Breaking The Silicon Ceiling: What will it take to make India’s Chip dreams a reality?

Sanand, 40 kms from Ahmedabad airport, is home to India’s semiconductor ambitions. Barely 16 months after the government approved the Murugappa Group’s plan to set up a chip-packaging plant, its subsidiary, CG Semi, is on the cusp of rolling out the first commercial ‘India packaged’ chip under the India Semiconductor Mission (ISM). “The pilot line is important. Once the chips are qualified, it becomes easy for commercial plants to start production. This is a major milestone in our country’s semiconductor journey,” Ashwini Vaishnaw, Union Minister for Electronics &amp; Information Technology, said at the inauguration of CG Semi’s facility. A few kms away, work on Micron’s assembly, testing, marking, and packaging (ATMP) facility, and Kaynes Technology’s outsourced semiconductor assembly and test (OSAT) plant, is advancing at a fast pace. ATMP and OSAT are back-end facilities for final stages of chip production. ATMPs are in-house while OSATs are external service providers. Sanand, known for automobile factories, is becoming central to India’s most determined push yet to build semiconductors. Its trajectory mirrors other global hotspots. In Arizona in the US, TSMC and Intel have turned the desert into a magnet for chip investments, and in Japan’s Kumamoto, TSMC, Sony and Denso are turning the region into a ‘silicon island’. With back-end facilities taking shape and front-end fabs in the pipeline, India, too, is building a chip-making ecosystem at a fast pace. For instance, the Tata group, working on India’s first wafer fabrication plant, will soon start making chips of 28nm and above. The government is targeting 7nm and above in the next five-seven years. Globally, the cutting-edge chips are 2-3nm. A fab, or fabrication facility, is a highly sophisticated factory where semiconductor chips are made using complex processes in a controlled environment. A Strategic Shift The timing couldn’t be more critical. Covid-19 laid bare the vulnerabilities of global chip supply chains. The shortages, which hit almost every major industry, prompted countries to focus on indigenising production. The US rolled out the $53 billion CHIPS and Science Act, Europe unveiled its chip ecosystem plan, China kept pumping billions into its Big Fund despite sanctions, and Taiwan, Japan, and South Korea continued treating the chip industry as national assets. India launched the first phase of the Rs 76,000 crore semiconductor mission in December 2021. With a vast electronics market and a robust design-services sector, it can become a serious player in the global semiconductor ecosystem, say experts. India’s initial breakthroughs, though, have come on the back-end side. A significant moment was US memory giant Micron committing Rs 22,516 crore for an ATMP plant in Sanand. This spurred domestic conglomerates. Murugappa’s CG Power tied up with Renesas (Japan) and Stars Microelectronics (Thailand) for a Rs 7,600 crore OSAT facility. “We must start thinking of the national need. It is critical for us,” says Vellayan Subbiah, Chairman, CG Power. Explaining the decision to start with packaging, he says, “It is too early for fabs. But (we) have already announced a foray into design and acquired a company (radio frequency components business of Renesas) to enter design. If you think of the profit pool, a significant value comes from fabless design. So, we (have) started with that, other than OSAT.” Fabless refers to a business model where a company outsources manufacturing and focuses on design, development, and marketing of semiconductor chips. CG Semi’s facility will be able to package around 15 million chips per day once fully scaled up. The pilot line is important. Once the chips are qualified, it becomes easy for commercial plants to start production. This is a major milestone. -ASHWINI VAISHNAW,Union Minister for Railways, I&amp;B, and Electronics &amp; IT It’s not alone. HCL has partnered with Foxconn for an OSAT plant in Jewar in Uttar Pradesh. The government recently cleared four more projects, including CDIL’s Mohali expansion. “With our indigenously developed semiconductor packaging technology at its core, our Mohali expansion will add capacity in power semiconductors,” says Prithvideep Singh, General Manager, CDIL. India&#039;s Push India’s chip story began with ambition in 1984 when it set up Semiconductor Complex Ltd in Mohali. The company moved quickly from 5,000nm to 800nm chips. It was just a step behind global leaders and ahead of China and Taiwan. A devastating fire at the plant in 1989 crashed India’s semiconductor dreams. It reopened in 1997 but now survives as Semi-Conductor Laboratory. Several big proposals over the next few years—including Intel’s $2.5 billion plan in 2004-05—did not see the light of day, not the least due to government indifference. Is it different this time? In a sense, yes. Under the ISM, the Centre has committed to covering 50% costs of fab, testing and packaging plants. Several state governments have announced an additional 20–25% support. Yet, leading players such as TSMC, Samsung, GlobalFoundries, and Intel continue to direct multi-billion-dollar investments into the US, Japan, and Europe. The reasons include low customer base, a perceived mismatch between risk and return, and a still-developing support ecosystem. India has so much talent. If we don’t absorb it by developing technology here, we will be doing a disservice to the country. -VELLAYAN SUBBIAH,Chairman, CG Power TSMC, the world’s leading foundry, says its expansion is based on an interplay of factors, including customer needs, business opportunities, operating efficiency, government support, and cost and economic considerations. “At present, our overseas expansion is focused on our previously announced projects in Japan, Germany and the US. While we do not rule out future possibilities, we do not currently have plans to explore other options,” says a TSMC spokesperson. The company announced its US fab in May 2020 to serve clients such as Apple, followed by its Japan fab in November 2021, both before India launched the Semiconductor Mission. TSMC’s most recent decision, a greenfield fab in Germany, will cater to the European market. A critical barrier in India, say experts, is demand. Satya Gupta, President of the VLSI Society of India, says, “It is much easier for foundries to go where there is wafer customer.” VLSI, or very-large-scale integration, is the process of creating an integrated circuit by combining millions or billions of transistors onto a single chip. Gupta says Samsung and TSMC agreed to set up advanced fabs in the US because their largest customers, Nvidia, Apple, Qualcomm, Broadcom, and AMD, are based there. In contrast, India’s fabless industry is not a significant wafer buyer. “India buys fewer wafers in a year than what TSMC produces in a single day,” says Gupta. While India’s incentives are attractive, long-term business sustainability depends as much on customers as on subsidies, he says. A wafer is the thin, circular disc of silicon used as the base material for fabricating the chips. Also, the high capital expenditure makes it a make-or-break industry; fabs operate with heavy fixed assets and cannot afford even a single day of underutilisation. This question also looms over Tata Electronics’ upcoming fab. Raja Manickam, founder and CEO of iVP Semi and former CEO of Tata Electronics (OSAT unit), says the new fab in India will be a replica of PSMC’s existing facility, enabling smoother switching for customers. Manickam, targeting PSMC in Taiwan for wafers, says he could shift orders to Tata’s fab in three years with minimal risk since his products are aligned with that technology. Tata Electronics can leverage the group’s other big companies, including Tata Motors, TCS, Tata Communications, and Tata Solar, all large end-users of electronic systems, he says. All hands are on deck. L&amp;T’s semiconductor arm, a fabless company, also plans to rely on domestic fab demand to strengthen its ecosystem. “The path forward will likely involve a pragmatic mix of leveraging mature local fabs and OSATs wherever feasible, collaborating in joint-development or consortium models to strengthen capability while leveraging established global fabs until we achieve reliability and cost structures for globally competitive manufacturing,” says Sandeep Kumar, CEO, L&amp;T Semiconductor Technologies. The Missing Pieces Semiconductor manufacturing also depends on a deep supplier and service network covering substrates, chemicals, gases, ultrapure water, photomasks, equipment vendors, and logistics. India has approved 10 chip manufacturing projects, both front-end and back-end, but its supporting ecosystem is still at a nascent stage. Sanjay Kumar, VP of semiconductors at Kearney, identifies domestic substrateinterposer capacity as a critical choke point for OSATs like CG Power, Kaynes, and Tata Electronics and says there’s an urgent need to invest in substrate manufacturing, lead frames, and advanced packages. An interposer is as a substrate used in the packaging industry to connect various components such as integrated circuit (ICs) to a package or a passive device. For fabs, onshoring high-purity process chemicals is a must. There has been some progress though. US-based Yield Enhancement Systems (YES) is building deposition equipment in Coimbatore, shipping its first unit to Micron in Gujarat with 40% local sourcing, cutting costs by 30%, says Manickam. Deposition equipment applies thin layers of material to surfaces. While YES declined to share customer names or exact savings, it confirmed supplying global customers from its Sulur plant. Vaishnaw, too, points at clustering in Sanand. “If you look around this place, you will find very large tanks, which are basically the chemical guys. If you see, neighbouring plants manufacture substrates, and there are plants which are now manufacturing the wire bond and other stuff which goes into semiconductors,” he says. Recently, a delegation of 57 Japanese companies visited these sites and more or less decided to set up units here, Vaishnaw told BT at the inauguration of the CG Semi pilot line. CG Semi says it still depends on imported equipment and materials but sees a strong domestic momentum building up. Besides, semiconductor manufacturing is as much about people as it is about equipment and materials. India is struggling despite Indians accounting for 20% of the global chip design workforce. The government has launched a mission to train 85,000 engineers for semiconductor manufacturing. AICTE has introduced new curricula such as B.Tech in Electronics (VLSI Design &amp; Technology) and Diploma in IC Manufacturing. MeitY has provided EDA (electronic design automation) tools to 280 institutes and 72 start-ups. But much of the expertise lies in industry practices, process optimisation, and operational know-how evolved over decades. “It is essential to go beyond classroom learning. India must collaborate with leading global semiconductor firms and academic institutions to establish Centres of Excellence,” says Kathir Thandavarayan, partner, Deloitte India. He recommends strong industry-academia partnerships, including in-plant training programmes at global semiconductor manufacturing sites, hosting of workshops by experienced industry professionals, and integrating real-time industrial projects into academic curricula. CG Semi is already working on these lines. Renesas, its partner, provides training and technical know-how to local talent onboarded by CG Semi. CG Semi has recruited professionals with OSAT experience to mentor Indian engineers via classroom sessions and hands-on training. “India has so much talent. If we don’t absorb it by developing technology here, we will be doing a disservice to the country,” says Subbiah of CG Power. India’s ambition, however, is weighed down by past policy reversals, litigation risks, and bureaucratic delays. Large-scale fabs demand long-term certainty, stable tariffs, incentives, and intellectual property protection. Prime Minister Narendra Modi used the first Semicon India conference in April 2022 to signal a clean break with the past. “While the industry works hard, the government must work even harder,” he said. He reiterated his government’s commitment at the fourth edition of the conference earlier this month. “The shorter the time from file to factory, and the lesser the paperwork, the sooner wafer work can begin.” He said “the national single window system has been implemented, enabling all approvals from both Centre and states to be accessed on a single platform. As a result, investors have been freed from extensive paperwork. Semiconductor parks are being developed under a plug-and-play model, which offer facilities such as land, power supply, connectivity, and access to a skilled worker pool.” Glimmers of Hope India’s efforts are gaining momentum. While front-end fabs are taking time to materialise, back-end manufacturing is advancing, with three chip packaging plants nearing pilot runs. For decades, Malaysia has been a hub for chip packaging and testing. India is laying the groundwork for a similar backbone. Some leading global players are acknowledging the efforts. Germany-based Infineon, a leader in power semiconductors, views India as rapidly emerging hub for semiconductor innovation and a strategic market. It has not committed to a fab in the region but is actively exploring manufacturing partnerships. “Recently, we announced an MoU with CDIL Semiconductors to supply silicon wafers which it will package and assemble. With this strategic partnership, we are aiming to serve Indian customers in growth sectors such as renewable energy (solar) and energy storage systems,” says Vinay Shenoy, Managing Director, Infineon. Geopolitics AT Play Semiconductors is a borderless industry. Yet, some experts fear that US President Donald Trump’s tariffs on India over Russian oil imports could cloud tech collaboration. “US–India relations could create uncertainty around technology transfer and joint ventures under the iCET framework. Geopolitical friction might slow investment flows or limit collaboration in sensitive areas. To mitigate this risk, India must diversify partnerships with Japan, Taiwan, South Korea, and Europe,” says Helen Chiang, Semiconductor Research Lead and General Manager, IDC Taiwan. iCET is a collaborative framework established by the US and India to enhance cooperation in developing fields of technology. Just days after the Prime Minister’s visit to Japan, Vaishnaw confirmed that Rapidus Corporation, which is working on 2nm semiconductor technology, is keen on partnering with India. The tariff debate also underscores how US’ stance towards India differs from its posture towards China. “The term sanctions being used by the US administration on India has a very different cause of action than export control, tariffs and sanctions on China. Those are applied to chokehold the aggressive development of China’s semiconductor ecosystem. In India’s case, the US is not focusing on directly pausing the development of India’s emerging semiconductor industry. In fact, India still enjoys the China plus one status. But the US is leveraging burgeoning exports, including electronics, out of India to derive geopolitical outcomes. The growth of the semiconductor industry may at some levels become collateral damage in the process,” says Danish Faruqui, CEO of Fab Economics. Decisive Juncture India’s bid to establish itself as a formidable semiconductor hub has transitioned from intent to execution. With Rs 76,000 crore incentives already in play, and first-round funds nearly allocated, the industry is awaiting fresh investments. The path ahead, particularly for Semicon 2.0, demands a strategic recalibration amid shifting geopolitical winds. Experts stress the next phase must address challenges flagged by chip makers and focus on strong supply chain clusters for chemicals, gases, wafers, and packaging materials. The government is already looking at incentives for downstream industries. Some experts say the government must show skin in the game to win the trust of global giants. Singapore has taken equity stakes in fabs, while the US is exploring similar models under the CHIPS Act. Washington recently bought a 10% stake in Intel. The success of Tata Electronics’ fab in Dholera will be India’s make-or-break moment. Its outcome could determine whether global players expand into India and help it secure a seat at the world’s most exclusive geopolitical table. Conversely, failure risks reviving the mirages that have long haunted India’s chip dreams. In semiconductors, delay is defeat, and the clock is ticking.

Breaking The Silicon Ceiling: What will it take to make India’s Chip dreams a reality?

India's first commercial fab is finally taking shape, but building a resilient semiconductors base will take far more than just capital.