India is betting $18 billion to build a chip powerhouse. Here’s what it means

India is setting its sights on becoming a major player in the global semiconductor industry, making a bold move with an investment of approximately $18 billion. However, the challenge is significant, as the country finds itself entering a highly competitive arena where it is considered a latecomer in the production of advanced chips. The urgency for this shift surged in 2022 when the U.S. imposed export restrictions on high-end AI chips to China, igniting a global race towards semiconductor self-sufficiency. India views this moment as an opportunity to reduce its reliance on imports, secure essential chips for critical sectors, and capture a larger slice of the global electronics market that is increasingly moving away from China. Despite being one of the largest consumers of electronics worldwide, India currently lacks a robust local chip manufacturing industry and plays a minimal role in the global supply chain. The Indian government's "Semiconductor Mission" aims to transform this landscape by establishing a comprehensive supply chain that spans design, fabrication, testing, and packaging within the country. As of now, India has greenlit ten semiconductor projects, amounting to an investment of 1.6 trillion rupees, which includes plans for two fabrication plants and numerous testing and packaging facilities. The nation boasts a skilled engineering workforce already engaged with global chip design firms, yet experts argue that mere investments and talent will not suffice to realize India's semiconductor ambitions. Stephen Ezell from the Information Technology and Innovation Foundation points out that leading semiconductor firms consider numerous factors—up to 500—when deciding on multi-billion-dollar investments. These include workforce quality, tax policies, trade regulations, and more, highlighting areas where India still needs improvement. In a strategic shift, the Indian government recently introduced a new initiative to bolster the manufacturing of electronic components, addressing a crucial gap in the local market where demand for chips was lacking due to a shortage of component manufacturers. Previously focused on incentivizing fabrication units for chips of 28nm or smaller, India has now broadened its support to cover 50% of project costs for all fabrication and testing units, regardless of chip size. This change aims to attract investments from firms across Taiwan, the U.K., the U.S., and South Korea. A flagship project is underway in Gujarat, where Tata Electronics is collaborating with Taiwan's Powerchip Semiconductor Manufacturing Corp. to build a massive 910-billion-rupee fabrication plant. This facility will produce chips for various applications, including power management, which are crucial for industries such as AI, automotive, computing, and data storage. The next few years are critical for India’s semiconductor goals, as highlighted by Sujay Shetty from PwC India. Establishing functional silicon fabrication sites and overcoming technical and infrastructural challenges will be vital for success. Facilities must comply with stringent requirements, including location stability and reliable transportation links. Additionally, the growth of medium-sized companies in India is paving the way for the establishment of chip testing and packaging units, which offer significant profit margins with lower capital demands compared to fabrication plants. However, clarifying market access and demand channels will be essential for sustained growth in this sector. Despite these advancements, experts warn that India remains far from developing cutting-edge chip technology, such as the 2nm semiconductors that promise enhanced performance. While global companies like Taiwan Semiconductor Manufacturing Corporation are on the brink of mass production of these advanced chips, India's local talent is anticipated to play a limited role in core design activities, as this expertise is often concentrated in countries with robust intellectual property protections. In summary, while India is making strides towards establishing a semiconductor industry, the journey is fraught with challenges that require strategic planning and long-term investment in infrastructure and talent development.