Future of India’s Chip Industry – Explained

Chip Industry Latest News

• NITI Aayog’s Frontier Tech Hub has released a report titled “Future of India’s Semiconductor Industry“, highlighting the challenges and strategic imperatives for building a globally competitive chip manufacturing ecosystem in India.

About Semiconductors

• Semiconductors, commonly known as chips, are materials that conduct electricity better than insulators but not as well as conductors. 
• They form the foundation of modern electronics and are found in virtually every electronic device, including:
  • Consumer electronics: Smartphones, laptops, televisions, and home appliances.
  • Automobiles: Modern cars contain hundreds of chips for engine control, infotainment, and safety systems.
  • Defence equipment: Missiles, radars, satellites, and communication systems.
  • Industrial machinery: Robots, automation systems, and IoT devices.
  • Healthcare devices: Medical imaging, diagnostic equipment, and wearables.

‹ ›

Stages of Semiconductor Manufacturing

• The semiconductor value chain comprises several stages:
  • Design: Creating chip architecture and circuits.
  • Fabrication (Fabs): Manufacturing the actual chip on silicon wafers in highly specialised facilities.
  • Assembly, Testing, Marking, and Packaging (ATMP): Final stages where chips are packaged and tested before shipment.
• Fabrication is the most capital-intensive and technologically complex stage, requiring ultra-clean environments and specialised equipment costing billions of dollars.

India’s Semiconductor Push

• The Union government launched the India Semiconductor Mission (ISM) with a corpus of Rs. 76,000 crore to develop a robust semiconductor ecosystem. The mission supports:
  • Semiconductor fabrication units with capital subsidies of over 50%.
  • Display fabs for manufacturing display panels.
  • Compound semiconductors and packaging facilities.
  • Design-linked incentives for chip design startups.
  • Bulk subscriptions to industry-grade semiconductor design applications for students and academia.
• Current Status
  • India does not yet have a single operational fabrication unit.
  • The first fabrication unit is expected to begin operations in Dholera, Gujarat by 2028.
  • A total of ten semiconductor projects are in various stages of development.
  • Multiple semiconductor packaging and testing facilities have been approved with significant subsidies.

Key Findings of the NITI Aayog Report

• India’s Current Ecosystem Is Not Self-Sufficient
  • The report explicitly states: “India’s local ecosystem is not ready to fully meet domestic demand for semiconductors.” 
  • Even chips used in domestic electronics assembly are largely sourced from outside the country.
• National Security Imperative
  • Many semiconductor parts used in defence systems are produced outside India.
  • This creates threats to national security as India deploys foreign chips in aerospace and defence programmes.
  • Geopolitical disruptions, such as a potential disaster in Taiwan, which dominates global chip manufacturing, could massively disrupt the global electronics supply chain.
• Long Gestation Period
  • Fabrication units typically require 4-5 years before commencing production.
  • Investment in 50+ specialised equipment from global players is required during the gestation phase.
  • Yield optimization and reliability testing take several quarters even after production begins.
  • Talent development for semiconductor fabs is similarly time-consuming.
  • The sector requires “sustained, mission-mode commitment over a decade or more,” the report states.

Strategic Recommendations

• Building Sovereign Capabilities
  • Sovereign design and research capabilities to reduce dependence on foreign IP.
  • R&D excellence in materials sciences and silicon design.
  • Harnessing agentic AI for semiconductor engineering.
  • Moving from a services-led design base to becoming a creator of differentiated IP, architectures, and integration technologies.
• Capital Investment Requirements
  • The report estimates the necessary capital expenditure from the state at $45-60 billion over a decade for the second phase of the India Semiconductor Mission (ISM 2.0).
• Strategic Focus Areas
  • Away from frontier chips (3-7 nanometre transistors) where risks are very high.
  • Towards mature and advanced nodes aligned with strategic relevance.
  • Focus on compound semiconductors for defence and industrial applications.
  • Emphasise “selective depth, capital efficiency, and system-level differentiation” rather than attempting to replicate the full global manufacturing spectrum.
• Packaging as a Core Pillar
  • The report identifies chip packaging, traditionally seen as a downstream activity, as a “core production pillar”:
  • Less expensive and complex than fabrication.
  • Can enable rapid import substitution in high-volume domestic segments.
  • Provides a strategic entry point into the global semiconductor value chain.
• Trusted Partners Strategy
  • The report outlines a strategic partnership framework for India’s semiconductor ambitions:
• Priority Partners
  • The report highlights the following nations as trusted partners: the United States, Japan, the European Union and South Korea
• Areas of Collaboration
  • Cooperation with these partners would provide:
  • Access to critical tools, equipment servicing, and lifecycle support.
  • Leveraging India’s market scale, talent base, and packaging capacity.
  • Joint research and development opportunities.
  • Technology transfer arrangements.
• China as an Adversary
  • The report implies that China remains an adversary in chipmaking despite recent diplomatic thaws between the two nations. 
  • This reflects the broader geopolitical realignment in the semiconductor industry, where Western nations and their allies are seeking to reduce dependence on Chinese supply chains.

Challenges Facing India’s Semiconductor Industry

• Capital Intensity
  • Setting up a single fab requires billions of dollars in investment.
  • High operational costs and long payback periods deter private investment.
  • Need for sustained government support over decades.
• Technology Gap
  • India lags significantly behind established semiconductor manufacturers like Taiwan (TSMC), South Korea (Samsung), and the US.
  • Lack of indigenous process technology and IP.
  • Heavy reliance on foreign equipment and expertise.
• Talent Shortage
  • Shortage of specialised engineers with semiconductor manufacturing experience.
  • Need for comprehensive training programmes and educational reforms.
  • Competition for talent with established global semiconductor hubs.
• Supply Chain Dependencies
  • Dependence on imported raw materials, chemicals, and gases.
  • Need to develop a domestic ecosystem of suppliers.
  • Vulnerability to geopolitical disruptions.
• Infrastructure Requirements
  • Need for reliable power supply, ultra-pure water, and specialised gases.
  • Requirement for clean room facilities with stringent environmental controls.
  • Long lead times for setting up support infrastructure.

Source: TH | NITI Aayog