India’s Semiconductor Ambitions: Progress and Challenges

In October, a small electronics manufacturer located in Gujarat, India, marked a significant milestone by shipping its inaugural batch of chip modules to a client based in California. This achievement was realized by Kaynes Semicon, which collaborated with Japanese and Malaysian technology partners in the construction of a cutting-edge factory made possible by incentives tied to Prime Minister Narendra Modi’s $10 billion semiconductor initiative launched in 2021. Such efforts aim to reestablish India as a viable manufacturing hub for global companies looking to diversify away from China, though the results have been mixed so far.

The New Foundry: A Step Forward

A visible indicator of this ambition is the ongoing construction of India’s first commercial foundry dedicated to mature chips, also situated in Gujarat. This $11 billion project, supported by technology transfer from a Taiwanese chipmaker and involving the American giant Intel as a potential client, exemplifies the growing interest in the chip sector. As global demand for semiconductors skyrockets, India’s foray into this market could significantly strengthen its role in international supply chains. However, experts warn that India still faces substantial challenges in attracting foreign investment and catching up technologically.

Understanding the Semiconductor Landscape

Semiconductor chips undergo a meticulous journey from design and fabrication in foundries to assembly and packaging for the market. Currently, the United States excels in chip design, Taiwan leads in fabrication, and China is rapidly advancing in packaging. The foundry under construction in Gujarat is a concerted effort between India’s Tata Group and Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC), focusing not just on building the facility but also on facilitating technology transfer.

Key Agreements and Future Prospects

In December, Tata Electronics secured an agreement with Intel to explore manufacturing and packaging Intel products within Tata’s new facilities, further addressing growing domestic needs. Last year, Tata was granted a 50% subsidy from the Modi government aimed at the foundry, complemented by additional state-level assistance, with operations expected to commence by December 2026. This pivotal project signifies a breakthrough for India, which has faced multiple failed attempts to develop a commercial fab in the past.

Mature Chips vs. Emerging Technology

The foundry will primarily focus on producing chips ranging from 28 nanometers (nm) to 110 nm, commonly known as mature chips, which are generally easier to manufacture compared to advanced chips like the 7 nm or 3 nm variants. These mature chips serve a plethora of applications in consumer electronics and power devices, while smaller chips are increasingly in demand for AI data centers and high-performance computing. Taiwan is currently the world leader in mature chip production, with China quickly closing the gap, although Taiwan’s TSMC remains the dominant player in advanced technology below 7 nm.

Incentives and Development Challenges

More than half of the Modi government’s semiconductor budget is allocated to the Tata-PSMC venture, with the remainder supporting nine other initiatives focused on assembly, testing, and packaging (ATP) stages within the semiconductor supply chain. These pioneering projects include initiatives by Idaho’s Micron Technology and another Tata effort based in the northeastern state of Assam. Both projects have planned investments of $2.7 billion and $3.3 billion, respectively. Smaller initiatives require lesser investments, ranging from $50 million to $1 billion, making them appear more appealing despite existing delays in project timelines.

Addressing Domestic Demand

The anticipated semiconductor endeavors aim primarily at fulfilling legacy or mature chip needs, as these account for a substantial portion of global market demand, including applications in automobiles and consumer electronics. India positions itself as a leading player in the “China Plus One” strategy amidst global supply chain diversification efforts. For instance, Apple has expanded its manufacturing presence in India, partnering with Foxconn and Tata Electronics, thereby emerging as a significant supplier to the US market following tariff uncertainties regarding shipments from China.

Future Outlook and Additional Support Needed

Despite the Modi government’s significant backing for the semiconductor sector, India’s investment still lags behind the $48 billion committed by China and the $53 billion allocated under the US CHIPS Act. To scale adequately in the ATP segment, India will require ongoing governmental support, particularly as it seeks to delve into manufacturing chips smaller than 28 nm.

Global Market Dynamics

As the semiconductor market continues to expand globally—projected to grow from roughly $650 billion to $1 trillion—India’s ambitions are not merely about shifting existing manufacturing from China but also capturing burgeoning demand, both domestically and internationally. The country’s chip imports have surged, reflecting increasing reliance on external sources, with China remaining the dominant supplier, followed by Hong Kong, South Korea, Taiwan, and Singapore.

Conclusion

India’s endeavors to enhance its semiconductor manufacturing capabilities are crucial not only for meeting domestic requirements but also for establishing the country as a credible player in global supply chains. While the government has made unprecedented strides in this sector, continued investment, improved infrastructural support, and a favorable trade environment will be essential to foster growth and technological advancements in the coming years.

Key Takeaways

India is making progress in semiconductor manufacturing with significant projects underway in Gujarat.
Collaboration with international firms and technology transfer are vital for success.
Meeting domestic demand for chips is a priority, with the market expected to expand significantly.
Continued government support and improvements in the business environment are necessary for further advancements.