India’s Semiconductor Pivot: Scaling from Design to Fabrication

What Happened

India has initiated the second phase of its national semiconductor strategy, marking a significant escalation in its effort to become a global manufacturing hub. The government has approved an outlay of Rs 1.27 lakh crore for Semicon 2.0, a move designed to build upon the foundational work laid by the initial Semicon 1.0 program. This new financial commitment follows an earlier investment of Rs 76,000 crore, signaling a long-term policy commitment to reducing dependence on imported chips.

To date, the mission has yielded tangible results, with 12 semiconductor projects approved and total investment commitments surpassing Rs 1.64 lakh crore. Three of these facilities are already operating in commercial production. The government’s objective is clear: by 2029, India aims to develop the capacity to design and manufacture chips that satisfy nearly 70-75% of its domestic requirements. This shift represents a transition from viewing semiconductors as a peripheral industry to treating them as the foundational layer of the nation's digital and industrial infrastructure.

Key Details

Semicon 2.0 is structured around six core pillars that aim to create a comprehensive, self-sustaining ecosystem rather than focusing solely on fabrication. These pillars are:

1. Chip Design: Expanding existing capabilities through skilling and startup support.
2. Semiconductor Equipment and Materials: Prioritizing domestic production of the tools required for manufacturing.
3. Fabrication Facilities: Scaling up the physical plants where chips are produced.
4. Advanced Packaging (ATMP/OSAT): Developing the backend processes for assembly, testing, and packaging.
5. Research and Development: Fostering innovation to move up the value chain.
6. Talent Development: Building a workforce capable of sustaining a high-tech industry.

Industry analysts have noted that while the first phase of the mission was successful in bringing manufacturing capability to the country, the second phase represents a broader, more ambitious scope. The focus has widened from simple assembly to the development of an end-to-end Indian semiconductor intellectual property (IP) stack.

Source: Industry estimates and market projections.

Context

Globally, the semiconductor industry is experiencing a "supercycle" driven by the rapid expansion of artificial intelligence (AI). According to the KPMG 2026 Global Semiconductor Outlook, the conversation in boardrooms has shifted from wondering when the cycle will turn to determining how quickly capacity can be built to meet AI demand. McKinsey estimates that the global semiconductor industry could reach $1.6 trillion in revenue by 2030, a figure that underscores the strategic importance of this sector for any major economy.

Semiconductors now underpin virtually every modern technology, from electric vehicles (EVs) and telecommunications to data centers and defense systems. For a nation of India's size, maintaining a reliance on external supply chains for these components is viewed as a significant economic and strategic vulnerability. Saurabh Agarwal, a Partner at EY India, explains the necessity of this shift:

"If a country of India's size stays dependent on outside supply chains for something this fundamental, that's a real vulnerability, both economically and strategically."

India is leveraging its existing strengths—specifically its large pool of chip design talent—to carve out a unique position in this global market. While the country may not immediately compete with established giants like Taiwan or South Korea in the most advanced node fabrication, it is positioning itself as a partner that the global ecosystem cannot ignore.

Why It Matters

Moving beyond being a consumer of semiconductor technology to becoming a producer is a transformative goal. Experts suggest that over the next decade, semiconductors could provide the same engine for growth and self-reliance that the software industry provided for India over the last thirty years.

However, the transition is not without challenges. Shivani Parashar of Counterpoint Research points out that the current ecosystem is heavily service-oriented. The critical test for India will be its ability to convert engineering talent into product-led businesses. The goal is not just to design chips for global firms, but to own the intellectual property and commercialize products globally.

Krishan Arora, Partner at Grant Thornton Bharat, highlights the country's unique competitive edge:

"India’s strongest competitive edge lies not in immediately matching Taiwan, South Korea, or China in advanced chip fabrication, but in building a differentiated semiconductor ecosystem."

This differentiation involves focusing on areas where India has existing depth, such as specialty materials, compound semiconductors, and advanced packaging, while steadily building toward mature node fabrication. The strategy is to become a vital node in the global supply chain, offering reliability and talent that global companies are actively seeking as they diversify their operations away from traditional hubs.

Bottom Line

Achieving these goals requires more than just capital outlay; it demands a long-term, patient approach to development. Semiconductor projects are characterized by long cycles and high investment requirements. Experts emphasize that the next stage of development will be more difficult than the first. Building fabrication plants is only the beginning; the real test lies in developing the supporting infrastructure, including specialty gases, chemicals, research facilities, and a deep talent pool.

Policies must now evolve to reward outcomes—such as IP creation and product commercialization—rather than just design activity or project setup. As the industry matures, the focus must shift from simply attracting investments to cultivating an environment where indigenous semiconductor products can thrive. If executed correctly, the Semicon 2.0 mission could fundamentally alter India’s industrial landscape, turning a long-standing aspiration into a durable economic reality.

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