Introduction
As highlighted in Economic Survey 2025–26 and NITI Aayog’s Semiconductor roadmap, Union Budget 2026–27 launched ISM 2.0 (with a ₹1,000-crore outlay and expanded ₹40,000-crore component fund) to transition India from assembly to full-stack hardware sovereignty.
Pillars of India’s Readiness
- Intellectual Capital & Design Dominance: Houses ~20% of global chip design talent; Design Linked Incentive (DLI) scheme has supported 24 projects, with 16 tape-outs and 6 ASIC chips by January 2026. Example: Shakti RISC-V Processors.
- Expanding Manufacturing Base: Approved 12 units under Semicon 1.0 exceeding ₹1.64 lakh crore investments across silicon/compound fabs and OSAT facilities. Electronics production reached ₹13.11 lakh crore in FY2025–26, reflecting manufacturing momentum. Example: Dholera Tata-PSMC Fab.
- Geopolitical Realities & Alliances: Technology denial risks compel sovereign hardware capability through strategic pacts. Example: India-US iCET Partnership.
- Constitutional & Sovereignty Norms: Protecting data infrastructure and national security under Article 21 and IT Act standards. Example: IndiaAI Sovereign Compute.
- Demand & Strategic Relevance: AI, 5G, electric mobility, defence and data centres create a large domestic market. NITI Aayog’s 2026 roadmap projects India’s semiconductor market could reach ~$150 billion by 2035, although 90–95% of demand is currently import-dependent. Example: AI accelerators.
Structural Gaps and Value-Chain Disconnect
| Area | Operational Reality & Bottlenecks | Strategic & Policy Imperatives |
| Packaging Value Chain | Concentration in low-margin wire-bond ATMP/OSAT vs. high-margin CoWoS advanced packaging. | Shift subsidies toward 2.5D/3D advanced integration Example: Heterogeneous Packaging. |
| Capital & Fab Deficit | Modern logic fabs cost ~$10 billion; high risk deters private patient capital. | Expand public-private co-investment models Example: Chip Commercialization Fund. |
| Infrastructure Constraints | Deficits in ultra-pure water, uninterrupted power, and domestic specialized gases/chemicals. | Establish dedicated utility corridors Example: Semiconductor Industrial Parks. |
Policy Interventions to Bridge Hardware Gaps
- Transitioning Design to Domestic IP: Scale DLI funding into a dedicated ₹1,000-crore Commercialization Fund to back fabless startups through full market deployment Example: Sovereign AI Inference Chips.
- Targeting Open Architectures: Capitalize on DIR-V (RISC-V) open-source cores to bypass commercial instruction set architecture licensing costs Example: Indigenous ASIC Design.
- Institutional R&D Ecosystems: Establish a National Semiconductor Research Institute linking IISc, IITs, SCL, and industry for next-gen process technology Example: SCL Mohali Revamp.
- Supply Chain Security: Secure critical minerals and equipment manufacturing through international alliances Example: KABIL Overseas Procurement.
Way Forward
- Focus on Open Inference Markets: Target purpose-built edge and cloud inference chips where architecture is not dominated by foreign monopolies.
- Next-Gen Fab Investments: Prioritize compound semiconductors and advanced packaging (ATMP/OSAT) facilities to build immediate domestic capacity.
- IP Ownership Ecosystem: Mandate state backing for domestic fabless startups to retain chip IP rights within India.
- Outcome-Linked Fiscal Incentives: Tie public subsidies directly to domestic IP generation, commercial yields, and technology transfer.
- Anchor Domestic Offtake: Mandate public procurement of indigenous chips across defense, 5G telecom, and IndiaAI infrastructure.
Conclusion
Self-reliance in critical technologies is vital for national strength; mastering semiconductor manufacturing will secure India’s position in the global AI economy.
