In the global semiconductor race, ambition is not in short supply — execution is. The India Semiconductor Mission, with its ₹76,000 crore outlay, represents India’s bid to join the league of nations commanding control over the chips that power the digital economy. The logic appears sound. The world is reorganising its supply chains amid a deepening US–China rivalry, and India must seize the opportunity to become a trusted manufacturing hub. Yet there is an uncomfortable truth that policymakers must confront — incentives alone cannot substitute for capabilities. Without ecosystem depth, process expertise, and coherent sequencing, India risks producing optics, not industry.
The semiconductor ecosystem comprises a web of power, precision, and people. It needs uninterrupted electricity, abundant clean water, process-engineering skills, and financial patience. Micron’s assembly unit in Gujarat and Tata’s ambitions in Dholera and Assam are promising signals, but the real test is not the number of MoUs signed or subsidies sanctioned. It is whether these projects can be sustained with reliable power, purified water, and skilled engineers on the ground. India’s current approach is heavily tilted towards financial incentives — but the global chip industry rewards long-term capability and process stability more than fiscal generosity.
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The global chip war and India’s narrow window
The semiconductor industry has become a geopolitical battleground. The United States and China are no longer just economic competitors — they are engaged in a technological Cold War. Export controls on lithography equipment, curbs on advanced chips, and friend-shoring efforts by the US and its allies have redrawn the map of global production. This reordering has opened a rare window for emerging economies like India to claim a place in the semiconductor value chain. The ISM was born from this geopolitical opportunity, promising a full-stack approach — from wafer fabrication to design and packaging.
But this window will not remain open indefinitely. The speed of capital deployment in East Asia — and the scale at which Taiwan, South Korea, and now Vietnam are moving — suggests that policy delay or misalignment could make India’s entry point irrelevant. The real question, then, is not whether India can attract fabs, but whether it can create conditions that sustain them in the long run.
The fabrication mirage
Semiconductor fabrication is a different beast from typical manufacturing. A single fab can consume tens of megawatts of electricity and millions of litres of ultra-pure water daily. It requires sophisticated logistics, stable climate control, and clean-room standards that few Indian cities currently offer. The India Semiconductor Mission has seen announcements from Micron, Vedanta, and Tata, but these projects will remain fragile unless supported by infrastructure that meets industrial-grade reliability.
This is where India faces its most acute constraint. It wants to play at the high table of chip manufacturing, but its foundational ecosystem — steady power, efficient logistics, skilled manpower — remains uneven. The risk is that India becomes an assembly hub, limited to packaging and testing, capturing only a fraction of the value. In the vocabulary of global supply chains, that is the difference between being a node and being a nucleus. The former executes; the latter innovates.
The real value lies in design and process IP
The semiconductor value chain is not flat — it is hierarchical. The bulk of profits are captured by those who design chips, create proprietary architectures, or supply the precision equipment that fabricators rely upon. The United States, for instance, accounts for just about 10% of global production but dominates nearly 40% of the total value added, thanks to its lead in design and intellectual property. India, in contrast, has invested its political and fiscal capital in fabrication incentives while underplaying its natural strength — design.
India already hosts one-fifth of the world’s chip design engineers, working in Bengaluru, Hyderabad, and Noida for global majors like Qualcomm, Intel, and Nvidia. This is India’s real strategic advantage — not in manufacturing the silicon, but in architecting it. To translate this into sustainable value, India must link design with manufacturing through an integrated policy framework. R&D incentives should encourage local firms and start-ups to develop chip IP and process-engineering expertise. Simultaneously, training programmes should target wafer-fab engineering, materials science, and equipment maintenance — the invisible skills that anchor successful fabs.
Without this link, India will remain a place where chips are assembled, not conceived. In the long run, the wealth of nations will lie with those who own the blueprints, not those who merely operate the machines.
Sequencing, financing, and the friend-shoring trap
Incentives are not enough if they are deployed in the wrong order. Before attracting mega-fabs, India must ensure the ecosystem — the power, water, logistics, and skills — is ready. Poor sequencing could create white elephants that consume subsidies but yield little value. A fab that depends on imported tools, materials, and expatriate engineers will not deliver strategic autonomy; it will deliver dependency at scale.
Financing stability is equally critical. Semiconductor projects are long-gestation investments that can take a decade to break even. Policy volatility, state-level coordination failures, and infrastructure delays can easily derail investor confidence. India needs a financing model that de-risks private capital through shared infrastructure, predictable policies, and coordinated implementation.
The larger geopolitical context also warrants caution. The US and its allies are pushing friend-shoring — locating supply chains in politically trusted countries. While this offers India entry, it also risks turning the country into a contract manufacturing base for Western supply chains. Friend-shoring without capability-building is a trap. India must avoid being the low-cost node in a global network that captures value elsewhere. The goal should be to move from contracting hub to value hub — where Indian firms design, innovate, and own the IP that powers production.
The policy pivot India needs
If India is serious about semiconductor sovereignty, it must realign its strategy from incentives to capabilities. This requires a structural rethinking of what the Semiconductor Mission measures as success. Announcing projects is not the same as creating value. The first priority should be to strengthen design and process-engineering skills by expanding R&D centres, funding start-ups that develop chip architectures, and deepening university-industry partnerships in materials science and microelectronics.
Equally important is ecosystem sequencing. Reliable power, purified water, and stable logistics are not afterthoughts — they are preconditions. India must build this foundation before scaling up fabs. The next pivot must align manufacturing with domestic demand. Rather than chasing the bleeding-edge three-nanometre logic chips that Taiwan and Korea dominate, India should focus on high-demand segments such as automotive chips, sensors, and power semiconductors. These are markets where India’s consumption scale and engineering base offer an edge.
Lastly, stability — financial and policy — is indispensable. The semiconductor industry thrives on predictability. India’s federal structure must deliver coordinated policy between the Centre and states. A fab cannot function under fragmented jurisdictions or shifting subsidy regimes. Long-term clarity on tariffs, tax credits, and technology transfer norms will be essential.
India has made a courageous start in a difficult field. But courage must now be matched by coherence. The chip war will not be won by subsidies or slogans; it will be won by patient investment in knowledge, sequencing, and ecosystem maturity. If India can build that capability, it will not merely join the global value chain — it will define a part of it. If it cannot, it will spend billions creating the appearance of progress while remaining a peripheral player in the world’s most strategic industry. The choice, as always, is between the headline and the hard work.