Can advanced packaging help India crack the global semiconductor race?

In the high-stakes race for global semiconductor leadership, silicon fabs have long been viewed as the cornerstone of a country’s chip manufacturing ambitions. But for a country at the beginning of its semiconductor journey, attracting global players to commit billions of dollars to a new fab is a formidable challenge. As chips become more complex, however, the semiconductor manufacturing landscape is changing rapidly. Advanced packaging is emerging as an increasingly critical part of semiconductor manufacturing, creating a potential entry point for countries still building their fabrication capabilities.

India’s experience under ISM 1.0 highlights this challenge. The country struggled to attract established global players to set up fabs, while under ISM 2.0, it has reduced the proposed fiscal support for fabs to up to 40% of capital expenditure, from 50% under the earlier scheme. This makes advanced packaging a potentially smarter play for India, one that could bring investments and commercial production faster, while helping build the technical capabilities needed to move up the semiconductor value chain.

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From the back end to the centre

For decades, traditional back-end Assembly, Testing, Marking, and Packaging (ATMP) was considered a low-margin final step in chip manufacturing. But as chipmakers look for ways to deliver higher performance without continuously relying on making smaller and more expensive transistors, the role of packaging in semiconductor manufacturing is changing.

“For years, chipmakers made chips faster by shrinking transistors. Now making transistors smaller is becoming harder and more expensive, so chipmakers are combining different chips, or chiplets, in one advanced package,” said Pareekh Jain, CEO at EIIRTrend & Pareekh Consulting.

Advanced packaging allows chipmakers to combine multiple chips or components in a single package, helping improve performance, reduce power consumption and make better use of chips manufactured using different process technologies. This is becoming particularly important as demand for AI and high-performance computing grows.

“AI is accelerating this because AI processors need very fast connections between GPUs and HBM memory. Demand should remain strong because AI, data centers, automotive and high-performance computing will increasingly depend on advanced packaging,” added Jain.

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This is prompting leading global semiconductor companies, from TSMC and Intel to Samsung and Micron, and traditional OSAT players such as ASE Group and Amkor Technology, to invest heavily in advanced packaging capacity.

Lower-cost entry point

Setting up a semiconductor fab is a long and capital-intensive exercise. A mature-node fab can require $3-5 billion, while a more leading-edge fab can cost upwards of $10-20 billion. The gestation period can stretch to 3-5 years before commercial production begins, followed by several more years before breakeven.

A conventional semiconductor packaging plant involves a lower upfront investment and focuses on established assembly and testing technologies. Of the nine ATMP/OSAT packaging plants approved under ISM 1.0, disclosed project costs range from Rs 868 crore for Suchi Semicon to Rs 7,584 crore for CG Semi, while Micron’s ATMP facility involves around $2.75 billion and Tata Electronics’ testing and packaging facility Rs 27,120 crore.

Advanced packaging sits between the two, requiring more sophisticated equipment and processes than conventional OSAT facilities. A commercially viable facility can require $2 billion to $8 billion, with the setup and qualification process taking close to three years before high-volume manufacturing begins.

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“Frontier packaging is not cheap: Amkor's planned Arizona campus has expanded to $7 billion across two phases, and Intel announced a $7 billion advanced 3D-packaging expansion in Malaysia. Packaging offers a wider capital ladder than fabrication, not an exemption from capital intensity,” said Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research.

ISM 2.0: Can India move beyond conventional packaging?

With 12 semiconductor projects approved and visible progress on the ground, the government has approved Semicon 2.0 to deepen India’s semiconductor ecosystem. The programme comes with an outlay of Rs 1.275 lakh crore, extending its focus beyond fabs to semiconductor design, equipment and materials, advanced packaging, R&D and talent.

While overall incentives have been reduced, advanced packaging has been given particular importance, with projects eligible for support of up to 35% of capital expenditure, compared with 40% for silicon fabs and 25% for conventional packaging.

“Advanced packaging can give India a faster route to commercial semiconductor relevance; it cannot give India a shortcut to semiconductor power. Packaging projects start at lower capital thresholds, expand in phases, and reach production sooner, so the shorter construction clock matters, but the decisive clock still runs through yield learning, customer qualification, and local ownership of process knowledge,” adds Gogia.

Incentives, however, will only be one part of the equation. Global semiconductor companies will also look for the ecosystem needed to operate these facilities at high yields and scale.

 “Companies look for skilled talent, reliable power and water, good logistics, semiconductor suppliers, customers, government incentives and the ability to achieve high manufacturing yields. India is attractive because of its engineering talent, lower costs, incentives, large electronics market and need for supply-chain diversification. But its main weakness is the limited local ecosystem for advanced substrates, materials, equipment and experienced packaging engineers,” added Jain.

Gogia believes India’s late start in conventional semiconductor manufacturing does not necessarily put it at a disadvantage in advanced packaging. “India is late to conventional semiconductor manufacturing scale, but it is not necessarily late to the present shift, because chiplets, advanced integration, and new interposer technologies are creating fresh points of entry while the global production model is still forming.”

 A window of opportunity

The opportunity is sizeable. According to Grand View Research, the global semiconductor advanced packaging market was worth $20.2 billion in 2024 and is projected to reach $39.6 billion by 2030.

For India, advanced packaging offers a faster route to becoming a meaningful player in the global semiconductor ecosystem without waiting to build a large fab ecosystem. But the window is narrowing as chipmakers invest in new packaging capacity closer to their manufacturing and customer bases, countries that can quickly offer the right combination of incentives, talent, infrastructure, technology and customers will have an advantage.