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

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 .[1]  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]   [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]

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]  [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]

India's human-capital base provides competitive advantage, with the country hosting approximately 20 per cent of the global semiconductor design workforce, totalling over 125,000 (one hundred and twenty five thousand) workers engaged in chip design, verification and related activities. [25]  While India demonstrates leadership in upstream design and verification, policy focus is shifting toward bridging skills gaps in clean-room operations, process engineering and advanced manufacturing. [26]  Initiatives including the ‘Chips to Startups’ programme and the Design Linked Incentive scheme (“DLI”) are expanding the talent pipeline, improving access to design infrastructure, including electronic design automation tools, and supporting indigenous intellectual property creation. [27]  These factors place India at a critical juncture, where a robust legal and regulatory framework will be essential to translate domestic demand, policy support and human capital into a self-reliant semiconductor manufacturing ecosystem.

2.1 Structuring of the venture

2.1.1 Ownership and investment structures[ 28]

Semiconductor manufacturing ventures in India adopt ownership structures that accommodate the sector’s technological, financial, and regulatory requirements. The capital-intensive nature of fabrication, extended project timelines, dependence on proprietary technology, and applicable foreign investment regulations collectively shape these structures. This variation reflects differences in technology access pathways, capital deployment strategies, risk allocation preferences, and levels of operational integration with foreign partners.

India’s exchange control framework permits equity participation by between Indian and foreign investors without prior governmental approval, subject to compliance with applicable pricing conditions, valuation norms and other conditionalities. This flexibility facilitates the establishment of ownership structures tailored to project-specific requirements. An examination of the 10 (ten) ISM approved projects, based on publicly available information, indicates the presence of four broad ownership and investment structures, differentiated by equity participation, technology control mechanisms, and operational autonomy. [29]  The principal structural configurations are summarised in the table below.

While these projects have received government approval, recent press releases and disclosures suggest that definitive documentation, transaction completion and subsequent expansions for several projects remain in progress. Kaynes SemiCon (a wholly owned subsidiary of Kaynes Technology India Limited), one of the approved ISM projects announced on January 16, 2026, the execution of a fiscal support agreement and related transaction documents with ISM, enabling the implementation of eligible fiscal support. In January 2026, Kaynes SemiCon also entered into binding agreements with SEALSQ Corp (a subsidiary of WISeKey International Holding AG, which focuses on developing and selling Semiconductors, PKI, and Post-Quantum technology hardware and software products) for the formation of a joint venture to develop an Outsourced Semiconductor Test & Personalization (“OSTP”) facility at Kaynes SemiCon’s manufacturing site in India.

According to statements by officials of the Indian Government, 4 (four) of the 10 (ten) approved projects (i.e., Micron, CG Power, Kaynes SemiCon, and Tata Electronics (Assam)), are set to commence commercial production in 2026. 

i. Equity joint ventures

Equity joint ventures (“JVs”) are incorporated entities in which Indian and foreign participants hold equity interests in a common project company. These ventures involve shared capital contribution, participation in profits and losses, and governance arrangements formalized through shareholders' agreements and articles of association.

JVs are typically incorporated as private limited companies under the Companies Act, 2013. Their governance structures provide for board composition and representation, reserved matters requiring unanimous or supermajority approval, capital contribution obligations and funding schedules, technology access and licensing arrangements, intellectual property ownership and derivative development rights, and exit provisions including transfer restrictions and liquidity mechanisms. Across JVs, the following indicative structural characteristics are observed:

• Foreign partners contribute process technology, operational know-how, equipment specifications, advanced packaging expertise, or access to global semiconductor supply chains.
   
• Indian partners contribute capital deployment capabilities, land acquisition and infrastructure development, regulatory interface and incentive scheme navigation, domestic manufacturing expertise, and workforce development capabilities.
   
• Technology access is formalized through embedded licensing or technology contribution agreements integrated within the equity relationship and governance framework, rather than arm's-length commercial supply contracts characteristic of non-equity technology partnerships.
   
• These structures permit integration of foreign semiconductor expertise while maintaining domestic anchoring of manufacturing facilities and eligibility for ISM fiscal support mechanisms.

Governance and rights structures in Equity Joint Ventures 

JVs in semiconductor manufacturing typically incorporate enhanced governance and minority protection mechanisms, reflecting the scale of investment and reliance on proprietary technology. The table below summarises governance features commonly observed in such ventures based on publicly available information and market practice.

ii. Indian companies with foreign technology partner(s)

This structural category includes semiconductor ventures that are owned by Indian entities but rely operationally and technologically on foreign technology providers through contractual arrangements rather than equity participation. Such ventures retain ownership independence while accessing required semiconductor technology through licensing agreements and technical assistance frameworks. Unlike JVs, where foreign technology providers participate as shareholders, this model segregates ownership from technology access. The Indian entity owns and operates the facility, secures project financing, manages regulatory compliance, and bears commercial risks, while accessing technology through contractual relationships.

In semiconductor partnerships, technology transfer or licensing arrangements necessitate detailed agreements addressing technology scope, usage rights, territorial restrictions, and commercial terms.

iii. Wholly owned foreign subsidiaries

This category comprises facilities established as wholly owned subsidiaries of foreign parent corporations.

Wholly owned subsidiary structures provide the foreign parent entity with complete ownership, operational control, and strategic direction with the Indian subsidiary integrated into the parent’s global manufacturing footprint, technology ecosystem, and customer fulfilment systems. Such structures prove advantageous where the foreign parent possesses requisite financial resources for capital-intensive semiconductor investments without requiring co-investors or risk-sharing partners, proprietary technology and manufacturing processes requiring protection from external parties, established global operations enabling deployment of standardized processes and quality frameworks, and strategic imperatives demanding complete operational control and integration with parent entity supply chains. 

iv. Wholly owned operational autonomous Indian Projects 

This structural category comprises semiconductor ventures that are wholly owned by Indian entities and maintain operational autonomy through indigenous technology capabilities, proprietary process development, or established in-house technological competencies accumulated over extended operating histories, thereby exhibiting limited dependence on foreign technology licensing or ongoing technical assistance arrangements.

2.2.1 Overview

Composite Legal and Regulatory Framework

Semiconductor manufacturing in India is governed by a composite legal and policy framework rather than a single sector-specific statute. The establishment and operation of semiconductor fabrication, assembly, testing, and related facilities are regulated through a combination of sector-focused policy instruments, statutes of general application, and project-specific arrangements with public authorities. 

Semicon India Programme and India Semiconductor Mission

At the policy level, India’s semiconductor manufacturing ecosystem is anchored in the Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India, commonly referred to as the ‘Semicon India Programme ’.[30]  The Programme provides an overarching framework for fiscal support and institutional coordination across the semiconductor value chain, encompassing multiple schemes addressing fabrication, advanced packaging, design, and allied component manufacturing. 

The ISM functions as the nodal agency for implementation of the Semicon India Programme, serving as the central authority for techno-financial appraisal, due diligence, and verification of semiconductor projects. [31]

Interaction Between Policy and Statutory Approval

A defining feature of the framework is the separation between policy-level support and statutory approval processes. While semiconductor projects are appraised and supported within the centralized ISM framework, the regulatory approvals continue to be granted by the competent authorities under applicable Union (Central) and sState laws.

Environmental compliance is a critical aspect of statutory approval. Semiconductor fabrication facilities must obtain consents from jurisdictional State Pollution Control Boards for water and air emissions, comply with hazardous and electronic waste management regulations, and adhere to Environmental Impact Assessment norms. These approvals operate independently of the ISM policy support and must be obtained from the relevant State authorities having jurisdiction under applicable environmental laws. Real estate and construction compliance requirements include title verification, zoning approvals, building plan certification, and adherence to fire and industrial safety regulations, including the Factories Act, 1948, which is now subsumed under the Occupational Safety, Health and Working Conditions Code, 2020 (“OSH Code”) and applicable municipal and state laws. Stamp duty and registration requirements for land transfers must also be met, subject to potential exemptions in Special Economic Zones (“SEZs”) or under incentive schemes.

Role of State Governments

State governments play a complementary role in semiconductor project facilitation through State-level policies, land allocation, infrastructure provisioning, and incentive programmes. State semiconductor policies and their interaction with central scheme approvals are examined in sections 3.4 and 3.5 of this paper.

Specialized Infrastructure and Regulatory Requirements 

Semiconductor fabrication facilities have highly specialized infrastructure requirements, including large continuous land parcels, uninterrupted access to ultra-pure water, stable and redundant power supply, secure specialty-gas pipelines, advanced telecommunications networks, and comprehensive waste management systems. Utilities and services are generally developed through a combination of state industrial infrastructure corporations, public utilities, and private developers, often within SEZs or industrial clusters. Facilities are encouraged to adopt sustainable practices, such as renewable energy integration and green building standards.

2.2.2 Exchange control considerations

Foreign investment in semiconductor ventures in India is governed by the Foreign Exchange Management Act, 1999 (“FEMA”), operationalized through the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”), and the Master Direction on Foreign Investment in India issued by the Reserve Bank of India (“RBI”).

2.2.2.1 Entry routes and permissible capital instruments

Foreign investment in India is permitted through two principal routes: the automatic route and the government approval route. Under the automatic route, no prior governmental or RBI approval is required, enabling expedited establishment of ventures. Under the government approval route, prior clearance from the competent authority is mandated for specified sectors or circumstances. 

Electronics manufacturing, including semiconductor fabrication, permits foreign direct investment up to 100 (one hundred) per cent under the automatic route. This liberalized framework facilitates participation by global semiconductor corporations, foundry operators, equipment manufacturers, and technology providers without regulatory pre-clearance, thereby reducing transaction timelines and administrative burden.

The NDI Rules prescribe permissible non-debt instruments for foreign investment. Persons resident outside India may invest in India through ‘equity instruments. ’[32] 

2.2.2.2 Pricing guidelines and valuation 

The NDI Rules require any issuance of shares to a non-resident to be priced at or above fair market value. In rights issue scenarios, the requirement is to ensure that a rights issue to a non-resident must not be priced lower what is offered to the resident shareholders. However, in the event a non-resident acquires shares by way of rights issue through rights renounced by resident shareholders.

2.2.2.3 Optionality and assured return 

Optionality clauses are permitted for equity instruments in India subject to a minimum lock-in of one year (or as prescribed for a specific sector). However, such a clause cannot allow assured returns to the non-resident investor. It may be noted, however, that this does not limit the investor’s ability to claim damages for a breach of contract. In the case of Cruz City I Mauritius Holdings v. Unitech Limited, a put option provided to Cruz City could be exercised only within a specified time period and was contingent on the delay of the commencement of the project. The court allowed the exercising the put option clause, noting that the clause was not an open-ended assured return clause, but rather was in the nature of a claim for damages based on breach of obligations. Similarly, in the case of Banyan Tree Growth Capital v. Axiom, it was held that a put option clause which did not provide for open-ended assured returns, was timebound, contingent on the occurrence of an event and in compliance with the pricing guidelines would not be in violation of the FEMA. Accordingly, investors should ensure that they carefully structure optionality clauses in equity instruments to align with the regulatory framework while ensuring that no assured returns are provided through such clauses.

2.2.2.4 Downstream investment and FOCC considerations 

Downstream investment refers to investment made by an Indian entity that has received foreign investment into the equity capital of another Indian entity. ‘Indirect foreign investment‘ is downstream investment received by an Indian entity from another Indian entity that is not owned and controlled by Indian residents or is owned or controlled by persons resident outside India, i.e., a ‘Foreign Owned and Controlled Company’ (“FOCC”). An Indian entity constitutes an FOCC if more than 50% of its shareholding is held by non-residents and if such entity is controlled [33]  by non-residents.

The guiding principle for downstream investments under the Indian regulatory framework provides that “what cannot be done directly shall not be done indirectly”. All the conditions applicable for foreign direct investment under the NDI Rules, such as sectoral caps, investment limits and pricing guidelines, are applicable to any downstream investment that is an indirect foreign investment.

FOCC Pricing and Reporting

Rule 23(5) of the NDI Rules provides pricing and reporting requirements for transactions involving transfer of equity instruments held by an FOCC. 

Notably, the NDI Rules do not provide for applicable compliance requirements where an FOCC is the transferee (and not the transferor) of equity instruments. Industry practice, developed through informal guidance received by Authorised Dealer banks from the RBI, has evolved to require adherence to pricing guidelines where equity instruments are transferred from a person resident outside India to an FOCC.

Pricing and reporting requirements in different scenarios involving FOCCs may be understood as follows:

2.2.3 Anti-bribery; anti-corruption (“ABAC”)

Semiconductor projects in India involve extensive engagement with government officials throughout the project lifeycycle, from setting up to day-to-day compliance, thereby presenting inherent corruption and bribery risks. Given that semiconductor projects frequently require government approvals, environmental clearances, industrial licenses, and participation in incentive schemes administered by Central and State authorities, interaction with public officials constitutes a material compliance risk. The principal domestic anti-corruption legislation is the Prevention of Corruption Act, 1988. Additionally, where semiconductor ventures involve foreign shareholders, technology partners, or parent companies from the foreign countries, compliance with anti-bribery/anti-corruption laws of such countries (for example, the U.S. Foreign Corrupt Practices Act, 1977).

At the investment stage, a strong due diligence exercise and background checks on promoters, as well as contracted third parties and agents is pivotal. Investors may insist for robust internal ABAC policies and frameworks that implement controls to mitigate ABAC risks, especially insofar as the target deals with government entities.

2.2.4 Labour and Employment

Semiconductor manufacturing ventures in India are subject to comprehensive labour and employment compliance obligations under the four (4) Labour Codes: the Code on Wages, 2019; the Industrial Relations Code, 2020 (“IR Code”); the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020 (collectively, the “Labour Codes”). These Labour Codes consolidate 29 (twenty-nine) labour enactments and fundamentally altered workforce classification, compensation structuring, and employment cost obligations. The Labour Codes have radically widened the ambit of individuals covered by labour laws, extending wage compliances to all employees including managerial and supervisory personnel without salary thresholds, bringing gig workers, platform workers, home-based workers, and fixed-term employees within the regulatory framework.

Critical compliance implications for semiconductor ventures include the fifty (50) per cent rule mandating that allowances cannot exceed 50 per cent of the remuneration, thereby increasing the base for calculating Provident Fund, Employees State Insurance, gratuity, and bonus obligations; restrictions on contract labour deployment limiting such arrangements to non-core activities and mandating licensed contractors, with contract workers engaged in core semiconductor fabrication, assembly, testing, or packaging activities posing absorption risks; gratuity eligibility for fixed-term employees after completing only 1 (one) year of employment with pro-rata entitlements; enhanced thresholds under the IR Code raising the applicability limit for standing orders and prior government approval for closures, lay-offs, and retrenchments from 100 to 300 workers; and mandatory final settlement within 2 (two) working days of termination. Semiconductor ventures must conduct comprehensive workforce classification assessments, restructure compensation frameworks to ensure compliance with the 50 per cent rule, evaluate contractor arrangements for core versus non-core activity compliance, and establish robust payroll systems capable of meeting accelerated settlement timelines.

2.2.5 Environmental; Water and Hazardous Chemicals

Semiconductor fabrication facilities require comprehensive environmental compliance spanning environmental impact assessment requirements, consents from State Pollution Control Boards for water and air emissions, and implementation of measures for hazardous and electronic waste management, including water recycling, air pollution control, and waste treatment systems. Semiconductor fabrication facilities demand uninterrupted access to pure water, stable power supply, secure pipelines for specialty gases, and comprehensive waste management systems.

Semiconductor facilities are subject to the Water (Prevention and Control of Pollution) Act, 1974, the Air (Prevention and Control of Pollution) Act, 1981, and the Environment (Protection) Act, 1986. Environmental clearances must be obtained from competent authorities depending on project scale and classification. Facilities are encouraged to adopt sustainable practices, such as renewable energy integration and green building standards. Compliance with environmental impact assessment requirements, obtaining consents from the jurisdictional State Pollution Control Boards for water and air emissions, and implementing measures for hazardous and electronic waste management constitute critical aspects of regulatory approval. Given the specialized environmental requirements of semiconductor manufacturing, proponents should conduct early engagement with the jurisdictional State Pollution Control Boards, prepare comprehensive Environmental Impact Assessment (“EIA”) reports, and establish robust environmental management systems to ensure ongoing compliance with consent conditions and pollution control norms.

2.2.6 Land

Semiconductor fabrication facilities require large contiguous land parcels. Land acquisition for semiconductor projects may proceed through direct private acquisition from landowners or acquisition of industrial land allotted by state industrial developmssent corporations. Private acquisition requires meticulous due diligence to verify clear and marketable title, confirm absence of encumbrances, liens, or adverse claims, ensure land use classification permits industrial semiconductor manufacturing, verify compliance with applicable zoning regulations, assess environmental restrictions or protected area designations, and confirm stamp duty and registration compliance for prior transactions. Title verification should examine chain of title documents spanning at least 30 years, encumbrance certificates from sub-registrar offices, revenue records confirming ownership and land classification, survey and demarcation records, tax payment receipts, and statutory clearances for change of land use where applicable.

Industrial land allotments from state authorities typically provide streamlined acquisition processes, pre-approved zoning for industrial use, and often integration with industrial parks offering plug-and-play infrastructure. However, such allotments remain subject to compliance with allotment terms, payment schedules, construction timelines, and minimum capital investment or employment generation conditions. 

2.2.7 Intellectual Property (“IP”) Considerations

Semiconductor manufacturing involves intensive intellectual property considerations spanning process technologies, chip designs, layout designs of integrated circuits, trademarks, patents, and technology licensing arrangements. Technology licensing arrangements, particularly those involving foreign technology providers as observed in Indian company with foreign technology partner structures, require careful IP allocation addressing ownership of background IP (pre-existing intellectual property contributed by parties), foreground IP (developments created during collaboration), and post-termination rights. JV arrangements necessitate clear contractual frameworks governing ownership, licensing scope and exclusivity, sublicensing rights, royalty or licensing fee structures, quality control and technology protection obligations, and dispute resolution mechanisms. Semiconductor ventures should conduct comprehensive IP due diligence when acquiring existing operations or entering technology partnerships to verify ownership, identify encumbrances or licensing restrictions, assess infringement risks, and ensure freedom to operate.

2.2.8 Data Protection

Semiconductor manufacturing operations generate, process, and transfer substantial personal data including employee information, customer data, supplier information, and operational analytics. India's Digital Personal Data Protection Act, 2023 (“DPDPA”), establishes a comprehensive framework for protection of personal data. The DPDPA applies to within India and to processing of digital personal data outside India if such processing is in connection with any activity related to offering of goods or services within India. Semiconductor ventures must obtain valid consent, implement reasonable security safeguards to prevent data breaches, notify data principals and ensure accuracy and completeness of personal data, and erase personal data upon withdrawal of consent or completion of processing purpose.

Taxation and customs

These ventures are subject to corporate income taxation under the Income-tax Act, 1961, indirect taxes including Goods and Services Tax (“GST”), and customs duties on imported equipment and materials. Transfer pricing regulations require transactions between related parties, including technology licensing fees, royalty payments, equipment procurement, and management service charges between Indian entities and foreign parents or technology partners, to be conducted at arm's length prices determined through prescribed methodologies. Ventures should establish transfer pricing documentation, conduct annual benchmarking studies, and maintain contemporaneous records.

Project proponents are eligible for various tax benefits, including exemption from basic customs duty (“BCD”) on machinery, electrical equipment, capital goods, other instruments, and their parts used in fabrication of semiconductor wafers or in assembly, testing, marking, and packaging of semiconductor chips. Additionally, to promote indigenous manufacturing, BCD on specified capital goods and inputs for use in manufacturing semiconductors, and machinery, electrical equipment, other instruments and their parts (except populated printed circuit boards, subject to actual user conditions) has either been completely exempted or a concessional rate of duty has been provided. An analysis of products must be undertaken on a case-by-case basis for determining exemption, deferment, or levy of BCD. 

3.1 Overview

India’s semiconductor ecosystem is supported through a layered framework of central fiscal incentives, non-fiscal facilitation measures, and complementary State-level industrial policies. At the central level, this framework is anchored in the Semicon India Programme, which was notified to catalyse investments across semiconductor fabrication, advanced packaging, compound semiconductors, display manufacturing, and chip design. The incentive framework must be assessed in light of evolving policy priorities. While the first phase of the ISMfocused primarily on large-scale capacity creation, recent measures indicate a growing emphasis on ecosystem depth, supply-chain resilience, and domestic capability development.

3.2 Central incentive framework 

The Semicon India Programme comprises four notified schemes addressing distinct segments of the semiconductor value chain. The first phase of the ISM (“ISM 1.0”), with an approved outlay of USD 9 billion (~ INR 76,000 crore), has concluded its principal application rounds and has supported projects across semiconductor fabrication, advanced packaging and OSAT, compound semiconductors, and design-linked activities. Prior to the Union Budget 2026, public reporting and policy commentary indicated that a second phase of the India Semiconductor Mission was under consideration with a proposed outlay of approximately USD 20 billion (~INR 188,000 crore), envisaged as a multi-year programme spanning the semiconductor value chain. The Union Budget 2026 does not specify the total financial envelope for ISM 2.0 (“ISM 2.0”). Instead, it announces ISM 2.0 and provides a budgetary provision of USD 120.5 million (~INR 1,000 crore) for FY 2026–27, signalling an initial allocation .[34]  The Budget 2026 announcement articulates forward-looking policy priorities for ISM 2.0, including semiconductor equipment and materials manufacturing, development of full-stack domestic intellectual property, strengthening of supply chains, and support for industry-led research and training centres. The Budget also proposes an increase in the outlay for the Electronics Components Manufacturing Scheme to USD 4.82 billion (~INR 40,000 crore), reinforcing linkages between semiconductor policy and the broader electronics manufacturing ecosystem. [35]

3.2.1 Modified Scheme for Setting up of Semiconductor Fabs [36]

The scheme provides fiscal support of 50 per cent of the project cost on pari-passu basis for setting up of Silicon Complementary Metal-Oxide-Semiconductor (CMOS) based Semiconductor Fabs in India Funding is released proportionately with the applicant's capital deployment, aligning public investment with private capital commitment. The scheme targets commercial foundries producing semiconductor wafers for applications including automotive electronics, power management integrated circuits, display drivers, microcontrollers, communications devices, and computing applications. Eligible projects require substantial capital expenditure for advanced fabrication facilities including cleanroom infrastructure, manufacturing equipment, ultra-pure water systems, specialty gas distribution networks, and environmental control systems.

3.2.2 Modified Scheme for Setting up of Display Fabs [37] 

To attract large investments in semiconductor wafer fabs and display fabs manufacturing TFT LCD or AMOLED panels, the Government launched modified schemes offering fiscal support. Under these schemes, the fiscal support of 50% project cost is provided on a pari-passu basis, subject to approval of the application. Applicants must meet prescribed capital investment threshold and exhibit adequate technological know-how and financial strength to execute such capital and resource intensive projects. [38] 

3.2.3 Modified Scheme for Setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab / Discrete Semiconductors Fab and Semiconductor ATMP / OSAT Facilities in India [39]

The scheme extends fiscal support of 50 per cent of the capital expenditure on a pari-passu basis for setting up of facilities across multiple semiconductor segments. It covers compound semiconductor fabs producing wide bandgap semiconductors including silicon carbide and gallium nitride for power electronics, electric vehicle inverters, renewable energy systems, and high-frequency applications; silicon photonics manufacturing facilities producing optical components for data communications, telecommunications networks, and photonic integrated circuits; sensors fab including microelectromechanical systems for automotive, industrial, consumer electronics, and Internet of Things applications; discrete semiconductor fab manufacturing individual semiconductor devices including diodes, transistors, thyristors, and rectifiers for power conversion and management; and semiconductor assembly, testing, marking and packaging or outsourced semiconductor assembly and test facilities providing back   end services including wafer dicing, die attach, wire bonding or flip-chip bonding, encapsulation, marking, testing, and final packaging. This comprehensive scheme addresses critical gaps across the semiconductor value chain beyond advanced logic fabrication. 

3.2.4 Design Linked Incentive (DLI) Scheme [40]

The DLI Scheme is implemented by the Ministry of Electronics and Information Technology under the Semicon India Programme to catalyse domestic semiconductor chip design ecosystem by providing financial incentives and access to advanced design infrastructure. [41]  Start-ups and micro small and medium enterprises (“MSMEs”) are eligible for financial incentives and design infrastructure support for semiconductor product design and deployment, while other domestic companies are eligible for financial incentives for deploying semiconductor designs.[42]

The scheme provides 2 (two) types of financial incentives. Product Design Linked Incentive offers reimbursement of up to 50 per cent of eligible expenditure, capped at USD 1.6 million (~INR 15 crore) per application, for entities involved in semiconductor design for Integrated Circuits, Chipsets, Systems on Chips, Systems and IP Cores, and semiconductor-linked designs. Deployment Linked Incentive provides incentives ranging from 6 (six) per cent to 4 (four) per cent of net sales turnover for five years, capped at USD 3.2 million (~INR 30 crore) per application. [43].

3.3 Centre for Development of Advanced Computing has also established the ChipIN Centre under the DLI Scheme providing National EDA Tool Grid with remote access to centralized facility of advanced EDA tools; IP Core repository with flexible access for SoC design activities; Multi-Project Wafer(“MPW”) Prototyping support providing fiscal support for fabricating the design in MPW manner at semiconductor foundries enabling cost-effective prototyping for startups and MSMEs; and Post-silicon validation support for testing and validation of fabricated ASIC and silicon bring-up activities. Since its launch in December 2021, the ChipIN Centre has democratized access to advanced EDA tools for chip design for approximately 100,000 (one hundred thousand) engineers and students across 400 (four hundred) organizations nationwide. Supported companies under the DLI Scheme have achieved 16 (sixteen) chip-design tape-outs completed and 6 (six) semiconductor chips successfully fabricated, with over 1,000 (one thousand) specialised engineers trained or engaged through DLI-supported projects and more than 140 (one hundred and forty) reusable semiconductor IP cores developed.Interplay with Electronics PLIs

India’s Production Linked Incentive schemes for electronics manufacturing, particularly mobile phones and IT hardware, play a complementary role by creating downstream demand for semiconductor components. These schemes have driven scale and localisation in electronics manufacturing and thereby influence the commercial viability of semiconductor fabrication and packaging investments. The electronics PLI framework operates sequentially alongside semiconductor incentives. While ISM-linked schemes focus on capacity creation and ecosystem development, PLIs support offtake visibility and demand certainty. The proposed enhancement of the Electronics Components Manufacturing Scheme [44]  under Budget 2026 further strengthens this linkage.

3.4 State Level Policies and Incentive Programmes 

While central incentives are routed through ISM, several states have adopted varying approaches to extending fiscal and non-fiscal support across the value chain. State policies generally provide (i) incentives targeted at ISM-approved semiconductor manufacturing projects, and (ii) broader industrial or electronics-sector incentives that support ancillary units, suppliers, and ecosystem participants whose operations may fall outside the formal ISM approval framework.

Most states deploy a layered support architecture, providing semiconductor specific benefits to ISM approved facilities, while adjacent activities such as materials supply, specialty gases, equipment manufacturing, and logistics are supported through parallel industrial or electronics policies. 

3.5 Semiconductor-Specific Incentives Linked to ISM Approval

Several states link access to semiconductor-specific incentives to ISM approval. Gujarat and Tamil Nadu, for example, restrict the application of their semiconductor policies to projects approved by Ministry of Electronics and Information Technology (“MeitY”)/ISM, with such policies primarily focused on capital support, infrastructure provisioning, and facilitation for large-scale fabrication and advanced packaging projects.

Gujarat’s Semiconductor Policy 2022–27 applies exclusively to ISM-approved projects. [45]  Tamil Nadu similarly limits semiconductor-specific incentives to ISM-approved units in the fabrication, display, compound semiconductor, and ATMP/OSAT segments. [46]  In both cases, ISM approval operates as the principal gateway for accessing sector-specific benefits targeted at capital-intensive semiconductor manufacturing.

Uttar Pradesh and Assam also limit the formal scope of their semiconductor policies to ISM-approved projects across fabrication, display, compound semiconductor, and ATMP/OSAT segments. In Uttar Pradesh, projects not falling within ISM approval, such as DLI and fabless design units, are addressed under the state’s IT/ITeS Policy 2022, rather than the semiconductor policy itself. [47]  Assam similarly anchors semiconductor incentives to ISM approval .[48]

Broader Industrial and Ecosystem Support Beyond ISM

Alongside ISM-linked incentives, several states operate parallel industrial frameworks supporting semiconductor ecosystem participants not contingent on ISM approval. These frameworks typically apply to MSMEs, large industries, electronics manufacturing units, capital goods manufacturers, and chemical or materials suppliers.

In Gujarat, while semiconductor-specific incentives are confined to ISM-approved projects, the state’s Aatmanirbhar Gujarat Schemes for Assistance to Industries support MSMEs, large industries, and mega industries across thrust sectors. [49]  These schemes explicitly recognise the development of ancillary ecosystems, and the Gujarat State Electronics Mission (“GSEM”) is mandated to facilitate supply-chain development, including equipment, raw materials, specialty gases, and chemicals relevant to semiconductor manufacturing .[50]  As a result, suppliers and ancillary units supporting ISM-approved fabs may access state support even where they are not themselves ISM-approved projects.

Tamil Nadu similarly complements its ISM-linked semiconductor incentives with broader support for advanced electronics manufacturing units meeting value addition thresholds and leverages its capital goods and chemicals clusters to support localisation of semiconductor supply chains. [51]

Extension of Support to Non-ISM Semiconductor Projects

Some states expressly extend semiconductor-related incentives beyond ISM-approved projects. 

Odisha provides additional capex assistance for ISM-approved projects while separately extending incentives to non-ISM semiconductor projects. Additionally, it offers targeted incentives for semiconductor supply-chain activities, including raw materials, specialty gas and chemical warehousing, and semiconductor park development, reducing reliance on ISM approval as the sole gateway for state support and broadens the eligible investment base across the value chain. [52]

Similarly, Andhra Pradesh links enhanced incentives to ISM-approved projects, while permitting non-ISM semiconductor and electronics manufacturing units to access benefits under the state’s broader industrial and electronics manufacturing policies, supplemented by sector-specific infrastructure and power incentives. [53]

Integrated Electronics and ESDM-Oriented Frameworks

Karnataka adopts a more integrated Electronics System Design and Manufacturing (“ESDM”) approach, supporting semiconductor manufacturing and design activities as part of a wider electronics ecosystem. The state’s ESDM incentives extend to semiconductors, ICs, PCBs, chip components, and chemicals used in board manufacture, with eligibility determined by investment thresholds rather than ISM approval. [54]  This structure facilitates ecosystem-wide development across upstream materials, midstream manufacturing, and downstream packaging and testing activities, subject to sustained production conditions.

3.6 Interaction with trade agreements and budgetary policy signals 

India’s proposed free trade agreements with the United Kingdom, [55]  the European Union [56]  and Chile [57]  are relevant to the semiconductor sector primarily in shaping the external operating environment for manufacturing, design and supply-chain investments, rather than as sources of direct fiscal support. The India–UK and India–EU agreements are expected to affect the sector through improved market access, facilitation of cross-border services, investment protections and regulatory cooperation. These elements are relevant for semiconductor design services, research and development collaboration, advanced packaging and testing activities, and participation of Indian facilities in export-oriented value chains serving UK and EU markets. In addition, existing EU–India cooperation frameworks on technology and semiconductors, read together with the EU’s domestic semiconductor support initiatives, may support joint ventures, co-development arrangements and supplier relationships involving Indian entities, subject to commercial alignment and applicable regulatory requirements.

The proposed India–Chile free trade agreement is relevant from the perspective of upstream input security rather than downstream market access. Official statements have emphasised the role of the agreement in improving access to critical minerals and raw materials used in advanced manufacturing. While not directed at semiconductor fabrication per se, such access may support materials processing, electronics manufacturing and other semiconductor-adjacent activities, and is consistent with Budget 2026 signals on supply-chain resilience and critical materials. Taken together, these trade agreements may influence the effectiveness of India’s semiconductor incentive framework by affecting export competitiveness, investment conditions and supply-chain stability. 

4.1 India's semiconductor ecosystem currently operates under conditions of acute supply chain dependency, with near total-reliance on imports for finished chips, manufacturing inputs, production equipment, and essential raw materials. India’s position in the global semiconductor value chain remains largely that of a consumer rather than a producer, as reflected in its rising import volumes. In the most recent reporting year, semiconductor chip imports amounted to approximately USD 16.2 billion (~INR 1,51,000 crore), representing 1.82% of total imports valued at USD 892 billion (~INR 83,18,000 crore). [58]  This represents a dramatic increase from the previous fiscal year, when semiconductor imports totalled USD 8.4 billion (~INR 78,300 core) and accounted for 1.1% of total imports of USD 760 billion (~INR 70,86,000 crore). 

4.2 This import dependence has intensified due to rising electronics consumption, driven by growing demand for semiconductors in smartphones, wearables, automotive components, and computers. The global semiconductor shortage during the pandemic exposed India’s vulnerability to supply chain disruptions, with cascading effects across automotive manufacturing, consumer electronics production, and telecommunications infrastructure deployment. [59]  The implications of this dependence extend beyond economic concerns to include national security, technological sovereignty, and industrial competitiveness.

4.3 India is seeking to reduce import dependence and meet its growing demand for electronic products, recognizing that semiconductor imports worth billions of dollars annually underscore the need for domestic manufacturing capabilities. However, transitioning from consumption to production requires addressing structural gaps across the entire semiconductor value chain, from raw materials to finished products.

The global semiconductor supply chain is often described as a “miracle of globalization”, yet for an emerging entrant like India, it represents a formidable barrier to entry. Unlike conventional manufacturing sectors, semiconductor production is fragmented across discrete but interdependent stages including chip design, wafer fabrication, semiconductor manufacturing equipment, materials supply, assembly, testing, and packaging. Each stage is capital-intensive, technologically complex, and frequently dominated by a small number of global firms or jurisdictions.

Over the past 3 (three) decades, this fragmentation has produced deep regional specialization. Taiwan dominates advanced logic fabrication through Taiwan Semiconductor Manufacturing Company. [60]  South Korea controls memory manufacturing through Samsung and SK Hynix. Japan leads in semiconductor materials and precision components such as photoresists, silicon wafers, and deposition equipment. The United States retains strength in chip design, electronic design automation tools, and advanced equipment manufacturing. [61]  China has aggressively expanded capacity in mature nodes and backend manufacturing through state-backed investment. [62]

India’s semiconductor ambitions must therefore be assessed against a backdrop of entrenched specialization, high entry barriers, and strong network effects. The supply chain gaps confronting India are not merely quantitative shortfalls in capacity but qualitative absences in critical ecosystem components.

5.1 Absence of Domestic Wafer Fabrication Capability

The most visible and consequential gap in India’s semiconductor supply chain is the absence of a commercially operational wafer fabrication facilities. India currently has no high-volume semiconductor fab capable of producing logic or memory chips at scale. While entities such as Semi-conductor Laboratory, Mohali, possess legacy fabrication capability, they are limited to small-scale production and research applications and do not meet commercial or technological requirements of modern electronics markets. [63] [63.]

This gap has several implications. First, Indian electronics manufacturers remain entirely dependent on imported chips, exposing domestic industries to global supply disruptions, export controls, and geopolitical risk. Second, the absence of fabs inhibits the development of local supplier networks for gases, chemicals, spare parts, and precision engineering services. Third, it constrains learning-by-doing, which has been central to capacity accumulation in countries like Taiwan and South Korea.

Since the 1980s, Taiwan’s semiconductor policy explicitly prioritized foundry-led manufacturing as a national industrial strategy. Through state-backed financing, land allocation, and talent repatriation programs, Taiwan built a dense ecosystem around Taiwan Semiconductor Manufacturing Company Limited (“TSMC”)that now anchors global electronics manufacturing. [64]

5.2 Dependence on Imported Semiconductor Manufacturing Equipment and Materials

Semiconductor fabrication relies on highly specialized equipment, including lithography machines, etching tools, deposition systems, and metrology equipment. The global market for such equipment is dominated by a small number of firms based primarily in the Netherlands, the US, and Japan. India currently lacks capability in advanced semiconductor manufacturing equipment production .[65] [65.]

Similarly, upstream materials such as high-purity silicon wafers, photoresists, specialty gases, and chemicals are almost entirely imported. Japanese firms dominate the global market for photoresists and silicon wafers, [66]  while the US and Europe lead in specialty gases and chemicals. [67]  The absence of domestic materials suppliers increases costs, extends lead times, and exposes Indian projects to currency and trade risks.

5.3 Weak Assembly, Testing, and Packaging Infrastructure

Although assembly, testing, marking, and packaging are less capital intensive than front-end fabrication, India’s capabilities in this segment remain underdeveloped. Historically, India ceded backend manufacturing to Southeast Asian economies such as Malaysia, Vietnam, and the Philippines, which built strong competencies through early integration with global electronics firms. [68]

Advanced packaging has become increasingly critical due to the slowing of Moore’s Law and the rise of chiplet architectures. Technologies such as 2.5D and 3D packaging require precision engineering, materials expertise, and close coordination with fabrication facilities. India’s limited packaging infrastructure therefore constraints its participation in next-generation semiconductor value chains.

5.4 Ecosystem Deficiencies - Infrastructure, Talent, and Institutional Support

Successful semiconductor ecosystems of Taiwan, US, and Japan share common characteristics - robust physical infrastructure, specialized talent pipelines, and dense networks of suppliers, research institutions, and manufacturers that enable continuous innovation and operational efficiency. India’s semiconductor ecosystem exhibits significant gaps across these dimensions.

Semiconductor fabrication requires ultra-clean manufacturing environments, uninterrupted power supply, large quantities of ultra-pure water, and sophisticated waste management systems. While India has designated SEZs and semiconductor parks to address these requirements, the gap between existing infrastructure and the stringent standards of advanced semiconductor manufacturing remains considerable. Taiwan’s Hsinchu Science Park and Japan’s semiconductor clusters benefit from decades of infrastructure investment specifically calibrated to semiconductor manufacturing. [69]

The talent challenge is particularly paradoxical. India produces a large number of engineering graduates annually and hosts significant semiconductor design centres for global firms. However, the semiconductor sector is projected to require approximately one million skilled workers by 2026, spanning roles from chip fabrication to supply chain managemen t.[70]  The critical shortage lies not in entry level engineers but in specialized expertise in process engineering, equipment maintenance, yield optimization, and advanced packaging. Unlike Taiwan, which developed indigenous expertise through close industry-government collaboration, or the United States, which benefits from mature university-industry linkages, India faces challenges in both developing and retaining specialized semiconductor talent.   

5.5 Intellectual Property and Design Capability Underutilization

One of India’s most significant missed opportunities lies in the underutilization of its semiconductor design capabilities and the absence of a robust IP framework tailored to semiconductor innovations. India hosts over 20% of the world’s semiconductor design engineers and maintains design centres for virtually every major global semiconductor company. [71]  Despite this substantial design presence, India has not translated these capabilities into IP ownership or commercially successful indigenous semiconductor products. 

The US retains global leadership in semiconductor design, with companies like Qualcomm, Nvidia, and AMD capturing immense value through IP licensing and product sales .[72]  India, by contrast, largely functions as a design services provider, executing designs for foreign clients without capturing the IP value or developing proprietary semiconductor products. 

This limitation is partly attributable to India’s inadequate IP protection framework for semiconductor designs. While India’s Semiconductor Integrated Circuits Layout-Design Act, 2000 (“SICLD Act”) provides basic statutory protection, enforcement mechanisms remain weak, and complementary mechanisms, such as venture capital for fabless firms, patent portfolio development, and licensing framework, are underdeveloped. 

5.6 Strategic Misalignment and Fragmented Policy Implementation

India’s semiconductor policies, though ambitious, exhibit misalignments when compared to the focused industrial strategies in Taiwan, South Korea, and China. Taiwan’s success stemmed from decades of consistent policy focus, substantial government investment in research and development, and a deliberate emphasis on foundry services rather than broad value-chain coverage. Japan's historical semiconductor emerged from close coordination between government policy, corporate research consortia, and targeted market strategies.

India’s approach, which simultaneously promotes design, fabrication, and packaging incentives, risks dispersing limited resources without achieving critical mass in any single segment. While comprehensive value-chain development is a valid long-term objective, India’s resource constraints and late entry suggest the need for sharper strategic prioritization. The challenge lies in balancing ecosystem-building ambitions with near-term competitiveness in select high-value segments where India holds comparative advantages.

5.7 Regulatory and Geopolitical Risk Factors

India’s semiconductor supply chain is also shaped by regulatory and geopolitical considerations. Export controls imposed by the US and its allies on advanced semiconductor technologies have reshaped global supply chains. While India benefits from being viewed as a trusted partner, access to cutting-edge technology remains subject to international licensing regimes.

At the domestic level, regulatory complexity related to land acquisition, environmental approvals, and tax compliance can delay project implementation. Although recent reforms have improved ease of doing business, semiconductor projects require unusually high regulatory coordination across central and state governments.

The structural challenges confronting India's semiconductor industry demand comprehensive policy interventions that extend beyond existing financial incentive frameworks. While the ISM and associated production linked incentive (“PLI”) schemes represent significant governmental commitment, addressing fundamental supply chain gaps requires targeted reforms across regulatory architecture, investment mechanisms, technology acquisition strategies, and ecosystem development. This section proposes certain policy recommendations designed to strengthen India's position in the global semiconductor value chain by systematically addressing critical supply chain vulnerabilities identified in the above section.

6.1 Establishing a Strategic Semiconductor Supply Chain Resilience Fund

India’s current semiconductor policy architecture concentrates primarily on incentivizing end-stage manufacturing facilities through the PLI schemes and supporting design activities through the DLI Scheme. 

However, a conspicuous gap exists in policies specifically targeting the upstream supply chain components critical to semiconductor manufacturing. The government should establish a dedicated fund, separate from existing PLI allocations, specifically earmarked for developing domestic capabilities in semiconductor-grade chemicals, ultra-pure gases, photomasks, substrates, and precision manufacturing equipment.

This fund should prioritize joint ventures between Indian companies and established global suppliers willing to transfer technology and establish manufacturing operations in India. The fund could provide capital subsidies of ~30-50% for qualifying investments in supply chain infrastructure, coupled with long-term procurement commitments from government supported fabrication facilities to ensure demand visibility for these critical input manufacturers. Taiwan’s success in semiconductor manufacturing derived partly from deliberate cultivation of local suppliers who could meet the exacting specifications of advanced fabs. India must similarly invest in building this foundational layer of the semiconductor ecosystem rather than presuming that supply chain development will organically follow fabrication facility establishment.

6.2 Reforming Technology Transfer and Intellectual Property Frameworks

India’s semiconductor intellectual property regime requires substantial strengthening to transition from a design services provider to an innovation hub generating proprietary semiconductor technologies. The existing SICLD Act  [73]  provides basic statutory protection but lacks the enforcement mechanisms and supporting ecosystem necessary to encourage genuine IP creation and commercialization.

The government should undertake comprehensive reform of semiconductor IP laws, incorporating stronger enforcement provisions, expedited dispute resolution mechanisms through specialized IP tribunals, and enhanced damages for infringement to create genuine deterrence. More importantly, India should establish a national repository modelled on successful patent pools in other technology sectors, where Indian design houses and research institutions can register, protect, and license semiconductor IP. This platform could also facilitate technology transfer between research institutions and commercial entities, addressing the gap between academic research and commercial application.

6.3 Creating Specialized Semiconductor Manufacturing Zones with Integrated Infrastructure

Infrastructure deficiencies represent critical bottlenecks for semiconductor manufacturing in India. Rather than dispersing semiconductor facilities across multiple states competing for investments, the government should designate three to five semiconductor manufacturing zones with world-class integrated infrastructure specifically engineered for semiconductor fabrication requirements. 

These zones should provide guaranteed uninterrupted power supply through dedicated substations and backup systems, semiconductor-grade water treatment facilities capable of producing the millions of liters of ultra-pure water required daily, specialized waste treatment systems for hazardous chemical disposal, and vibration-free environments essential for nanometer-scale precision manufacturing. The zones should incorporate co-located supplier parks where manufacturers of chemicals, gases, and equipment can establish facilities in proximity to fabs, reducing logistics costs and enabling just-in-time supply chain operations that characterize efficient semiconductor ecosystems. 

These zones should also incorporate regulatory sandboxes with streamlined environmental clearances, single-window approvals for construction and operations, and dedicated customs facilitation for time-sensitive imports of manufacturing equipment and materials.

India’s semiconductor industry presents significant investment opportunities across the entire value chain, supported by substantial government incentives and a growing domestic market projected to reach USD 100-110 billion (~INR 9,32,000 – 10,26,000 crore) by 2030 .[74]  However, realizing this potential requires strategic investments in priority areas, coordinated policy interventions, and collaborative industry-government efforts to address systemic gaps. This section outlines priority investment areas, strategic recommendations for policymakers, and actionable recommendations for industry participants to accelerate India's integration into global semiconductor value chains.

7.1 Priority Investment Areas

7.1.1 Semiconductor-Grade Chemicals and Gases Refinement Facilities

The absence of domestic manufacturing capabilities for semiconductor-grade chemicals, ultra-pure gases, and specialized materials represents a critical supply chain vulnerability. Investment opportunities exist in establishing production facilities for high-purity silicon precursors, photoresists, etchants, dopants, and industrial gases meeting semiconductor-grade specifications. The semiconductor chemicals sector brings unique challenges requiring cleanroom environments, ultra-high purity standards, and rigorous quality control protocols. 

Investors should target joint ventures with established global suppliers willing to transfer technology and establish manufacturing operations in India, potentially leveraging government incentives for critical supply chain infrastructure. 

7.1.2 Silicon Wafer Manufacturing

Silicon wafer manufacturing represents a high-value segment with significant technical barriers to entry. While global leaders dominate this space, opportunities exist for India to develop capabilities in specialized wafer production, including silicon carbide (SiC) and gallium nitride (GaN) substrates for power electronics and radio frequency applications. Investment in wafer fabrication facilities requires substantial capital and technical expertise but offers strategic positioning in the upstream semiconductor value chain.

7.1.3 Advanced Packaging and Testing Facilities Beyond Approved Projects

While Micron's substantial USD 2.75 billion (~INR 25,600 crore) investment in an ATMP facility in Gujarat represents a major milestone, significant opportunities remain for additional ATMP and OSAT facilities. Multiple OSAT units are planned across states including Assam and other locations .[75] 

SK Hynix is exploring partnerships with Indian companies to establish ATMP facilities, with Odisha leading the competition for attracting the investment .[76]  Investment opportunities exist in heterogeneous integration, 3D packaging, chiplet technologies, and advanced interconnect solutions that represent the future of semiconductor packaging. 

7.1.4 Design Services and Fabless Semiconductor Companies

India's strength in semiconductor design presents substantial investment opportunities in fabless semiconductor companies and design services. The DLI Scheme supports companies investing in semiconductor and display manufacturing ecosystem and chip design development. 

Recent developments demonstrate growing momentum in this sector. Zepto Logic Technologies signed a USD 27.6 million (~INR 257 crore) agreement with Tamil Nadu to establish a fabless chip design house and VLSI skilling center focused on system-on-chips, IP, application-specific integrated circuits (“ASICs”), and field programmable gate arrays (“FPGAs”) development. [77]  The government approved 23 chip design projects under the DLI Scheme, supporting fabless semiconductor companies that design and develop chips. 

Investment in fabless companies developing indigenous chip architectures for specific applications including artificial intelligence workloads, 5G base stations, Internet of Things devices, and automotive electronics could capitalize on India's design talent while building IP ownership. 

7.1.5 Supporting Infrastructure Development

Specialized infrastructure supporting semiconductor manufacturing represents critical investment areas. Cleanroom construction companies are experiencing growing demand as semiconductor facilities expand. Ultra-pure water systems represent essential infrastructure components requiring sophisticated treatment technologies. Investment opportunities exist in establishing specialized construction capabilities, precision equipment installation services, contamination control systems, and facility management services tailored to semiconductor manufacturing requirements.

7.2 Strategic Recommendations for Policymakers

7.2.1 Continue and Expand Incentive Schemes Beyond Current Timelines

India’s semiconductor incentive framework totalling USD 840 million (~INR 7,830 crore) under the ISM has successfully attracted initial investments. However, policymakers should commit to extending these schemes beyond current timelines and potentially expanding allocations as the ecosystem matures. Policymakers should ensure continuity of incentive availability to sustain investment momentum. 

7.2.2 Accelerate Infrastructure Development in Designated Semiconductor Hubs

Rather than dispersing semiconductor facilities across multiple states, policymakers should prioritize concentrated infrastructure development in designated semiconductor manufacturing zones. Gujarat has attracted USD 183 million (~ INR 1,706 crore) in semiconductor deals and is creating an integrated value chain.  [78]  Gujarat's semiconductor blueprint represents a strategic push toward domestic capability and global integration with a supportive policy framework. However, moving from approvals to full-scale production demands talent development and supply chain integration. 

Multiple states including Gujarat and Uttar Pradesh are competing to attract semiconductor investments. While State-level competition demonstrates enthusiasm, policymakers should harmonize these state incentives while focusing resources on creating world-class concentrated semiconductor zones rather than fragmenting investments.

7.2.3 Strengthen IP Protection and Enforcement Mechanisms

Strengthening India’s position in the global semiconductor value chain requires robust intellectual property protection frameworks. Policymakers should establish specialized IP tribunals for semiconductor disputes and create a national repository facilitating technology transfer between research institutions and commercial entities. 

7.2.4 Expand International Partnerships for Technology Transfer

India’s bilateral semiconductor partnerships with the US, Japan, and other technology leaders must translate into concrete operational outcomes. The India-Japan semiconductor partnership encompasses transfer of technical knowledge and talent development within the supply chain. Policymakers should establish structured apprenticeship exchange programs with Taiwan, South Korea, and the US where Indian engineers and faculty spend significant time working inside active fabrication facilities. 

India should actively participate in “friend-shoring” initiatives where democratic nations seek to diversify semiconductor supply chains, positioning itself as a reliable partner in trusted supply chains serving defense and critical infrastructure applications. This requires demonstrating commitment to intellectual property protection, export control compliance, and cybersecurity standards that partner nations require for sensitive technology collaboration.

7.2.5 Create Dedicated Semiconductor Skill Development Universities and Institutes

Addressing India’s semiconductor talent gap requires interventions extending beyond general engineering education to create specialized expertise. The India Electronics and Semiconductor Association estimate the industry will require 250,000 to 300,000 skilled professionals by 2027, yet only 15 to 20% of current graduates are considered industry-ready for semiconductor roles. [79] 

Policymakers should establish Centres of Excellence in fab and ATMP technologies in partnership with semiconductor companies. Tamil Nadu launched the School of Semiconductor initiative to build future workforce capabilities .[80]  The government's “Chips to Startup” programme aims to train 85,000 industry-ready engineers at B.Tech, M.Tech, and PhD levels specialized in semiconductor chip design. [81]  These institutions should operate intensive bootcamps, equipment-specific certifications, and hands-on laboratories training engineers in process engineering, equipment maintenance, and yield management.

7.2.6 Establish Strategic Reserves for Critical Materials

The semiconductor industry depends on critical minerals including rare earth elements that are subject to supply chain concentration and geopolitical risks. India announced a National Critical Mineral Stockpile to create a strategic reserve of rare earths, protecting against supply disruptions and eventually covering other critical minerals. [82]  The refractory industry relying on rare earth minerals for aluminum, steel, cement, and glass manufacturing remains vulnerable to supply chain and pricing risks due to China's domination. 

Policymakers should expand strategic stockpiling programs covering materials critical to semiconductor manufacturing, including high-purity silicon, rare earth elements, specialty metals, and other inputs subject to supply concentration. India's strategic shift in the global rare minerals race combines mineral diplomacy with domestic processing capabilities. India must prioritize processing and refining in its critical minerals sector to enhance supply chain resilience and economic stability. 

7.2.7 Ensure Policy Stability and Predictability for Long-Term Investments

7.3 Recommendations for Industry

7.3.1 Form Industry Consortia for Ecosystem Development

Individual companies, regardless of size, cannot independently address all ecosystem gaps confronting India’s semiconductor industry. Industry participants should form consortia modelled on successful international examples to collectively address shared challenges including talent development, supplier qualification, standards development, and technology road mapping. Collaborative approaches in consortia and ecosystems enable competing firms to engage in productive cooperation. While global examples like the Semiconductor Climate Consortium [83]  promote industry-wide initiatives, India requires domestic consortia addressing ecosystem-specific challenges.

7.3.2 Invest in Supplier Development and Localization

Companies establishing semiconductor manufacturing operations in India should prioritize developing domestic supplier capabilities rather than presuming complete reliance on imports. Localization in manufacturing facilitates capacity development, enhances indigenous supply chains, and stimulates emergence of global champions from India. Supplier development programs, technology transfer to qualified local companies, and long-term offtake agreements provide the demand visibility and technical support necessary for Indian suppliers to meet semiconductor-grade specifications.

7.3.3 Collaborate with Academic Institutions for Talent Pipeline

Industry participants must actively partner with academic institutions to develop talent pipelines aligned with specific industry requirements. Companies receiving PLI incentives should commit to training specified numbers of engineers annually and providing internships at facilities. Industry should establish joint curriculum development, provide access to industry-standard tools and equipment, sponsor research projects aligned with commercial priorities, and create clear pathways from academic programs to industry employment.

7.3.4 Participate in Global Value Chains While Building Domestic Capabilities

Indian design startups and small and medium enterprises should join global supply chains while simultaneously developing domestic ecosystem capabilities. India is positioning itself as a crucial production partner in the evolving global supply chain architecture, with establishment of large-scale advanced packaging units and diversification strategies. India’s semiconductor ecosystem is building capabilities across design, fabrication, packaging, equipment, chemicals, and gas supply chains. 

Companies should leverage India’s integration into global value chains to access technology, markets, and capital while maintaining focus on building indigenous capabilities and IP ownership. This dual strategy enables participation in immediate commercial opportunities while positioning for long-term value capture and technological sovereignty.

India’s semiconductor sector presents a significant long-term investment opportunity, supported by strong domestic demand growth, a large design talent base, and an evolving policy framework aimed at building manufacturing and supply-chain capabilities. The Semicon India Programme, together with state-level incentives, electronics PLIs and budgetary policy signals, provides a structured platform for capital deployment across fabrication, advanced packaging, design, and upstream ecosystem segments. The proposed next phase of the ISM, alongside measures relating to equipment, materials and supply-chain resilience, indicates continued policy commitment and a gradual expansion of the addressable investment landscape.

For investors and strategic participants, successful entry into the sector will depend on careful structuring of ownership and technology arrangements, alignment with incentive frameworks, and effective management of regulatory and project execution risks. Considerations such as foreign investment structuring, technology licensing, land and infrastructure access, environmental approvals, and long-term offtake or supply arrangements will be central to project viability. In parallel, opportunities are emerging not only in fabrication and ATMP facilities, but also in supply-chain segments including semiconductor-grade materials, specialty gases, equipment servicing, design-led IP development and advanced packaging technologies, where India’s existing capabilities and policy direction are increasingly aligned.

As global semiconductor supply chains diversify, India is positioned to participate as a complementary manufacturing and design hub within trusted value chains. The extent to which this potential translates into sustained investment outcomes will depend on continued policy stability, infrastructure execution and ecosystem development. Subject to these factors, the sector offers a scalable platform for long-term capital deployment, strategic partnerships and participation in global semiconductor value chains, with the potential to generate both commercial returns and strategic value for investors over time.