India depends on electronics to drive its agenda of inclusive growth via technology. Its reliance on semiconductor imports has long exposed it to global supply chain vulnerabilities. Like many other countries, India also depends on Taiwan, Japan, and South Korea for semiconductor supplies.

To counter these risks and to boost self-reliance, the government is promoting domestic semiconductor fabrication. This is a crucial move for national security, especially in sensitive sectors like defence and telecom.

The Covid pandemic revealed the fragility of the global electronics supply chain, as disruptions in China led to widespread shortages. The Russia-Ukraine conflict further strained the industry by interrupting the supply of neon, essential for chip manufacturing. Additionally, geopolitical tensions, including US and EU export restrictions on China, have led to it controlling the export of critical inputs like gallium and germanium, raising fears of future shortages.

Semiconductor Mission

India launched the Semiconductor Mission in 2021 with ₹76,000 crore ($10 billion) investment to establish a domestic ecosystem. Recent developments include Micron Technology’s ₹22,516 crore ($2.75 billion) assembly and packaging plant in Gujarat, Tata Electronics’ semiconductor fab in Dholera, and other semiconductor plants approved across India in 2024. These ventures are part of India’s strategic push to enhance its semiconductor manufacturing capacity.

The pandemic also led to a shift from a “just-in-time” to a “just-in-case” model in global supply chains, increasing the inventory build-up. However, this change has financially strained companies, especially in India, by tying up capital and causing cash flow problems. Geopolitical tensions, particularly between the US and China, have compounded these challenges. Some analysts have recommended using the lockdown to shift supply chains from China to India, this transition has been slow due to India’s structural challenges in high-volume electronics manufacturing, which includes an 8-10 per cent cost disadvantage.

The ‘Atmanirbhar Bharat’ initiative notwithstanding, around 65-70 per cent of components for its electronics industry are still imported — mainly from China. The Production-Linked Incentive (PLI) scheme, while beneficial, incentivises companies to boost production volumes, which often translates into assembling imported components rather than manufacturing them domestically. This has led to a ballooning of the import bill for electronics. Policymakers are aware of this shortfall and are reportedly considering adjusting future policies to focus on greater value addition.

Global players like Apple are considering shifting part of their production away from China. India’s large consumer market, along with customs duties and incentives such as the PLI scheme, have helped boost local assembly. However, India still contributes only about 3 per cent to the global electronics manufacturing value chain, compared to China’s 37 per cent.

Govt policies

India has launched multiple policies to strengthen its semiconductor industry. These include the Design Linked Incentive (DLI) scheme for R&D and the PLI scheme to scale production. Generous subsidies, up to 50 per cent from the central government and an additional 20-25 per cent from state governments have attracted global players like Micron, Tata, and Murugappa Group to establish semiconductor plants.

Setting up semiconductor fabs is capital-intensive. For example, establishing a fab at the 28-nanometer technology node requires an entry investment of at least $8 billion. Tata’s semiconductor venture is an $11 billion project, illustrating the scale of investment needed. Attracting such investments is a key challenge for Indian policymakers, as global competition for these high-tech projects is fierce.

There are also questions about resource allocation. While ₹76,000 crore ($10 billion) has been committed to attracting the semiconductor industry, this capital-intensive sector may only generate 10,000-15,000 direct jobs. In contrast, industries like textiles create far more jobs per unit of investment.

Nonetheless, the semiconductor industry is about building infrastructure for the future and securing India’s place in the global technology landscape. The pandemic underscored how supply chain disruptions can cripple industries reliant on electronic components, and investing in semiconductors is vital for reducing dependency and securing future resilience.

However, challenges remain. Semiconductor fabs require vast amounts of ultra-pure water for production — up to 25 million litres per day — making resource management a critical issue. Additionally, the industry, while not labour-intensive, will create opportunities for highly skilled professionals, many of whom will have to come from abroad, as India does not have these skills.

India’s push into semiconductors is a long-term strategic effort aimed at securing a position in the global electronics value chain. While investments may not yield immediate returns in jobs or economic output, sustained policy support, industry collaboration, and overcoming structural challenges will be key to building a resilient domestic semiconductor ecosystem.

Sharma is India Technology Policy Fellow, Pacific Forum; and Menon is Electronics & Semiconductor expert, Tata Projects, Former CEO, IESA and ESSCI