Semiconductor Industry in India, Market Size, Opportunities, Challenges

The semiconductor industry in India is in focus as Prime Minister Narendra Modi recently inaugurated an OSAT (Outsourced Semiconductor Assembly and Test) facility in Gujarat, highlighting India’s growing role in the global chip ecosystem.

State of Semiconductor Industry in India

India’s semiconductor market is valued at around $45-50 billion in FY 2024-25 and is projected to grow significantly in the coming decade. The sector is expected to reach nearly $120 billion by 2030 and $300 billion by 2035, driven by demand from electronics, automotive, AI, and data infrastructure.

However, India still relies heavily on imports, meeting more than 90% of its semiconductor needs from abroad. This dependence is expected to decline gradually as domestic manufacturing capacity expands.

At present, India is developing its semiconductor ecosystem through investments in fabrication units (fabs), compound semiconductors, and assembly and testing facilities. Alongside manufacturing, India has emerged as a strong hub for chip design, with global companies increasingly undertaking advanced R&D work in the country.

Opportunities Shaping the Growth of India’s Semiconductor Market

• Rising Domestic Demand: The rapid expansion of smartphones, electronics manufacturing, electric vehicles, and digital services is creating sustained demand for semiconductors across sectors.
• AI, 5G, and Data Centre Expansion: The growth of Artificial Intelligence, rollout of 5G networks, and increasing investments in data centres are driving demand for high-performance and specialised chips.
• Global Supply Chain Diversification: Geopolitical uncertainties and disruptions in traditional semiconductor hubs have encouraged companies to diversify supply chains, positioning India as an alternative manufacturing destination.
• Strong Design Ecosystem: India’s established base in semiconductor design and engineering talent provides a competitive advantage in moving towards high-value segments of the value chain.
• Employment and Investment Potential: The sector is expected to generate large-scale employment and attract significant investments, with multiple projects already approved and more in the pipeline.

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Initiatives to Promote India’s Semiconductor Industry

• India Semiconductor Mission (ISM) 1.0: India Semiconductor Mission (ISM) 1.0 was launched in 2021. It aims to build a strong semiconductor and display ecosystem, positioning India as a global hub for electronics manufacturing and design, while serving as the nodal agency for the efficient and seamless implementation of semiconductor and display schemes. With a large financial outlay of 76000 crore , ISM 1.0 laid the foundation for semiconductor manufacturing by providing up to 50% fiscal support for fabs, packaging units, and design initiatives. 
• India Semiconductor Mission (ISM) 2.0 (2026): Announced in the Union Budget 2026-27, ISM 2.0 marks a shift from capacity creation to ecosystem deepening. It focuses on domestic production of semiconductor equipment and materials, development of full-stack Indian intellectual property, and strengthening supply chains. It also emphasises industry-led research and training centres, with a budgetary allocation of ₹1,000 crore. 
• Electronics Components Manufacturing Scheme (2025-26 expansion): The government has significantly increased the outlay for component manufacturing to strengthen the upstream ecosystem, reduce import dependence, and support semiconductor manufacturing. 
• Design Linked Incentive (DLI) Scheme: This scheme supports startups and MSMEs engaged in chip design by providing financial assistance and access to design infrastructure, encouraging indigenous innovation.
• Production Linked Incentive (PLI) Scheme: PLI schemes for electronics and IT hardware promote domestic manufacturing and create demand for semiconductors within the country.
• Infrastructure and Cluster Development: Schemes such as SPECS (Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors) and Electronics Manufacturing Clusters (EMC 2.0) focus on building infrastructure and strengthening the electronics ecosystem.
• Chips to Startup (C2S) Programme: C2S is an umbrella capacity building programme initiated at academic organizations spread across the country to generate 85 thousand number of industry-ready manpower at B.Tech, M.Tech, and PhD levels specialized in semiconductor chip design.
• Global Partnerships and Investments: Strategic collaborations with global companies and countries are facilitating technology transfer, investment inflows, and integration into global semiconductor value chains. For example, India has seen major global engagement with Micron Technology and Kaynes Semicon setting up advanced semiconductor facilities in Gujarat’s Sanand under the India Semiconductor Mission, linking domestic manufacturing directly to international markets. At these plants, products such as Intelligent Power Modules are being exported to global customers, strengthening India’s role in global supply chains. 

Challenges

The growth of India’s semiconductor industry, while promising, is accompanied by several critical challenges that need to be addressed to ensure sustainable development and global competitiveness.

• High Capital and Technological Barriers: Semiconductor manufacturing requires extremely high investment and advanced technology, making entry difficult for new players.
• Import Dependence and Limited Indigenous IP: India continues to depend on imports for chips, materials, and intellectual property, limiting technological self-reliance.
• Skill Gap: There is a shortage of highly specialised workforce required for fabrication, packaging, and advanced semiconductor research.
• Global Competition: Established players such as Taiwan, South Korea, and the US dominate the semiconductor industry, making competition intense.
• Infrastructure and Policy Constraints: Reliable power, water, logistics, and efficient regulatory systems are essential but still evolving in India.
• Environmental Concerns: Semiconductor manufacturing involves high energy use and hazardous materials, raising sustainability challenges.

Way Forward

India must adopt a long-term and integrated strategy to emerge as a global semiconductor hub. 

• Strengthening research and development, promoting indigenous intellectual property, and building advanced manufacturing capabilities will be essential.
• There is also a need to expand skill development through industry-academia collaboration and specialised training programmes. 
• Policy stability, faster clearances, and better coordination between the Centre and states will be crucial for attracting investments.
• India should leverage global partnerships and focus on niche areas such as semiconductor design, compound semiconductors, and advanced packaging. 

With sustained policy support and execution, India has the potential to transition from a major semiconductor consumer to a key player in the global semiconductor ecosystem.