Introduction

Semiconductors (or chips) are foundational to modern economies, powering an array of commodities, from televisions and automobiles, and defining the next frontiers in artificial intelligence (AI). This makes it a strategic lever in geopolitical competition and countries’ national and economic security priorities. As trade wars, tariffs, and export controls shape evolving geopolitical realities, it becomes important to understand how critical technologies like semiconductors underpin national strategies to de-risk and build resilience to external shocks.

The United States’ (US) export controls on advanced chips have accelerated aggressive Chinese investments in its semiconductor innovation ecosystem, coupled with localisation strategies. While it may still face bottlenecks in advanced chip manufacturing, China has rapidly built up a global market share in legacy chips, challenging leading players in this domain, like Taiwan and South Korea.^[1] As India grows its nascent semiconductor journey, it becomes important to understand how the country can build and secure its innovation capacities vis-à-vis China’s rising prowess. Evaluating India’s priorities within the broader context of China’s semiconductor innovation strategy provides lessons for supply chain diversification, comparative advantage, and informed policy action.

This is particularly important at a time when India is drawing the boundaries of its relationship with China, balancing cooperation and vigilance against the backdrop of recent events along the border, China’s manufacturing heft, and the US’s punitive tariffs against India.^[2] Developing semiconductor capabilities is vital for India, not just for its national interests but also as a viable solution towards global efforts to de-risk and diversify supply chains. However, this is inflected by the tension between national imperatives, economic dependency, and geopolitical considerations and requires reflection on the broader context of the evolving nature of its bilateral and economic relationship.

The Galwan clash in 2020 threw into sharp relief the many contours of India’s technological and economic dependency on China. Unfolding within the wider geopolitical context, 2020 marked the start of India confronting widening risk interfaces and vulnerabilities amidst China’s growing might in manufacturing, technology, and raw materials.

The Indian and Chinese Stances Post-Galwan

India began restricting Chinese business activities in early 2020, intensifying the curbs following the military confrontation in Galwan in June that year.^[3] In its aftermath, India responded with a mix of investment screenings, product bans, and tax investigations.^[4] Press Note 3 of 2020, for example, aimed to regulate foreign investment from countries sharing a land border with India.^[5] Following the Galwan crisis, the Indian government placed restrictions on public procurement and banned several Chinese apps, with the Enforcement Directorate enhancing scrutiny of Chinese companies in India.^[6]

In the aftermath of the Galwan conflict, China delayed customs clearance for German-made tunnel boring machines that are required for critical infrastructure work from its manufacturing plants in Guangzhou and Shanghai.^[7] Since 2023, China has restricted exports of critical minerals, such as gallium and germanium, to countries like the US, India, Japan, and the Netherlands as a retaliatory measure to the semiconductor export controls imposed by the US.^[8] In January 2025, it restricted manpower and specialised equipment to deter the manufacture of the newest iPhone and undermine supply chain diversification that could favour India.^[9] By July 2025, more than 300 Chinese engineers had left Foxconn’s iPhone factories in India in line with a broader Chinese strategy to limit technology transfer, equipment export, and workforce development to its emerging competitors like India and countries in Southeast Asia.^[10] However, despite these measures, economic ties continued between the two countries.^[11]

Economic and Geopolitical Equations 

India continues to be heavily reliant on Chinese imports, with the trade deficit recorded at US$99.2 billion in FY 2024-25, having continuously widened year-on-year.^[12] China often alternates with the US as India’s top trading partner.^[13] In 2024, Chinese exports to India surpassed US$100 billion, making it the country’s largest trading partner.^[14] This dependency is foregrounded in the losses suffered by India’s electronics sector in the context of post-Galwan policies.^[15] Escalating tensions with China have led to India losing INR 1.25 lakh crore (approx. US$15 billion).^[16] In submissions to different ministries, the electronics manufacturing industry stated that it lost out on a US$10-billion export opportunity, besides  recording a US$2-billion value-addition loss.^[17] According to industry bodies like the India Cellular and Electronics Association (ICEA) and the Manufacturers Association of Information Technology (MAIT), visa delays for Chinese professionals have led to bottlenecks in technology and skills transfer.^[18] China is also restricting knowledge transfer by prohibiting its employees from travelling to India and recalling existing ones.^[19]

However, India’s post-Galwan policy unfolded within the broader geopolitical context of reducing Chinese dependency and countering its ascent.^[20] The US had begun restricting the use of Huawei equipment in certain networks of the Department of Defense since 2017. This eventually culminated in trade restrictions and export control of advanced semiconductors on Huawei in 2019 and China’s largest semiconductor manufacturer, SMIC (Semiconductor Manufacturing International Corporation), in 2020. These controls were subsequently widened in 2022, 2023, and 2024, reducing the types of semiconductors that American companies can sell to China.^[21]

China is a global leader in AI research, commercialisation, and military technologies.^[22] At the centre of these sanctions were advanced chips implemented as a ‘chokepoint strategy’ through allies like Taiwan, Japan and the Netherlands—critical to the semiconductor supply chain—to halt China’s progress in AI.

However, with the announcement of the escalation of punitive tariffs on India, the ‘triangular dynamic’ between the US, China, and India has witnessed a marked shift. As the two countries face Washington’s stiff tariffs and export controls, India has worked towards accommodating these changing geopolitical realities in balancing its relationship with China in light of its domestic economic priorities and Washington’s overtures to Pakistan and China. India’s rapprochement comes without compromising on its security interests, bolstered by its demonstrated ability to push back against Chinese aggression.^[23] This would stand to be complemented by a strategic technological and economic watchfulness.

Semiconductors determine who will stay ahead in the global AI race, given the technology’s transformative impacts and the potential to add billions of dollars to national and global economies. India’s semiconductors policy follows a slightly longer legacy of establishing self-reliance in the electronics sector. Launched in 2022, the India Semiconductor Mission (ISM) aims to establish the semiconductors ecosystem in the country across the value chain, from design through manufacturing and assembly, testing, and packaging.^[24] The aim is to develop the ecosystem by boosting capabilities, supporting research and development, and positioning India as a global manufacturing hub. However, India’s semiconductor ambitions must be evaluated within the context of the globally sprawling semiconductor value and supply chains, China’s aggressive public investment and innovation in response to geopolitical pressures, and India’s economic and technological dependency on China.

This paper evaluates the two countries’ journeys in this space by understanding the globally distributed nature of semiconductor value and supply chains within the context of China’s semiconductor industry and India’s ambitions in the domain. It distils the discussion across four points of comparison: economic dependency; the value chain vs ecosystem approach; strategic advantages; and state support. Based on this comparison, it outlines recommendations for India to overcome bottlenecks and navigate the landscape amidst geopolitical and industrial shifts.

Semiconductor Value and Supply Chains: Global Competition and Interdependencies

Semiconductor value chains are geographically concentrated, with intricate international interdependencies within them. The semiconductor value chain can be divided into three stages: design and core IP (intellectual property); manufacturing; and assembly, testing, and packaging (ATP).^[25] Industrial organisation in this space is of two types: integrated device manufacturers (IDMs) and the fabless model. The former controls the totality of the value chains (e.g., Intel, Texas Instruments, and Samsung) while in the latter, each segment is decoupled and outsourced to locations to maximise cost and production efficiencies (e.g., AMD, NVIDIA, and Qualcomm).^[26]

The upper end of the value chain, comprising design and core IP, involves design and development of chip architecture, and is dominated by the US and the United Kingdom (UK). The UK and the US exert a combined control over 90 percent of the core IP market.^[27] This phase also includes critical software tools like Electronic Design Automation (EDA), which are used to visualise and analyse chip design—a domain where US firms make up 70 percent of the market.^[28] Semiconductor manufacturing or fabrication involves a complex, precise, and multi-step process in etching chip design on silicon wafers. Seventy-five percent of the global semiconductor manufacturing capacity is located in East Asia (Japan, South Korea, Taiwan, and mainland China), with Taiwan holding 92 percent of the global semiconductor manufacturing capacity in advanced chips below 10 nm.^[29] Taiwan’s TSMC commanded nearly 68 percent market share in the global pure-play foundry market in the first quarter of 2025.^[30] Once manufactured, the chips are then cut, assembled, and packaged, with 95 percent of the ATP facilities concentrated in countries such as China, Taiwan, Singapore, Malaysia, Vietnam, and the Philippines.^[31]

Depending on the electronic product, there can be 30 types of semiconductors.^[32] However, two classifications are key: memory vs logic chips and mature vs advanced chips. The former serves complementary functions, with memory chips responsible for the storage and retrieval of data, while logic chips are instrumental in performing complex operations by processing and manipulating data.^[33] Mature and advanced chips are determined by size and capabilities. Mature chips are 22 nanometres (nm) or higher, produced using older technology, and used in products like consumer electronics. Advanced chips, 7nm or lower, are used to drive cutting-edge applications in technologies like AI.^[34] Advanced chips have been the subject of US export controls to China to fence-in the latter’s leadership in AI. However, in the past five years, China’s share of the global memory chips market has grown from zero to five percent and is set to double in 2025.^[35] China has been heavily investing in expanding capacity in the mature semiconductor space. A 2024 survey by the US Department of Commerce’s Bureau of Industry and Security (BIS) found that at least two-thirds of the companies surveyed likely used mature chips from Chinese foundries.^[36]

Cutting across the semiconductor value chain is the requirement of critical minerals, equipment, and gases. According to estimates, each segment of the value chain involves an average of 25 countries in the direct supply chain and 23 countries in market functions, with inputs possibly travelling 25,000 miles and crossing 70 or more international borders before making it to the end product for the final consumer.^[37] The most advanced semiconductors require 300 critical inputs like minerals, bulk gases, and chemicals.^[38] These are then processed by 50 classes of specialised engineering equipment composed of hundreds of mechanical and electronic sub-components. Moreover, the manufacturing process is highly sensitive and requires specialised equipment like the EUV (extreme ultraviolet) lithography machine, which is indispensable for the production of leading node chips and is the monopoly of Dutch company ASML.^[39]

Chinese imports of semiconductor equipment hit a record high of US$26 billion in 2024, which included stockpiling ahead of more stringent sanctions.^[40] However, Chinese purchases of chip-making equipment are expected to fall in 2025, registering a 6 percent year-on-year decline. While Chinese equipment makers are gaining ground, China is still a long way from self-sufficiency, particularly in advanced EUV lithography machines.^[41] It is a key market for ASML, and export controls have hurt the bottom line. Its US-listed shares have been down by 20 percent over the past year in 2025,^[42] and reports suggest that ASML is upgrading its reuse-and-repair centre in Beijing.^[43]

Of the four critical minerals most commonly used in semiconductors, China has a dominant position in three.^[44] It accounts for 79 percent of global raw silicon production and 75 percent of ultra-high-purity silicon required to make silicon wafers on which circuits are etched.^[45] Germanium, used in fibre optics and high-speed communications systems, requires much refining before being used for semiconductors. China currently dominates in germanium refining infrastructure, accounting for 60 percent of the global supply of refined germanium.^[46] Gallium is used to produce high-performance chips for an array of goods spanning mobile phones to satellites. It is irreplaceable for next-generation electronic equipment, particularly in defence, and China produces 98 percent of the world’s gallium.^[47]

China’s Semiconductor Industry

China is still far behind in the upper ends of the value chain in design, EDA, and key semiconductor manufacturing equipment.^[48] However, the gap is narrowing with successive rounds of public expenditure; semiconductors is now named the country’s “top industrial innovation priority”.^[49] Chinese ATP players held between 27-38 percent of the ATP market, with five of the largest players being Chinese. Much of the expansion in market share over the years has been through the acquisition of foreign companies, particularly in Southeast Asia.^[a],[50] As of 2021, 30 percent of ATP capacity is based outside China.^[51] Chinese companies have been investing heavily in Southeast Asia’s semiconductor industry, particularly in areas like advanced packaging and testing.^[52]

China currently leads globally in semiconductor expansion and is expected to increase its share in semiconductor production.^[53] Beijing is exhorting domestic companies not to use foreign chips in their products.^[54] Of the total number of fabs under construction in the world, a third is located in China.^[55] The country is making massive public investments to develop the semiconductor ecosystem in the country. The Big Fund is currently in its third round of funding, with a focus on chip sovereignty, contributing US$47.5 billion. This is notably larger than the previous two rounds, and the successive rounds aimed at stimulating the ecosystem. Recent reports suggest that companies like Huawei have indeed increased reliance on them.^[56] One of the changes in the third round of the Big Fund is the inclusion of banking and financial institutions as key investors. Funding support comes in the form of equity infusions or a mix of government and private capital, complemented by overseas talent acquisition, the development of domestic standards, and the preference given to domestic chips.^[57]

Such support is instrumental in closing the gap between leading-edge technologies, with the Kirin 9000s chip only 18 months behind Qualcomm’s produced by Samsung, in terms of performance and capabilities.^[58] These large public investments also ensure that China is poised to dominate the mature chip manufacturing segment, which is free from sanctions.^[59] Consequently, Chinese firms can price their product at 30 percent below market rate, allowing them to capture a higher market share over time.^[60]

However, the bottleneck in China’s rise up the value chain is its reliance on advanced semiconductor equipment from ASML. Despite its growing dominance in mature chips, Taiwan has a close monopoly in advanced chips. Huawei’s 7nm Kirin 9000s advanced chip breakthrough was developed with a lower DUV (deep ultraviolet) machine as compared to the industry-leading EUV machine. This decreases production efficiency and precision since it requires a greater number of steps than the single step required by EUVs. China is banned from accessing EUV machines that are critical to go beyond 5nm, and reports suggest that Chinese companies are directing their efforts to develop the latter.^[61] While local companies have made progress in replacing foreign tools for aspects such as etching, measurements, chemical polishing, and deposition, lithography continues to remain a challenge.^[62] However, Huawei has stepped in to provide key support with the establishment of a Research and Development (R&D) hub in Shanghai that is recruiting key talent from leading equipment manufacturers like ASML, Applied Materials, and KLA.^[63] In the interim, stockpiling from global leaders continues to be a short-term strategy with the purpose not just to produce but also to study, learn, and ‘reverse-engineer’.^[64]

Concurrently, China is the world’s largest semiconductor market in terms of consumption, representing 31.4 percent of worldwide final sales. Integrated circuits are the largest imported product for China, accounting for 15.3 percent of total imports in 2022, ahead of even crude oil.^[65] China’s semiconductor imports continued to expand in 2024 as companies rushed to stockpile ahead of the rollout of eventual sanctions in that year.^[66] From January to November that year, imports saw a 14.8-percent jump compared to the previous year. However, Chinese exports also registered double-digit growth in the same period of January to November, particularly in the production of mature chips, in which it competes along with price rather than quality. The total number of exports grew by 11.4 percent over the same period last year, while the value of exports grew by 18.8 percent.^[67] While China’s semiconductor export markets are growing, it remains a net importer.

Export Controls and Bans: Knock-on Effects and Unintended Consequences

The US’s ‘choke point strategy’ aimed at curbing China’s AI ambitions expanded to multilateral deals between the US, Japan, and the Netherlands to curb semiconductor manufacturing exports to China.^[68] The export controls also deviated from industry-accepted thresholds of what counts as advanced chips by including chips 16nm or 14 nm or below.^[69] The US ordered Taiwan’s TSMC, the world’s largest chip manufacturer, to halt the shipment of advanced chips below 7nm to China in 2024, having imposed verification and licensing requirements in 2023.^[70] China retaliated with stringent export controls on critical minerals like gallium and germanium. Gallium prices more than doubled after the export controls were imposed in 2023,^[71] while germanium prices climbed over 70 percent.^[72]

Export control limitations spurred both the Chinese national strategy, innovation, and grey-market tactics to circumvent these controls. China’s open-source LLM model DeepSeek claims to require only a fraction of the computing power needed to train models like OpenAI, as well as lower development costs.^[73] This resulted in Chinese innovation working around US export controls, which were tightened in successive iterations. Deepseek claims to have trained their model on NVIDIA H800s in compliance with the October 2022 export restrictions. The US Department of Commerce revised the rules in October 2023 to include H800s within the ambit of the ban. January 2025 saw the foundry due diligence rules addressing reports of TSMC-advanced AI chips finding their way to Huawei.^[74] While working in a compute-restrained environment would have caused Chinese developers to innovate,^[75] this also involved identifying alternative ways, such as utilising existing pre-ban US computing resources or resorting to grey-market tactics and stockpiling.^[76]

However, China has been channelling billions of dollars into designing out and around US technologies much before export controls came into force, which then accelerated the process.^[77] The loss of the Chinese market has led to a US$130-billion loss of market capitalisation for American domestic suppliers, along with a reduction in profitability.^[78] In contrast, China’s top five toolmakers have seen their combined revenue grow by 473 percent since 2019, with four out of five showing record profits in 2024.^[79] US export controls are massively dependent on allies Japan, South Korea, and Taiwan, which are critical to the semiconductor value chain.^[80] In cognisance of one of its biggest companies’ revenue loss, the Dutch government announced in 2024 that it would regulate ASML’s DUV machines independently of the US.^[81] The final wave of export controls means that the advanced EUV machine and the less advanced DUV would require a licence from the Dutch government to be exported.^[82] The growing number of entities that are subject to restrictions amounted to 36 percent of ASML’s sales last year, and currently come under export controls.^[83]

The circumvention of US export controls involved importing controlled US technologies from third countries via overseas shell companies, using a domestic trading network to redirect technologies to banned entities, and stockpiling chips.^[84] Chinese semiconductor imports soared to record highs in anticipation of more stringent sanctions in 2024. Despite these tactical responses to tackle the immediate fallout of export controls, these controls have accelerated the Chinese government’s long-term strategic vision of developing domestic capacity to design out and around US technologies, along with active de-Americanisation.^[85] A case in point: While NVIDIA was allowed by the US government to restart the sale of H20 chips to China, the Chinese government asked technology companies to halt orders due to security concerns. It further directed regulatory bodies to find ways to prevent Chinese businesses from using it while mandating that domestic firms source 50 percent of their chips from local manufacturers.^[86] Moreover, with China being the world’s largest market for semiconductor sales, its loss has been felt acutely by companies within the supply chain. In sum, ring-fencing the Chinese market has caused a ripple effect across a highly interdependent value and supply chain while catalysing processes for Chinese indigenisation.

India’s Semiconductor Ambitions

The India Semiconductor Mission (ISM), launched in 2022, aims to develop the semiconductor ecosystem across the value chain. The ISM has a budget of US$10 billion to support semiconductor fabs, ATP, design-linked incentive schemes, and the modernisation of the Semiconductor Laboratory (SCL). Subsidies are shared by Central (50 percent) and State governments ( > 20 percent), many of which have come up with semiconductor policies of their own.^[87] In terms of fabrication, India’s first semiconductor unit by Tata Electronics is being developed in Dholera, Gujarat, with technology licensed from Taiwan’s PSMC and chips rolling out by the end of 2026.^[88] The announcement states, “PSMC provides access to a broad technology portfolio in leading-edge and mature nodes, including 28nm, 40nm, 55nm, 90nm, and 110nm and also collaboration for high volume manufacturing.”^[89] Tata Electronics also has an ATP facility under development in Assam.^[90]

The other players currently invested in this field include US-based Micron Technologies’ ATP facility, Kaynes’ outsourced testing and packaging unit, and a collaborative venture between Renesas (the US arm of the Japanese company), Star Microelectric (Thailand), and CG Power (India) to build an outsourced testing and packaging facility—all three of which are to be located in Sanand.^[91] In May 2025, the Union Cabinet approved another semiconductor production facility in Jewar, Uttar Pradesh, as a joint venture between HCL and Foxconn.^[92] In August 2025, four more were approved with a compound semiconductor fab and an advanced packaging unit coming up in Info Valley, Bhubaneshwar, by SicSem Pvt. Ltd. and 3D Glass Inc., respectively. This also includes a discrete semiconductor manufacturing unit in Mohali, Punjab by Continental Device (CDIL) and a semiconductor manufacturing unit in Andhra Pradesh by Advanced System in Package Technologies (ASIP), through a tie-up with APACT Co. Ltd. of South Korea.^[93] Semicon India 2025 saw the announcement of 12 MoUs to step up indigenisation efforts and foster deeper collaboration between industry, academia, and government.^[94] The event also featured the announcement of the Deep Tech Alliance, with US$1 billion in funding, focusing on semiconductors as the initial feature.

India’s semiconductor policy is part of the longer policy direction of self-reliance in the electronics sector, following the National Policy on Electronics 2019.^[95] It is complemented by supportive policies such as purchase preference under the Make in India Public Procurement Order 2017.^[96] This is reinforced by approximately another US$20 billion in fiscal support for electronics manufacturing (production-linked incentives for mobile phone manufacturing, components, and IT hardware; capital expenditure-linked incentives for components and sub-assemblies; and the development of electronics manufacturing clusters and allied sectors—such as advanced chemistry cell, automobiles and auto components, telecom and networking, solar PV modules, and consumer appliances).^[97] South Korean firms like Simmtech, a key supplier for Micron and co-located in Sanand, availed incentives under the SPECS (Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors) scheme.^[98] It provided subsidies covering 25 percent of capital expenditure spanning electronic components, semiconductors/display fabs, ATP, specialised sub-assemblies, and the manufacture of the same.

ISM also focuses on the higher ends of the value chain through a design-linked incentive scheme (DLI), which aims to provide design and financial infrastructure to support domestic chip development.^[99] More than 100 academic institutions have accessed the EDA tools provided by Cadence, Siemens, and Synopsys through the C-DAC’s ChipIn chip design centre.^[100] The Chips to Start-up (C2S) programme is aimed at developing specialised manpower from undergraduate to research degrees, along with development and innovation in systems, chips, and reusable IP cores.^[101] According to official statistics, 278 academic institutions and 72 start-ups have been given EDA tools as of August 2025, under the C2S programme. Further, 20 chips from 17 institutions have been fabricated as of August 2025, while industry-academia collaborations, such as Micron and IIT Roorkee and LAM Research, IBM, and Purdue University, are underway.^[102]

India is also part of the Quad’s Semiconductor Supply Chain Contingency Network to coordinate among member countries in securing and ensuring resilient supply chains.^[103] There are talks of the first US-India national security-focused compound semiconductor fabrication unit coming up in Jewar, Uttar Pradesh, in collaboration with an Indian startup, 3rditech.^[104] Japan was the second Quad member after the US to sign an agreement for the joint development of the semiconductor ecosystem in India.^[105] Similar agreements also exist with the EU to promote knowledge exchange, innovation, R&D, and ‘robust supply chains’.^[106]

Key Considerations

A number of important factors underlie the success of India’s semiconductors journey so far. Three aspects are interdependent, sometimes acting at cross-purposes. In the context of India’s relationship with China, issues of national security and economy become intertwined due to the country’s massive economic dependency on China and China’s longstanding support of Pakistan.^[107]

1. Economic dependency: While there were strong national imperatives to decouple from China and achieve self-reliance, in practice, this has proved counterintuitive. The ‘Make in India’ campaign, given its focus on the electronics sector, has ironically led to a rise in component and equipment imports from China. Capital goods imports from China have seen a 19.23 percent CAGR (Compound Annual Growth Rate) through FY19-23.^[108] China is the leading exporter of capital goods, accounting for 20 percent of capital goods exports worldwide.^[109] The country’s capital goods exports stand in contrast with India’s primary export, combined with market access impediments in competitive sectors like pharmaceuticals and IT and IT-enabled services, aggravating the widening trade deficits.^[110] China accounts for 62 percent of electronic component imports, and the demand for electronic components and sub-assemblies is projected to grow fivefold to US$240 billion by 2030.^[111]

2. The Value Chain Vs Ecosystem Approach: China has been growing increasingly competitive in the legacy chip market and holds a sizeable chunk of the ATP market apart from its dominance in critical minerals. It is also closing the gap with advanced chips. The country has an existing semiconductor innovation ecosystem with its equipment manufacturing registering record growth in the previous year. India, on the other hand, started its semiconductor journey with investments across the value chain. This includes a combined push to the upper ends of the value chain through research and innovation, as well as approved projects in the middle to lower ends of the value chain, such as fabrication and ATP. While India has taken an approach to developing capabilities across the semiconductor value chain, sometimes in conjunction with existing service providers, China has taken an ecosystem approach with strong centralised localisation strategies to build out and around foreign technologies, and achieve resilience and self-sufficiency.

3. Strategic Advantages: India’s import of memory chips has grown by over 2,000 percent from FY16.^[112] Its first batch of mature semiconductors will be contending with a strongly ascendant Chinese market in this space, while its ATP ventures will be competing with China’s market-leading position in this domain, combined with overseas expansion. Moreover, China’s control over critical minerals gives it the leverage to restrict its supply as a tactical tool. In addition, Chinese technology firms like Huawei are establishing R&D centres, attracting top talent from world-leading equipment manufacturers. This 360-degree approach can be attributed to its ecosystem building. While India has high talent potential (according to government estimates, it currently has 20 percent of the global talent in the world)^[113] and human capital development initiatives. It is focusing on talent development along the value chain, which could serve a long-term vision. India’s immediate competitive advantages lie in cost efficiencies and demand aggregation from its electronics manufacturing sector. Ashwini Vaishnav, Minister for Electronics and IT, has pegged India’s cost competitiveness at 15-30 percent higher than global benchmarks.^[114] Further, its efforts and successes in localising the electronics sector are illustrative, with policy direction towards self-reliance in the electronics sector, resulting in the doubling of electronics production from US$48 billion in 2017 to US$101 billion in 2023.^[115] India is also currently the second-largest smartphone manufacturer in the world.^[116] The production-linked incentive scheme for large electronics has led to production worth ~ US$61 billion till 30 June 2024, while the SPECS scheme led to production worth ~ US$2 billion as of the same date.^[117]

4. State Support: This competition is influenced to a degree by China’s non-market practices and subsidies that enable their domestic firms to compete aggressively on price. This is compounded by the fact that India’s capital allocation is lower than China’s. Moreover, China’s third round of state funding is bolstered by the inclusion of banking and financial institutions, with companies receiving equity infusions combining government and private capital. China continues to lead globally in terms of the expansion of semiconductor capacity, with a third of the total number of fabs under construction domestically. As the US and Europe pour in billions of dollars in their attempt to localise semiconductor manufacturing, units are being set up in the US, Germany, or friendly countries like Japan. However, the development and operational costs of building these fabs outside Taiwan are considerably higher.^[118] This highlights the importance of cost efficiencies as a factor in diversifying semiconductor supply chains. Thus, India is entering the fray that includes countries with higher budget allocations, many of them benefitting from their dominant positions in the value chain or ecosystem advantages.

The semiconductor industry has a long gestation period with capital-intensive innovation and R&D. To realise its semiconductor ambitions, India will need to effectively strategise the mitigation of its pain points and play the long game.

The Way Forward for India

• Reducing Dependence: This would mean, at the initial level, meeting the domestic demand of its growing electronics manufacturing sector. The Electronics Component Manufacturing Scheme, launched in April 2025 with a budget of ~ US$2.67 billion, is a welcome change.^[119] India’s growing electronics manufacturing sector also offers opportunities for demand aggregation for Made-in-India chips. Concurrently, the country needs to identify alternative partners for technology and knowledge transfer to diversify its technological journey towards economic resilience. 

• Enhancing Support for Semiconductor Innovation Ecosystems: There needs to be a simultaneous acceleration of support towards foreign firms setting up their India units while encouraging more domestic firms to enter this space. ISM 2.0 promises to broaden the support for “fabs, OSAT units, capital equipment, and materials”.^[120] While India has a generous state support system in place, it needs to expand the financial outlay to provide support at this early but critical stage, not just in the value chain but also in terms of the ecosystem as a whole, such as in supply chain components, in developing refining capabilities for critical minerals and expanding support for the establishment of semiconductor equipment facilities and R&D. 

• Positioning: Globally, semiconductor fabs are being localised under US or EU policy or else being set up in friendly countries like Japan to prioritise security over cost. Manufacturing economics are more favourable in Asia because of government incentives and ecosystem advantages, with the cost of setting up a fab in the US being 20–50 percent higher than that of Asia (according to 2021 estimates).^[121] India could position itself as a cost-competitive and trusted partner to promote secure supply chain diversification to attract more foreign investment. 

• Identifying Leapfrogging Opportunities: Most countries entering the semiconductor value chain enter from its lower end, i.e., ATP. However, as chip sizes continue to shrink, advanced packaging is becoming increasingly important. Industry leaders suggest that there is a strong opportunity for India to be a part of this industry transition, take a leadership role, and position itself squarely within the global value chain in this space.^[122]

• Diplomacy and Ecosystem Development: There is also a need to mobilise international collaborations and step up diplomacy with key countries within the supply chain to strengthen ties with the broader global ecosystem of international suppliers. This also includes enhancing economic ties with countries that are critical nodes within semiconductor supply chains, ranging from suppliers of critical chemical and materials beyond China to semiconductor equipment manufacturers.

• Institution-building: India needs to reinforce its efforts in building institutions, such as the proposed India Semiconductor Research Centre (ISRC), that can provide strategic innovation advisory to the industry. Taiwan’s Industrial Technology Research Institute could be roped in for instructive purposes. This is particularly important to navigate geopolitical uncertainties, global markets, and risks and opportunities in the business landscape.

In sum, a long-term strategy would involve ameliorating pain points and identifying opportunities amidst geopolitical and industrial shifts. As India calibrates a newer relationship with China, it might be useful to balance the economic scales and understand how cooperation can occur within a diversified strategy.

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Anulekha Nandi is Fellow, Centre for Security, Strategy and Technology, Observer Research Foundation.

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All views expressed in this publication are solely those of the author, and do not represent the Observer Research Foundation, either in its entirety or its officials and personnel.

Endnotes

• Internet Governance
• Cyber and Technology
• Artificial Intelligence
• China
• India
• USA and Canada
• india semiconductor ambitions
• india semiconductor mission
• india's semiconductor ambitions
• india's semiconductor capabilities
• indian semiconductor market
• semiconductor industry india
• semiconductor manufacturing countries
• semiconductor manufacturing in india
• semiconductor policy in india
• semiconductor production in india

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