{"id":359054,"date":"2026-03-26T15:55:26","date_gmt":"2026-03-26T10:25:26","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=359054"},"modified":"2026-03-26T15:55:26","modified_gmt":"2026-03-26T10:25:26","slug":"semiconductor-manufacturing-in-india-significance-and-challenges-explained-pointwise","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/semiconductor-manufacturing-in-india-significance-and-challenges-explained-pointwise\/","title":{"rendered":"Semiconductor Industry in India- Significance and Challenges- Explained Pointwise"},"content":{"rendered":"

India is emerging as a semiconductor hub, developing indigenous chips like VIKRAM 3201<\/span>,\u00a0 DHRUV64<\/span> to boost self-reliance. The market is growing from $38 billion in 2023 and is expected to reach $100\u2013110 billion by 2030<\/span>.<\/p>\n

In a major boost, the Union Budget 2026\u201327<\/span> announced India Semiconductor Mission 2.0 (ISM 2.0) with a provision of Rs. 1,000 crore<\/span>, reinforcing India’s ambition to emerge as a global semiconductor hub. This article examines the semiconductor industry in India, focusing on its significance, key challenges, government initiatives, and the way forward.<\/p>\n

\"Semiconductor
Source- PIB<\/figcaption><\/figure>\n\n\n\n\n
Table of Content<\/strong><\/td>\n<\/tr>\n
What are semiconductors? What is their importance?\u00a0<\/a>
\nWhat are the defining features of Semiconductor manufacturing?<\/a>
\nWhy is there a global race to diversify semiconductor supply chains?<\/a>
\nWhat is the significance of development of indigenous semiconductor industry in India?<\/a>
\nWhat have been the government efforts towards development of semiconductor industry in India?<\/a>
\nWhat are the challenges in the semiconductor industry in India?<\/a>
\nWhat should be the focus area for Indian Semiconductor Industry?<\/a>
\nWhat Should be the Way Forward?<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What are semiconductors? What is their importance?\u00a0<\/strong><\/span><\/h2>\n

Semiconductors-<\/strong> Semiconductors are materials which have a conductivity between conductors and insulators. They can either be pure elements, like silicon or germanium<\/span> or compounds, like gallium, arsenide, or cadmium selenide<\/span>.<\/p>\n

Properties-<\/strong> Semiconductors have less resistivity than insulators and more than conductors. The resistance of the semiconductor decreases with an increase in temperature and vice versa.<\/p>\n

Importance of Semiconductor chips<\/strong><\/p>\n

1. Heart and brain of modern technology products-<\/strong> Semiconductor chips are the heart and brain<\/span> of all modern electronics and communications technology products<\/span>, contemporary automobiles<\/span>, household gadgets<\/span> such as refrigerators, and essential medical devices<\/span> such as ECG machines.<\/p>\n

2. Propeller of emerging technologies-<\/strong> The development of emerging technologies like AI, 5G, or driverless cars<\/span> is dependent upon a fast and cheap semiconductor industry.<\/p>\n

3. Most traded products after petroleum-<\/strong> Semiconductors are globally the most-traded products after petroleum and cars, with an annual turnover<\/span> of $500 billion<\/span>.<\/p>\n

4. Aiding the further development of electronic devices-<\/strong> Semiconductors make the devices more compact, less expensive, and more powerful. For ex-<\/strong> Semiconductor chips have enhanced the features of smartphones<\/span> with powerful processing<\/span>.<\/p>\n

5. Transformative potential-<\/strong> Semiconductors continue to enable the world\u2019s greatest breakthroughs and transformation in industries, ranging from aerospace and consumer electronics<\/span> to energy and medicine<\/span>.<\/p>\n

<\/a>What are the defining features of Semiconductor manufacturing?<\/strong><\/span><\/h2>\n

Semiconductor manufacturing has the following defining features-<\/p>\n

1. Front-end manufacturing and back-end assembly-<\/strong> Semiconductor manufacturing comprises the front-end fab manufacturing and the back-end assembly<\/span>, including packaging and testing. However, the front-end fab manufacturing is a complex process, with only a handful of companies involved in large scale fab-manufacturing.<\/p>\n

2. Complexity in manufacturing-<\/strong> The semiconductor manufacturing is a complex process requiring at least 300 different high-technology inputs<\/span>.<\/p>\n

3. Highly concentrated global supply chain-<\/strong> Globally, the entire semiconductor value chain has seeped in the interdependence between a handful of countries like the USA, Taiwan, Japan, China, and some European nations. Within this chain, there\u2019s an extraordinary degree of specialisation that makes it vulnerable to shocks. For ex-100% of the world\u2019s most advanced<\/span> (below 10 nanometres) semiconductor manufacturing facilities<\/span> are located in just two countries, Taiwan<\/span> and South Korea<\/span>.<\/p>\n

4. Large investment-<\/strong> The semiconductor product development requires the largest investment on both R&D and manufacturing. It is estimated that over the next decade about $3 trillion in investment will be needed<\/span>.<\/p>\n

5. Revenue sharing b\/w few companies-<\/strong> The top three companies in each stage of the semiconductor supply chain take in about 80-90% of the revenue<\/span>.<\/p>\n

Semiconductor manufacturing status in India<\/strong><\/p>\n

1. Semiconductor R&D footprint in India-<\/strong> India has an existing base for design and verification for the semiconductor industry. Most of the global semiconductor companies having an R&D footprint in India<\/span>.<\/p>\n

2. Fabrication facilities limited to strategic semiconductor development-<\/strong> India has two fabs \u2014 SITAR, a unit of the Defence Research and Development Organisation (DRDO) in Bengaluru, and a semiconductor laboratory in Chandigarh. These build silicon chips for strategic purposes like defence and space<\/span>, and not for commercial use.<\/p>\n

3. High import dependence-<\/strong>\u00a0100% of our semiconductor chips, memory, and display cards are imported into the country. In 2020, India spent $15bn on electronic imports, with 37% coming from China.<\/p>\n

4. Progress under ISM 1.0-<\/strong>\u00a0As of December 2025, 10 projects worth Rs. 1.60 lakh crore have been approved across six states, covering silicon fabs, silicon carbide fabs, advanced packaging, and ATMP facilities.<\/p>\n

<\/a>Why is there a global race to diversify semiconductor supply chains?<\/span><\/strong><\/h2>\n

1. Over concentration of manufacturing units-<\/strong> Semiconductor chip manufacturing is concentrated in a few countries. For ex-<\/strong> Taiwan produces over 60% of the world\u2019s semiconductors<\/span>, and along with South Korea makes 100% of the most advanced chips (below 10 nanometers).<\/p>\n

2. Supply chain disruption due to epidemic-<\/strong> The semiconductor industry experienced significant supply shortages during the pandemic due to disruptions in China\u2019s production<\/span>.<\/p>\n

3. Geo-political conflicts-<\/strong> The ongoing Russia-Ukraine conflict has resulted in shortages of raw materials for domestic industries. For ex-<\/strong> Ukraine plays a critical role as a key supplier of neon<\/span>, which is an essential input in semiconductor manufacturing.<\/p>\n

4. Potential of another round of shortages due to emerging geo-political contestations-<\/strong> The European Union and the United States has refused to sell advanced manufacturing equipment to China. In retaliation, China imposed export controls on crucial inputs such as gallium and germanium<\/span>. This may lead to another potential round of shortages in the semiconductor industry. For ex-<\/strong> US has restricted its firms and its allies from assisting the Chinese production of 16 nanometers or smaller chips<\/span>.<\/p>\n

Therefore, many countries are looking to diversify their supply chain. India seeks to take advantage of countries eyeing for diversification of supply chains.<\/p>\n

<\/a>What is the significance of development of indigenous semiconductor industry in India?<\/strong><\/span><\/h2>\n

1. Tackling supply shocks-<\/strong> The pandemic and the subsequent lockdowns impacted the supply of chips to India. For ex-<\/strong> Automobile manufacturers like Mahindra & Mahindra and Tata group<\/span> were compelled to reduce their production<\/span> due to the shortage<\/span>.<\/p>\n

2. Meeting the rising demand-<\/strong> Experts estimate that around 50 crore people will join the internet in the next decade<\/span>, which will increase the demand of more phones and laptops<\/span>.
\nSimilarly, the post-pandemic world is showing a greater inclination towards work from home culture<\/span>. This warrants an enhanced demand for servers, internet connectivity, and cloud usage.
\nHence, indigenous semiconductor industry is needed to meet the rising demands. There is a huge domestic market for semiconductors which could exceed $60 billion by 2026<\/span>.<\/p>\n

3. Employment Creation-<\/strong> Indigenous manufacturing of chips will build its smartphone assembly industry and strengthen its electronics supply chain. This will create numerous employment opportunities for the Indian youth<\/span>.<\/p>\n

4. Revenue boost-<\/strong> Indigenous capacity would attract local taxes and boost the export potential. Further, India would be required to import fewer semiconductor chips, which would decrease the import bill. For ex-<\/strong> India imports almost all semiconductors to meet its demand, which is estimated to reach around $100 billion by 2025<\/span>.<\/p>\n

5. Enhanced Security-<\/strong> Chips made locally will be designated as \u201ctrusted sources<\/span>\u201d and can be used in products ranging from CCTV cameras to 5G equipment. This would improve the national cybersecurity profile<\/span>.<\/p>\n

6. Geopolitical Benefits-<\/strong> Countries having a sufficient supply of chips would be in a better position to mould the future course of geopolitics, driven by data and the digital revolution. Further self-sufficiency will decrease reliance on Chinese chip imports, especially during hard times like the recent Galwan Valley border clash<\/span>.<\/p>\n

7. Increased competitiveness-<\/strong>\u00a0Indian manufacturers globally competitive to attract investment<\/span> in the areas of core competency and cutting-edge technology.<\/p>\n

<\/a>What have been the government efforts towards development of semiconductor industry in India?<\/strong><\/span><\/h2>\n\n\n\n\n\n\n\n\n\n
National Policy on Electronics, 2019<\/strong><\/td>\nIt envisions positioning India as a global hub for Electronics System Design and Manufacturing (ESDM) sector<\/span>. It aims to encourage the development of core components (including chipsets) and create an enabling environment for the industry to compete globally.<\/td>\n<\/tr>\n
Semicon India programme<\/strong><\/td>\nThe government has approved the Semicon India programme with a total outlay of INR 76,000 crore for the development of semiconductor and display manufacturing ecosystem in the country<\/span>.<\/td>\n<\/tr>\n
\u2018Modified Scheme for setting up of Semiconductor Fabs in India\u2019<\/strong><\/td>\nIt aims to attract large investments for setting up semiconductor wafer fabrication facilities in the country. The Scheme extends a fiscal support of 50% of the project cost on an equal footing basis for setting up of Silicon complementary metal-oxide semiconductor<\/span> (CMOS) based Semiconductor fabrication in India.<\/td>\n<\/tr>\n
Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme<\/strong><\/td>\nUnder this, the government will provide support for the setting up of Electronics Manufacturing Clusters<\/span> (EMCs) and Common Facility Centres <\/span>(CFCs).<\/td>\n<\/tr>\n
Foreign Direct Investment<\/strong><\/td>\nThe Government of India has allowed 100 percent (FDI) under the automatic route in the Electronics Systems Design & Manufacturing sector<\/span>.<\/td>\n<\/tr>\n
Production Linked Incentive Scheme(PLI)<\/strong><\/td>\nUnder this, the government will provide an incentive of 4% to 6% on goods manufactured in India<\/span> and covered under target segments to eligible companies for a period of five years<\/span>.<\/td>\n<\/tr>\n
India Semiconductor Mission 2.0
\n<\/strong><\/td>\n		The Union Budget 2026\u201327 launched India Semiconductor Mission 2.0 with Rs. 1,000 crore to boost domestic chip capabilities through local equipment and material production, full-stack IP design, and industry-led R&D and skilling.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What are the challenges in the semiconductor industry in India?<\/strong><\/span><\/h2>\n

1. High Cost of establishment-<\/strong> As per a government estimate, it would cost roughly $5-$7 billion<\/span> to set up a chip fabrication unit in India.<\/p>\n

2. Bureaucratic inefficiencies-<\/strong> The process of establishing an indigenous semiconductor facility requires clearances and approvals from multiple government departments. Further, there exists a considerable degree of bureaucratic delays at each stage<\/span> that discourages the establishment of manufacturing units.<\/p>\n

3. Unstable power supply-<\/strong> The smooth production of semiconductors requires the availability of an uninterrupted 24*7 power supply<\/span>. However, this requirement is not fulfilled by many regions in the country. This restricts production to very few locations.<\/p>\n

4. Technological Constraint-<\/strong> The indigenous manufacturing of semiconductors requires the use of high-end technologies<\/span>. These technologies are licensed from patent holders at a very high price.<\/p>\n

5. Structural Flaws-<\/strong> FDI in electronics is less than 1% of the total FDI inflow<\/span> because of the dearth of skilled labor, delays in land acquisition, and the uncertain tax regime.<\/p>\n

<\/a>What should be the focus area for Indian Semiconductor Industry?<\/strong><\/span><\/h2>\n\n\n\n\n\n\n\n\n
R&D-intensive activities<\/strong><\/td>\nR&D-intensive activities like electronic design automation<\/span> (EDA), core intellectual property<\/span> (IP), and chip design.<\/span> The US is the leader in this segment. India can get part of the business by supporting its existing chip-design experts<\/span> and funding technology and innovation centres<\/span>, including top engineering colleges.<\/td>\n<\/tr>\n
FABS facilities for advanced chips<\/strong><\/td>\nIndia should focus on setting up of semiconductor fabrication (FABS) facilities for making of advanced chips.<\/td>\n<\/tr>\n
Focus on medium and low-end chips<\/strong><\/td>\nDue to the pandemic related supply disruptions and tensions between the US and China<\/span>, the US, Japan, and many other countries have announced plans for setting up local Fabs<\/span>. This might lead to a surplus capacity for high-end Fabs in the near future. Hence, India should focus on making medium and low-end chips.<\/td>\n<\/tr>\n
Assembly, testing and packaging (ATP) segment<\/strong><\/td>\nThis segment captures 10% of the value<\/span>. China is the current leader. With low-cost skilled technical manpower, India is a natural choice to take some part of the business.<\/td>\n<\/tr>\n
Full-Stack IP Design<\/strong>
\n<\/strong><\/td>\n		ISM 2.0 emphasises indigenous IP creation – reducing royalty payments and establishing technological sovereignty.<\/td>\n<\/tr>\n
Local Equipment & Materials<\/strong>
\n<\/strong><\/td>\n		ISM 2.0 focuses on producing semiconductor equipment and materials domestically, a critical supply chain gap<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What Should be the Way Forward?<\/strong><\/span><\/h2>\n

1. Provision of adequate funding-<\/strong> Adequate funding must be provided to augment the research and development potential of technical institutes. For ex-<\/strong> IIT Madras developed a microprocessor named \u2018Moushik\u2019<\/span> with funding support from the Ministry of Electronics and Information Technology.<\/p>\n

2. Expeditious execution of Sovereign Patent Fund (SPF)-<\/strong>\u00a0 The Sovereign Patent Fund (SPF) under National Policy on electronics<\/span> should be established expeditiously. It is a wholly or partly Government-backed entity that aims to bolster domestic businesses<\/span> through the acquisition and licensing of patented technology.<\/p>\n

3. Domestic procurement assurances-<\/strong> The manufacturers need to be given an assurance of minimum domestic procurement by the government and the private sector. The focus should be on manufacturing economical and technically viable options like 28nm chips<\/span>.<\/p>\n

4. Support of businesses-<\/strong> The government should also support businesses in the acquisition of semiconductor manufacturing units in other countries<\/span>. This is easier than setting up a domestic facility and can be done swiftly for ensuring a continuous supply of chips. Hand-holding startups of entrepreneurial engineers can also produce large payoffs.<\/p>\n

5. Intial Focus on back-end of manufacturing-<\/strong> Semiconductor foundries are the world\u2019s most expensive factories, accounting for 65% of industry capital expenditure but only 25% of the value addition<\/span>. Therefore, to lower the risks of investment, India should especially look at back-end of manufacturing<\/span> such as assembly, packaging and testing. Once it stabilises and an ecosystem develops, front-end of manufacturing will follow.<\/p>\n

6. Proactive cooperation of states-<\/strong> Areas like stable power<\/span>, large quantities of pure water<\/span> and land<\/span>, are state subjects, and the state governments should also create the right climate for easy implementation of semiconductor projects.<\/p>\n

Conclusion<\/strong><\/span><\/p>\n

The 21st century will be an era of Digital revolution<\/span> signifying an increased use of mobile phones<\/span> and computer devices<\/span>. This enhanced usage can be met only with a robust availability of semiconductor chips that sustains their functioning. Therefore India needs to focus on the indigenous development of semiconductors in order to realize its digital potential and emerge as a strong power in the present era.<\/p>\n\n\n\n
Read More-Daily Pioneer<\/a>
\nUPSC Syllabus- GS 3- Indian Economy<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

India is emerging as a semiconductor hub, developing indigenous chips like VIKRAM 3201,\u00a0 DHRUV64 to boost self-reliance. The market is growing from $38 billion in 2023 and is expected to reach $100\u2013110 billion by 2030. In a major boost, the Union Budget 2026\u201327 announced India Semiconductor Mission 2.0 (ISM 2.0) with a provision of Rs.… Continue reading Semiconductor Industry in India- Significance and Challenges- Explained Pointwise<\/span><\/a><\/p>\n","protected":false},"author":10367,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130],"tags":[],"class_list":["post-359054","post","type-post","status-publish","format-standard","hentry","category-7-pm","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/359054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10367"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=359054"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/359054\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=359054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=359054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=359054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}