Context: NITI Aayog’s Frontier Tech Hub released a report titled “Future of India’s Semiconductor Industry”, highlighting steep challenges ahead. India does not have a single semiconductor fabrication unit yet, with the first expected to open in Dholera, Gujarat, by 2028.
Current Status of India’s Semiconductor Ecosystem
- India’s local ecosystem is not ready to fully meet domestic demand for semiconductors currently.
- Even chips used in domestic electronics assembly are largely sourced from outside the country.
- As many semiconductor parts used in defence systems are produced outside India, this is increasing national security threats.
- A total of ten fabrication units are in various stages of development across India currently.
India Semiconductor Mission (ISM)
- ISM is a Rs 76,000 crore corpus almost fully earmarked to semiconductor fabs, component manufacturing incentives and design applications for academia.
- The most ambitious projects, i.e. fabs, have received capital subsidies of upwards of 50%.
- Other projects have received production-linked and output-linked incentives from both Union and State governments.
- The sector requires sustained mission-mode commitment over a decade or more to yield meaningful results.
Key Challenges
- Fab units typically require four to five years before commencing production after establishment.
- During the gestation phase, units must invest in more than 50 specialised equipment from global players.
- After production, yield optimisation and reliability testing take several quarters before chips actually reach the market.
- Developing skilled talent for semiconductor fabrication is equally time-consuming and resource-intensive.
- Geopolitical risks, including a potential disaster in Taiwan, could massively disrupt India’s electronics supply chain.
Strategic Recommendations of the Report
- India must build sovereign design and research capabilities and R&D excellence, harnessing agentic AI for semiconductor engineering.
- Building deep capabilities in materials sciences and silicon design will move India from services-led design to creating differentiated IP.
- The report advocates selective depth, capital efficiency and system-level differentiation rather than replicating the full global manufacturing spectrum.
- Packaging — among the last steps of chipmaking — is identified as a core production pillar and not merely a downstream activity.
- Focus should shift toward mature and advanced nodes aligned with strategic relevance rather than frontier chips of 3 to 7 nanometres.
Capital Requirements and ISM 2.0
- The report pegs the necessary capital expenditure from the state at USD 45 to 60 billion over a period of ten years.
- Investment should focus on projects where risk is lower and bankability can assure returns to investors.
- The ambition of ISM 2.0 largely stays out of big-ticket frontier fab projects, focusing instead on strategic and mature nodes.
Trusted Partners
- The report identifies the USA, Japan, the European Union and South Korea as priority partners for semiconductor cooperation.
- These partnerships will provide access to critical tools, equipment servicing and lifecycle support.
- India must leverage its market scale, talent base and packaging capacity to attract strategic partnerships.
- The report implies China is an adversary in chipmaking despite the recent diplomatic thaw in bilateral relations.
Conclusion: With sustained commitment and strategic clarity, India can build a competitive semiconductor ecosystem that strengthens economic resilience. Converting India’s semiconductor ambition into an enduring industrial and strategic reality requires a decade-long mission-mode approach with targeted public investment.
