Narendra Modi govt is giving shape to India's semiconductor dreams: A high-stakes race to global dominance

India’s ambition to establish itself as a key player in the global semiconductor ecosystem took shape three years ago when the government, led by Prime Minister Narendra Modi, approved a financial outlay of ₹76,000 crore to build the semiconductor manufacturing ecosystem in India. Conceptualised to create a robust domestic semiconductor industry spanning chip design, manufacturing, and packaging, the modified programme for the development of the semiconductor and display manufacturing ecosystem in India has been allotted ₹7,000 crore in this year’s budget, a slight rise from ₹6,903 crore in the previous budget.

Commenting on the budget allocated for the Semicon India Programme, Ashwini Vaishnaw, Minister of Electronics & IT, states, “India’s Semiconductor scheme is a 20-plus-year plan.” Given the momentum India has gained, with global chip players engaging in the scheme—some directly and others through technology transfers or partnerships—Vaishnaw is optimistic that India will emerge as a major player in semiconductor design and manufacturing over the next five years.

India is offering incentives covering 70-75% of the project cost through a combination of central and state government support, successfully attracting investments exceeding ₹1.5 lakh crore. The government has nearly allocated the ₹76,000 crore sanctioned under the first phase of the semiconductor scheme, with the majority directed toward five key projects, including semiconductor fabrication and advanced packaging units. These projects include an Assembly, Testing, Marking, and Packaging (ATMP) facility by Micron, a fabrication unit along with a testing and packaging plant by Tata Electronics, and Outsourced Semiconductor Assembly and Test (OSAT) facilities by CG Power and Kaynes Technology.

Most of these companies have already begun construction, and the first semiconductor chips are expected to roll out from Micron’s ATMP facility before the end of 2025, with other projects following in subsequent years.

“The last 1-2 years were spent approving manufacturing projects, with companies focusing on project plans and obtaining necessary clearances. This year will primarily involve civil infrastructure development and clean-room construction for fabs and ATMP plants, with limited equipment purchases and installations. Since India’s incentives are provided on a pari-passu basis, the allocated funds will be used for clean-room construction and utilities infrastructure,” explains Satya Gupta, President, VLSI Society. Gupta adds, “Next year, incentives will primarily go towards equipment purchases, tool installations, and limited production, where the bulk of the funding will be utilised.”

Advancing India’s chip manufacturing base

After decades of unsuccessful attempts, experts believe India has finally made a strong start in the semiconductor space. However, sustaining momentum will require the country to attract major, well-established global players. At present, apart from Micron’s OSAT facility, all approved projects are led by Indian companies with no prior expertise in semiconductor manufacturing. That said, in line with the government's requirement to onboard technology partners, these companies have collaborated with leading semiconductor firms to bridge the knowledge gap.

In a significant development for India’s semiconductor ambitions, Israel-based Tower Semiconductor, a major global player in chip manufacturing, is partnering with Adani to establish a semiconductor fabrication plant in India. Additionally, Indian companies such as Zoho and Hiranandani have also submitted proposals, signalling growing interest from homegrown firms in the semiconductor space.

However, a single semiconductor fabrication plant and a few testing and packaging units will not be sufficient to place India among the world’s top five semiconductor nations, as envisioned by the government. Taiwan, the global leader in semiconductors, operates over 80 fabs, while Japan and China have 103 and 81 fabrication facilities, respectively, according to the World Population Review. Additionally, Tata Electronics’ upcoming fab will primarily focus on manufacturing power management circuits, display drivers, microcontrollers, and high-performance computing logic, highlighting the need for a broader semiconductor manufacturing ecosystem in India.

The absence of specialised semiconductor fabrication facilities in India limits the country’s ability to attract a diverse range of chipmakers. While initiatives in assembly, testing, and packaging are gaining traction, the lack of fabs for niche semiconductor materials like Gallium Nitride (GaN) and Gallium Arsenide (GaAs) forces companies to rely on overseas manufacturing. For instance, TagoreTech, a US-based fabless firm specialising in RF semiconductors, cannot fabricate its chips at Tata’s upcoming facility.

“Our products are based on wideband gap materials such as Gallium Nitride (GaN) and Gallium Arsenide (GaAs). Currently, India does not have the specialised fabrication facilities required for these materials, so our manufacturing takes place overseas. However, there are several initiatives underway within India related to assembly and testing. These activities may eventually lead to the establishment of Outsourced Semiconductor Assembly and Test (OSAT) services in the country, which would greatly benefit our operations by providing local solutions for packaging and testing,” says Manish Shah, Co-founder and Chief Technology Officer of TagoreTech.

At the same time, India’s semiconductor ambitions face challenges beyond just manufacturing capacity. Supply chain inefficiencies, a shortage of skilled talent, and policy execution uncertainties continue to hinder large-scale foreign investment.

“While local participation has increased, global fabs remain cautious due to supply chain gaps, talent shortages, and policy execution uncertainties. A shifting geopolitical landscape, including a potential Trump presidency, could impact trade, technology partnerships, and talent exchange. To sustain momentum, India must look beyond fabs and packaging, focusing on securing specialised materials, fortifying security infrastructure, and ensuring that capital-intensive investments are backed by long-term policy clarity,” says Ashwath Rao, Senior Analyst, Counterpoint Research.

Designing in India

Beyond focusing on semiconductor manufacturing, India must also ensure that the chips fabricated at these facilities find domestic customers. A strong local demand base will not only sustain these investments but also drive further innovation and scalability.

“I think there is a major flaw in our plans. Our fabs will come up after investing around ₹90,000 crore, but we don’t have any Indian customers to buy our chips. We had formed a task force at MEITY to make India a product nation in system products and chips, and this needs to be implemented to create customers for chips made in India. We had identified 30 products and 30 chips to be designed in India,” says Ajai Chowdhry, Founder of HCL and Chairman of EPIC Foundation.

India must not only prioritise semiconductor manufacturing but also cultivate a strong semiconductor design ecosystem to nurture global-scale chip design companies like Qualcomm and NVIDIA within the country. A thriving design sector will complement domestic manufacturing, strengthening India’s position in the global semiconductor value chain. Through the Design Linked Incentive (DLI) Scheme, the government is providing financial incentives and design infrastructure support at various stages of semiconductor design and development. However, much more needs to be done to truly establish India as a global semiconductor design powerhouse.

Talent shortage threatens growth

According to Fab Economics Global R&A, a talent shortage—not a chip shortage—will be the primary supply constraint for the semiconductor manufacturing and packaging industry in the coming years.

Danish Faruqui, CEO of Fab Economics, a US-based semiconductor investment advisory firm, states, “Bottom-up modelling aligned with the talent requirements of global greenfield fab and OSAT projects (across Logic, Memory, Analog, Compound Semi, Display, and OSAT/ATP) shows that talent shortages will turn into a crisis after 2025.” He adds that while most approved fab and OSAT projects will commence high-volume operations in the next two years, the domestic supply of fab and OSAT talent remains almost negligible.

Recognising this, the Government of India has launched a mission to train and skill over 85,000 engineers for roles in the semiconductor ecosystem over the next five years.

However, Gupta of the VLSI Society points out that India’s semiconductor manufacturing talent pool remains weak due to the absence of strong domestic manufacturing facilities and a lack of hands-on experience in academia. He emphasises that India should focus on attracting global Indian semiconductor experts back to the country, similar to Taiwan and South Korea.

India’s semiconductor ambitions have taken a decisive step forward, but sustaining this momentum will require not just investment and policy support but also a sharp focus on talent development, supply chain resilience, and fostering a robust domestic design ecosystem—critical factors that will determine whether India emerges as a true global semiconductor powerhouse.