India just approved $18.2 billion worth of semiconductor projects in a massive bet to break into chipmaking. But the country's entering a brutal global race where Taiwan already dominates 2nm production and the U.S. controls cutting-edge AI chips. With no existing chip industry and complex supply chain requirements, India's semiconductor dreams face steep odds despite generous government incentives and abundant engineering talent.
India's semiconductor ambitions just got real with a $18.2 billion reality check. The country approved 10 major chip projects this month, including two fabrication plants and multiple testing facilities, in what represents one of the world's most aggressive late-stage entries into chipmaking. The timing isn't coincidental - when the U.S. restricted advanced AI chip exports to China in 2022, it triggered a global scramble for semiconductor self-reliance that India now wants to capitalize on. The stakes couldn't be higher. India consumes massive amounts of electronics but has zero local chip production, making it entirely dependent on imports for everything from smartphones to defense systems. New Delhi's 'Semiconductor Mission' aims to build a complete supply chain on Indian soil, from design to packaging. The centerpiece is Tata Electronics' 910-billion-rupee ($11 billion) fabrication plant in Gujarat, built with Taiwan's Powerchip Semiconductor Manufacturing Corp. This facility will produce chips for power management, display drivers, and high-performance computing - targeting AI, automotive, and data storage markets that are exploding globally. But industry veterans aren't buying the hype yet. 'India needs more than a few fabs or ATP facilities,' Stephen Ezell from the Information Technology and Innovation Foundation told CNBC. 'It needs a dynamic and deep and long-term ecosystem.' That's the brutal truth about semiconductor manufacturing - it's not just about throwing money at factories. Leading chipmakers consider up to 500 discrete factors before investing billions in new fabs. These range from talent pools and tax policies to supply chain logistics and intellectual property protection. India's playing catch-up on most of these fronts. The government's strategy has evolved rapidly. Initially, New Delhi offered premium incentives only for advanced 28nm chips and smaller. When that didn't attract enough investment, they pivoted to covering 50% of project costs for all fabrication units regardless of chip size. It's a pragmatic move that acknowledges India needs to walk before it can run. Companies from Taiwan, the U.K., U.S., and South Korea have all expressed interest in India's semiconductor push. The U.K.'s Clas-SiC Wafer Fab partnered with India's SiCSem to build the country's first commercial compound semiconductor fab in Odisha. These specialty chips target defense, electric vehicles, and solar applications - markets where India has strong domestic demand. The government also just launched support for electronic component manufacturing, addressing a critical chicken-and-egg problem. Chipmakers need local buyers, but India has virtually no electronics component manufacturers. The new policy creates financial incentives for companies making everything from phone cameras to circuit boards, building the ecosystem that fab operators require. India does have one major advantage - engineering talent. The country has been designing chips since the 1990s, with global companies like recently opening expanded operations in Bengaluru. Indian minister Ashwini Vaishnaw claims ARM will design '2nm chips for AI servers, drones, and mobile phones' from its new Indian base. But experts caution that India's role will likely remain limited to validation and testing work. Core intellectual property for advanced chip designs stays in established hubs like Silicon Valley and Singapore, where IP protection is stronger. 'Our competition is with countries like the U.S., Europe, and Taiwan, which not only have strong IP laws, but also a more established ecosystem,' Mumbai lawyer Sajai Singh explained to reporters. The timeline is aggressive. Sujay Shetty from PwC India calls the next 3-4 years 'pivotal' for India's semiconductor goals. The country needs to prove it can operate actual silicon fabs while overcoming infrastructure challenges that extend far beyond financial incentives. Fabrication sites require earthquake-free zones with ultra-reliable power, specialty chemical suppliers meeting ultra-high purity standards, and sophisticated logistics networks. Meanwhile, will start mass-producing 2nm chips later this year, representing the cutting edge of semiconductor technology. These chips offer dramatically better performance and power efficiency, crucial for AI applications and advanced computing. India remains years away from such capabilities. The opportunity exists in outsourced semiconductor assembly and testing (OSAT), where barriers to entry are lower and margins attractive. Several Indian companies are exploring this segment, which could provide a stepping stone into the global chip supply chain without requiring the massive capital investments of advanced fabs.
