Semiconductors - COE Chakra

Semiconductors Sectoral Insights

India’s semiconductor industry is at an inflection point. Global supply chain realignment, rising domestic electronics demand, and active government support have created a rare opportunity for the country to emerge as a strategic hub in the global ecosystem. India is building capabilities across design, outsourced assembly and testing, packaging, and selected component manufacturing, though wafer fabrication and advanced foundries remain significant gaps.

Semiconductors underpin every sector of the digital economy. They are grouped into logic, memory, analog, optoelectronics, and discrete devices. Logic chips manage computing, memory supports data storage, and analog converts real-world signals into digital inputs. Furthermore, compound semiconductors such as silicon carbide (SiC), gallium nitride (GaN), and gallium arsenide (GaAs) are gaining prominence in high-frequency and high-power applications. These products serve a wide range of uses, from consumer electronics, mobiles, and PCs to rapidly expanding markets in automotive systems, telecom infrastructure, industrial automation, renewable energy, and artificial intelligence in data centres. Emerging fields such as real-time edge computing, machine vision, and quantum technologies are pushing the boundaries of semiconductor demand.

The semiconductor value chain covers equipment and raw materials, EDA tools, fabless design firms, foundries, integrated device manufacturers, OSAT providers, and device integrators. Value creation is concentrated in foundries and fabless firms in advanced logic, while OSAT players handle packaging and testing. Given the scale of capital requirements, India has prioritized wafer fabrication, OSAT, and component manufacturing as focus areas. Domestic consumption is projected to reach USD 110 billion by 2030, growing at a nearly 20% CAGR, supported by four main drivers: India’s position as one of the largest global smartphone and 5G markets, rising semiconductor content per vehicle with EV penetration, accelerating demand from cloud and data localization, and the spread of IoT across industrial and household applications. Alongside these drivers, technology is shifting toward heterogeneous computing, chiplet-based integration, energy-efficient architectures, and AI-specific semiconductors.

Meeting this demand requires bridging significant gaps in manufacturing. Semiconductor fabrication is among the most complex and capital-intensive processes in the global economy, demanding nanometer-level precision, ultra-clean environments, and resilient infrastructure. Each node shrink, for example from 7nm to 5nm, requires exponentially higher R&D and capex, with fab construction now exceeding USD 15 billion. India’s planned fabs are focused on 28nm and above, targeting automotive, industrial, and defense applications. However, barriers remain, including a lack of indigenous process IP, limited advanced-node demand, and shortages of skilled fab operators.

The policy environment has become central to driving investment. The Semicon India Program, with a subsidy pool of INR 76,000 crore, combined with PLI and DLI schemes, is designed to attract global players and nurture domestic startups. Several states including Gujarat, Karnataka, Tamil Nadu, and Uttar Pradesh have introduced their own semiconductor policies, offering land, tax breaks, power incentives, and infrastructure support. India’s broader opportunity rests on structural tailwinds: multinational firms diversifying beyond China, India’s strength in design talent which already accounts for 20% of the global chip design workforce, fast-growing domestic demand projected above USD 100 billion by 2030, and rising confidence from global capital commitments, such as those from Powerchip Semiconductor Manufacturing Corporation (PSMC) and Micron.

At the same time, risks are significant. These include high capital requirements of USD 5–15 billion per advanced fab, long ramp-up timelines, yield stabilization challenges, geopolitical trade restrictions, shortages of skilled engineers, and dependence on foreign IP and EDA tools.

In summary, India has a narrow but strategic window to establish itself in the global semiconductor ecosystem. Success will depend on disciplined execution, the mobilization of sustainable financing, closing capability gaps in fabs and components, and embedding ESG practices from the outset. With strong policy momentum, growing investor interest, and rising domestic demand, India is positioned to play a meaningful role in the next phase of global semiconductor growth.

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• Sectoral Insights Semiconductors April 26  (3215 KB)