilities at industrial sites. Any lapses could cause production scrap worth tens of millions. While states like Gujarat are promising robust infrastructure for proposed projects, execution will be key. Environmental clearances and community issues, ensuring water usage does not deprive local needs, must be managed sensitively to avoid delays or pushback. Another significant challenge is the talent for manufacturing. India has plenty of design engineers, but chip fabrication engineers and technicians are a rarer breed, requiring different skills in materials science, equipment tuning, and industrial process control. Countries like Taiwan spent decades nurturing this expertise. India will likely have to import or entice back experienced professionals in the short term including Indian diaspora working in fabs overseas, to run the first facilities, while training the next generation domestically. Programs like the Lam Research training initiative and AICTE’s new curricula are steps in the right direction, but it’s a race against time to skill-up enough people. The government has indeed started scouting globally; recent reports suggest Indian companies and state agencies recruiting engineers from Taiwan and elsewhere with lucrative offers to lead new projects. There are also market and technological challenges. The semiconductor industry is notoriously cyclical, a boom in demand can be followed by a glut. If India’s first fabs come online around 2026–27, they must hope the demand upswing predicted for late this decade materialises. Otherwise, a new fab could face low capacity utilisation if the market is down, hurting its economics. Moreover, initial fabs in India will likely produce mature-node chips including 28 nm, 45 nm, 65 nm etc., not cutting-edge 3 nm chips. While there is plenty of global demand for mature nodes, especially for automotive, IoT, and industrial electronics, competition in this segment is also intensifying as established foundries expand capacity. Indian fabs will have to compete on cost, quality, and reliable delivery against giants like TSMC, GlobalFoundries, or SMIC (China) for the same global customers. This is where the presence of a strong domestic market helps, Indian electronics firms, in consumer electronics, automotive, etc., could be initial anchor customers to keep the fab orders flowing. Still, achieving global competitiveness will be a learning curve. Finally, technology access can be a bottleneck. Advanced semiconductor manufacturing is dominated by a few firms who guard their IP closely. India’s strategy so far has been to bring in a tech partner for any new fab, e.g. STMicro for Vedanta, Tower for ISMC, so that proven process recipes can be transferred. Convincing such partners to commit fully, possibly via equity stakes or JV structures, remains challenging, as seen by STMicro’s reticence to invest equity in the Vedanta fab. Ongoing geopolitical shifts might ironically help here, U.S., Japanese and European firms are increasingly open to partnering in India as part of friend-shoring, especially for non-leading-edge tech. But India will still need to assure them of IP protection, a stable regulatory environment, and that their investment will not flounder due to local execution issues. India’s semiconductor mission will need to overcome high entry barriers, complex logistics, skill gaps, and fierce global competition. The government appears to be taking a long-term view, former Union Minister Rajeev Chandrasekhar openly acknowledged that for decades “lack of political vision and strategy” held India back, leaving it far behind, but asserts that under the current push India can achieve in one “tech decade” what others took 30 years and $200 billion to do. It is an uphill battle, but the very fact that such bold statements and concrete policies are now in play marks a historic shift.
Conclusion
As India endeavours to become a new player in semiconductor manufacturing, it does so with eyes open to both the daunting hurdles and the massive significance of success. The semiconductor mission is not just about making chips, it is about securing India’s digital future, fostering tech innovation, and asserting a role in a critical global industry. The country’s strength in chip design and its large market give it a strong foundation, indeed, India’s 20% share of global chip design talent and its growing electronics demand make it a compelling location for expansion. Through generous incentives, strategic diplomacy, and capacity building, India is signalling that it is “open for business” in semiconductors like never before. The coming years will determine if India can finally catch the “bus” it missed in the past. Early signs such as the Micron and Applied Materials investments are encouraging, but translating MoUs into silicon will be the real test. If India succeeds in getting even a few semiconductor fabs and facilities up and running by the latter half of this decade, it could alter the global semiconductor map. India would move from virtually zero presence in chip fabrication to being a viable “second source” destination for global supply chains and a powerhouse of innovation leveraging its human capital. The world is watching closely, some with skepticism, others with optimism that a new democratic partner can reinforce the semiconductor supply network. The mission’s success would not only bolster India’s economy and security but also contribute to a more diversified and resilient global semiconductor ecosystem. In essence, India’s semiconductor mission is a bold bid to marry its proven strength in knowledge with newfound might in manufacturing, to ensure that the next generation of electronics, whether in a smart car or a spacecraft, can proudly run on chips that are conceived in India and made in India.