The Semiconductor Industry In India: Policy Framework, Investment Structures And Supply-Chain Considerations

1. INTRODUCTION

1. Global semiconductor context

A semiconductor is a material with electrical conductivity between that of a conductor and an insulator, enabling controlled manipulation of electrical current. The term refers to integrated circuits, being electronic circuits in which active and passive components are fabricated on semiconductor substrates, most commonly silicon, performing computing, memory, sensing, control and power-management functions across consumer electronics, telecommunications, automobiles, industrial systems, medical devices, defence platforms and data centres. Government policy documents and multilateral analyses increasingly treat semiconductors as critical inputs for economic security and supply-chain resilience.²

The evolution of semiconductor economics has been shaped by Moore's Law, the empirical observation that transistor density on integrated circuits doubles approximately every 2 (two) years, enabling continuous improvements in performance and cost efficiency. However, industry analyses indicate that physical, engineering and economic constraints have significantly increased the cost and complexity of further scaling at advanced nodes, contributing to unprecedented capital requirements and longer development cycles.

Semiconductor fabrication facilities require high upfront capital expenditure, long development timelines, access to controlled manufacturing equipment and sustained regulatory compliance. Industry estimates suggest that establishing a leading-edge logic fabrication facility requires capital investment exceeding USD 15 - 20 billion (~INR 140,000 – 187,000 crore), excluding ecosystem and infrastructure costs.³

The global semiconductor value chain is characterised by geographic concentration and functional specialisation, with design capabilities concentrated in the United States, South Korea, Taiwan and Europe, while fabrication, assembly and testing concentrated in East and Southeast Asia.⁴ This clustering has been identified as a source of systemic risk within global supply chains.⁵ Vulnerabilities became evident during the COVID-19 pandemic, when factory shutdowns, logistics disruptions and demand volatility led to semiconductor shortages across automotive, consumer electronics and industrial sectors.⁶ Export-control measures imposed by certain countries on advanced manufacturing equipment and related technologies have further constrained access to critical inputs in certain jurisdictions,⁷ thereby intensifying policy attention on supply-chain resilience and diversification. ⁸

In response, major economies have adopted industrial-policy interventions to strengthen domestic semiconductor manufacturing. Both the United States ("US") and the European Union ("EU") have adopted targeted statutes providing subsidies and incentives for domestic manufacturing and research.⁹ Policy analyses describe these measures as reflecting a shift from efficiency-driven globalisation toward resilience-oriented supply-chain strategies.¹⁰ Corporate manufacturing strategies commonly described as "China-plus-one" have gained prominence as firms expand operations into alternative jurisdictions, including India, Vietnam and Malaysia, to reduce geographic concentration risk.¹¹

While India has hosted significant semiconductor activity in recent years, this role has largely focused on chip design and testing, rather than manufacturing and fabrication.¹² India has lacked commercial-scale wafer fabrication capacity, with limited activity in advanced node manufacturing and few mature-node production fabs.¹³ This divergence between strong design capabilities and limited fabrication capacity has contributed to India's substantial reliance on imported semiconductors.¹⁴ Expanding electronics production and digital infrastructure growth have increased the domestic semiconductor consumption, thereby prompting policymakers to prioritise participation across the semiconductor value chain, including assembly, testing, packaging and mature node manufacturing.¹⁵

1.2. India's semiconductor opportunity

India's semiconductor opportunity is intrinsically linked to the scale and growth of its domestic electronics market. Industry analyses estimated the Indian semiconductor market at approximately USD 38 billion (~INR 36,000 crore) in 2023, with projections suggesting exceeding USD 100-110 billion (~INR 9,32,000 – 10,26,000 crore) by 2030, driven by expansion across consumer electronics, automotive electronics, 5G deployment and data-centre infrastructure.¹⁶

Domestic electronics production grew from approximately USD 21 billion (~INR 19,700 crore) in financial year ("FY") 2014–15 to approximately USD 127 billion (~INR 1,190,000 crore) in FY 2024–25, representing nearly six-fold growth,¹⁷ with projections indicating output reaching approximately USD 300 billion (~INR 2,819,000 crore) by 2026.¹⁸ This growth in downstream electronics assembly has driven demand for semiconductor, particularly mature and legacy nodes essential for industrial, automotive and consumer electronics applications.¹⁹

Semiconductor and electronic component imports are a major contributor to India's electronics trade deficit.²⁰ India relies substantially on foreign sources for both advanced logic chips and legacy categories, exposing the economy to supply chain disruptions, and geopolitical volatility, as semiconductors are foundational to telecommunications infrastructure, power grids and defence platforms.²¹

In response, the Government of India has prioritized the semiconductor sector under the Make in India and Atmanirbhar Bharat initiatives to establish a comprehensive, self-reliant ecosystem covering design, fabrication, and assembly (Assembly, Testing, Marking, and Packaging ("ATMP") / Outsourced Semiconductor Aseembly and Test ("OSAT")).²² The India Semiconductor Mission ("ISM"), established in December 2021, with a fiscal outlay of approximately USD 9 billion (~INR 76,000 crore), provides financial support for the development of the manufacturing ecosystem.²³ As of late 2025, the ISM has approved 10 semiconductor projects across 6 Indian States, representing cumulative investment commitments exceeding approximately USD 19 billion (~INR 179,000 crore).²⁴

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