India may need $80 billion in government incentives by 2035 to build semiconductor ecosystem
Even as fabs and packaging units take shape, India will continue importing most semiconductor equipment, wafers, gases and specialty chemicals. Industry estimates suggest building a competitive domestic ecosystem could require $80 billion in incentives through 2035.
- Jun 23, 2026,
- Updated Jun 23, 2026 11:18 AM IST
When India launched the India Semiconductor Mission in 2021 with a Rs 76,000-crore incentive package, its objective extended beyond manufacturing chips.
The ambition was to secure a place in a technology supply chain increasingly shaped by geopolitics, reduce dependence on imports for a critical technology, and position India as a credible player in an industry expected to cross $1 trillion globally by the end of the decade.
The strategy has delivered some early wins. India has attracted investments in semiconductor fabrication from Tata Electronics and in assembly, testing and packaging through projects involving Micron, CG Power, Kaynes and HCL-Foxconn, among others.
These projects are laying the foundations of domestic chip manufacturing. But as India’s semiconductor ambitions expand, fabs and packaging plants alone will not be enough.
Must read: From missed fabs to glass substrates: Intel’s India chapter enters a new phase
Much of the ecosystem needed to build and operate these facilities remains absent domestically. As a result, India’s first generation of semiconductor plants will continue to depend heavily on imported equipment, materials and technology.
“Despite investments in fabs and OSAT facilities, a lion share of critical inputs into the value chain will still be imported,” said PS Subramaniam, partner in the Strategic Operations practice at global management consulting firm Kearney.
Fabs are not enough
India’s dependence spans both capital equipment and the materials required to keep semiconductor plants running.
Most equipment used by outsourced semiconductor assembly and test, or OSAT, facilities is sourced from countries including Japan, Malaysia, Taiwan and Singapore. Semiconductor foundries, meanwhile, rely on critical fabrication tools imported from the US, the Netherlands, Japan, Taiwan, China and South Korea.
The dependence extends well beyond machinery.
Semiconductor manufacturing requires a complex and highly specialised supply chain of gases, chemicals, wafers and other materials. According to Danish Faruqui, chief executive of Fab Economics, a US-based advisory firm for greenfield semiconductor fabs and assembly, testing and packaging projects, India currently depends on several countries for these inputs.
Etching and deposition gases such as helium, ammonia and fluorine compounds are sourced from countries including Qatar, Algeria, Australia, China and the US. Specialty and rare gases such as neon, xenon and krypton, which are often produced as byproducts of steel manufacturing, come from China, Ukraine and Russia.
Must read: India’s AI dream runs on a stack it does not control
Bulk gases including nitrogen, oxygen, argon and hydrogen are supplied through manufacturing facilities and localised on-site plants operated by companies with capabilities across countries such as Germany, Malaysia, France and the US.
This is where India differs from established semiconductor hubs.
The US, Taiwan, South Korea, Japan and China built their semiconductor strength not only by setting up fabs, but by developing capabilities across the value chain. These include chip design, intellectual property, manufacturing equipment, wafers, materials, specialty chemicals and advanced packaging.
Several of these segments capture substantial economic value while also improving supply-chain resilience and technological competitiveness.
India’s ability to emerge as a semiconductor hub will therefore depend on whether it can gradually localise at least part of this supporting ecosystem.
An $80-billion roadmap
The government has acknowledged this gap and indicated that the next phase of India’s semiconductor strategy will extend beyond attracting fabrication and packaging plants.
In the Union Budget, the government announced the proposed India Semiconductor Mission 2.0, which is expected to support semiconductor equipment and materials, design, research and development, supply-chain development and talent creation alongside manufacturing.
The scale of the challenge, however, is immense.
Industry estimates suggest India may need to provide nearly $80 billion in incentives through 2035 to build a competitive semiconductor ecosystem and reduce its dependence on imported manufacturing infrastructure.
Faruqui said the Rs 76,000-crore package under ISM 1.0 should be followed by a $15-billion allocation under ISM 2.0 and another $15 billion under ISM 3.0. This should be followed by $20 billion each under ISM 4.0 and ISM 5.0, taking the cumulative government incentive outlay to about $80 billion by 2035.
Must read: Why Japan's semiconductor consolidation is a wake-up call for India's chip ambitions
According to Faruqui, ISM 2.0 should support greenfield silicon, compound semiconductor and display fabs. It should also cover fab materials, bare silicon and compound semiconductor wafers, workforce training for fabs and OSAT units, auxiliary fab equipment, OSAT batch equipment and packaging materials.
The objective would be to ensure that each new manufacturing project creates demand for a wider network of domestic suppliers, rather than operating largely as an isolated facility dependent on imports.
Imports will remain dominant
Even with additional government support, building local capabilities in semiconductor equipment and materials will take years.
“We expect around 10% of specialty gases and specialty chemicals to be produced domestically and near 100% of semiconductor tools, parts and silicon wafers to be imported by 2030. A greater proportion of OSAT materials (about 30%) is likely to be domestically produced,” Subramaniam said.
The projections indicate that packaging and testing materials may offer India a more immediate localisation opportunity than advanced fab equipment and silicon wafers.
OSAT operations typically have lower technological and capital barriers than leading-edge wafer fabrication. The presence of multiple packaging projects could also create sufficient demand for domestic companies to enter areas such as substrates, lead frames, bonding materials, chemicals and testing components.
Reducing dependence in wafer fabrication will be more difficult. The manufacturing equipment market is dominated by a relatively small group of global companies with decades of intellectual property, research capability and customer relationships.
India is also unlikely to quickly replicate the complete supply networks developed over several decades in Taiwan, Japan, South Korea and the US.
However, sustained policy support and ecosystem development could progressively reduce the share of imported content in Indian semiconductor projects.
According to estimates from Fab Economics, imports currently account for more than 85% of the cost of setting up a semiconductor fab project and around 50% of wafer fabrication costs in India.
Must read: West Asia crisis: A war far from fabs is rattling the chip supply chain
By 2030, import dependence could decline to 68% of project costs and 30% of wafer fabrication costs. By 2035, these figures could fall further to 55% and 18%, respectively, bringing India closer to the cost structures of more mature semiconductor clusters.
The transition will require more than successive incentive packages. India will need long-term investments in research, engineering talent, supplier development, logistics, power, water infrastructure and partnerships with global equipment and materials companies.
It will also have to identify parts of the value chain where domestic companies can build commercially viable capabilities instead of attempting to localise every input at once.
As semiconductors increasingly shape economic competitiveness, technological leadership and national security, India’s success will depend not only on whether chips are manufactured within its borders.
It will depend on whether the country can build the equipment, materials, skills and supplier networks that make chip manufacturing possible.
For Unparalleled coverage of India's Businesses and Economy – Subscribe to Business Today Magazine
When India launched the India Semiconductor Mission in 2021 with a Rs 76,000-crore incentive package, its objective extended beyond manufacturing chips.
The ambition was to secure a place in a technology supply chain increasingly shaped by geopolitics, reduce dependence on imports for a critical technology, and position India as a credible player in an industry expected to cross $1 trillion globally by the end of the decade.
The strategy has delivered some early wins. India has attracted investments in semiconductor fabrication from Tata Electronics and in assembly, testing and packaging through projects involving Micron, CG Power, Kaynes and HCL-Foxconn, among others.
These projects are laying the foundations of domestic chip manufacturing. But as India’s semiconductor ambitions expand, fabs and packaging plants alone will not be enough.
Must read: From missed fabs to glass substrates: Intel’s India chapter enters a new phase
Much of the ecosystem needed to build and operate these facilities remains absent domestically. As a result, India’s first generation of semiconductor plants will continue to depend heavily on imported equipment, materials and technology.
“Despite investments in fabs and OSAT facilities, a lion share of critical inputs into the value chain will still be imported,” said PS Subramaniam, partner in the Strategic Operations practice at global management consulting firm Kearney.
Fabs are not enough
India’s dependence spans both capital equipment and the materials required to keep semiconductor plants running.
Most equipment used by outsourced semiconductor assembly and test, or OSAT, facilities is sourced from countries including Japan, Malaysia, Taiwan and Singapore. Semiconductor foundries, meanwhile, rely on critical fabrication tools imported from the US, the Netherlands, Japan, Taiwan, China and South Korea.
The dependence extends well beyond machinery.
Semiconductor manufacturing requires a complex and highly specialised supply chain of gases, chemicals, wafers and other materials. According to Danish Faruqui, chief executive of Fab Economics, a US-based advisory firm for greenfield semiconductor fabs and assembly, testing and packaging projects, India currently depends on several countries for these inputs.
Etching and deposition gases such as helium, ammonia and fluorine compounds are sourced from countries including Qatar, Algeria, Australia, China and the US. Specialty and rare gases such as neon, xenon and krypton, which are often produced as byproducts of steel manufacturing, come from China, Ukraine and Russia.
Must read: India’s AI dream runs on a stack it does not control
Bulk gases including nitrogen, oxygen, argon and hydrogen are supplied through manufacturing facilities and localised on-site plants operated by companies with capabilities across countries such as Germany, Malaysia, France and the US.
This is where India differs from established semiconductor hubs.
The US, Taiwan, South Korea, Japan and China built their semiconductor strength not only by setting up fabs, but by developing capabilities across the value chain. These include chip design, intellectual property, manufacturing equipment, wafers, materials, specialty chemicals and advanced packaging.
Several of these segments capture substantial economic value while also improving supply-chain resilience and technological competitiveness.
India’s ability to emerge as a semiconductor hub will therefore depend on whether it can gradually localise at least part of this supporting ecosystem.
An $80-billion roadmap
The government has acknowledged this gap and indicated that the next phase of India’s semiconductor strategy will extend beyond attracting fabrication and packaging plants.
In the Union Budget, the government announced the proposed India Semiconductor Mission 2.0, which is expected to support semiconductor equipment and materials, design, research and development, supply-chain development and talent creation alongside manufacturing.
The scale of the challenge, however, is immense.
Industry estimates suggest India may need to provide nearly $80 billion in incentives through 2035 to build a competitive semiconductor ecosystem and reduce its dependence on imported manufacturing infrastructure.
Faruqui said the Rs 76,000-crore package under ISM 1.0 should be followed by a $15-billion allocation under ISM 2.0 and another $15 billion under ISM 3.0. This should be followed by $20 billion each under ISM 4.0 and ISM 5.0, taking the cumulative government incentive outlay to about $80 billion by 2035.
Must read: Why Japan's semiconductor consolidation is a wake-up call for India's chip ambitions
According to Faruqui, ISM 2.0 should support greenfield silicon, compound semiconductor and display fabs. It should also cover fab materials, bare silicon and compound semiconductor wafers, workforce training for fabs and OSAT units, auxiliary fab equipment, OSAT batch equipment and packaging materials.
The objective would be to ensure that each new manufacturing project creates demand for a wider network of domestic suppliers, rather than operating largely as an isolated facility dependent on imports.
Imports will remain dominant
Even with additional government support, building local capabilities in semiconductor equipment and materials will take years.
“We expect around 10% of specialty gases and specialty chemicals to be produced domestically and near 100% of semiconductor tools, parts and silicon wafers to be imported by 2030. A greater proportion of OSAT materials (about 30%) is likely to be domestically produced,” Subramaniam said.
The projections indicate that packaging and testing materials may offer India a more immediate localisation opportunity than advanced fab equipment and silicon wafers.
OSAT operations typically have lower technological and capital barriers than leading-edge wafer fabrication. The presence of multiple packaging projects could also create sufficient demand for domestic companies to enter areas such as substrates, lead frames, bonding materials, chemicals and testing components.
Reducing dependence in wafer fabrication will be more difficult. The manufacturing equipment market is dominated by a relatively small group of global companies with decades of intellectual property, research capability and customer relationships.
India is also unlikely to quickly replicate the complete supply networks developed over several decades in Taiwan, Japan, South Korea and the US.
However, sustained policy support and ecosystem development could progressively reduce the share of imported content in Indian semiconductor projects.
According to estimates from Fab Economics, imports currently account for more than 85% of the cost of setting up a semiconductor fab project and around 50% of wafer fabrication costs in India.
Must read: West Asia crisis: A war far from fabs is rattling the chip supply chain
By 2030, import dependence could decline to 68% of project costs and 30% of wafer fabrication costs. By 2035, these figures could fall further to 55% and 18%, respectively, bringing India closer to the cost structures of more mature semiconductor clusters.
The transition will require more than successive incentive packages. India will need long-term investments in research, engineering talent, supplier development, logistics, power, water infrastructure and partnerships with global equipment and materials companies.
It will also have to identify parts of the value chain where domestic companies can build commercially viable capabilities instead of attempting to localise every input at once.
As semiconductors increasingly shape economic competitiveness, technological leadership and national security, India’s success will depend not only on whether chips are manufactured within its borders.
It will depend on whether the country can build the equipment, materials, skills and supplier networks that make chip manufacturing possible.
For Unparalleled coverage of India's Businesses and Economy – Subscribe to Business Today Magazine