Not fabs, but fundamentals: Why India–Germany’s chip pact could reshape New Delhi’s semiconductor ambitions

Marking a shift from a transactional buyer–seller relationship to a deeper strategic technology engagement, India and Germany have stepped up their high-tech cooperation. During German Chancellor Friedrich Merz’s recent visit to India, the two countries signed a Joint Declaration of Intent on the India–Germany Semiconductor Ecosystem Partnership.

Rather than a conventional trade or investment agreement, the declaration lays out a multi-layered framework aimed at combining the industrial strengths of Europe’s largest economy with India’s ambition to build a domestic semiconductor manufacturing base and move up the global chip value chain.

At a time when semiconductors have become central to economic competitiveness, national security and artificial intelligence, the partnership reflects a growing realisation: building a chip industry is about far more than just setting up expensive fabs.

Germany’s strengths, India’s gaps

The global semiconductor narrative is often dominated by Taiwan, China and the US. Germany, while not a leader in wafer fabrication, plays a critical role in the industry’s less visible but indispensable backbone.

“Germany is not a leader in chip production like Taiwan and Korea, but it is definitely at the centre of those parts of the value chain where India currently lacks,” says Devroop Dhar, co-founder and CEO of Primus Partners, an India-based global management consulting firm. “Germany is a strong location for chip manufacturing equipment, chemical-related sectors and precision engineering that precede manufacturing.”

India, by contrast, is not attempting to leap directly into cutting-edge fabrication. Instead, it is trying to build an ecosystem step by step.

“German knowledge in design, testing and packaging, as well as industrial semiconductors, fits India’s exact requirements at its current stage of development,” Dhar adds.

Not fabs, but fundamentals

Germany is home to Infineon Technologies AG, one of the world’s leading power semiconductor companies. Yet the India–Germany partnership has not, so far, resulted in large funding announcements or fab commitments. Industry experts say that is precisely the point.

“The price for one fab facility may range from $10–20 billion and can take several years to mature,” says Dhar. “But having a fab without knowledge of upstream and downstream processes, design, packaging, testing, equipment and materials, does not create a semiconductor ecosystem.”

The real value of the partnership, experts argue, lies in Germany’s depth in industrial semiconductors, power electronics, automotive chips and precision manufacturing systems.

For India, this could translate into learning how to build stable, high-yield production lines rather than just assembling capacity on paper.

Danish Faruqui, CEO of Fab Economics, a US-based semiconductor fab and OSAT consultancy, says India’s existing chip projects underline the challenge.

“So far, all 10 approved semiconductor projects in India have struggled to find Manufacturing Grade Technology Partnerships (MGTP) and have relied on Asian partners for legacy technologies across fabrication and assembly,” he says. “The India–Germany Semiconductor Alliance could open the door for MGTP enablement from Germany for next-generation logic, memory and display technologies.”

India has also yet to enter semiconductor equipment manufacturing, an area where Germany’s industrial dominance could act as an early catalyst.

Building chips begins with building talent

India’s biggest strength today lies in chip design. Nearly 20% of the global semiconductor design workforce is based in the country. Manufacturing expertise, however, remains a major gap.

Germany’s advantage is its deep pool of trained semiconductor professionals, particularly across hubs such as Dresden. According to Faruqui, Germany has over one lakh trained semiconductor professionals, a talent base that India is only beginning to build.

Early signs of cooperation are already visible. Infineon Technologies has signed an MoU (memorandum of understanding) with the National Institute of Electronics & Information Technology to support semiconductor skilling and workforce development in India. The programme includes curriculum enrichment, expert-led seminars, train-the-trainer initiatives and equipment donations for hands-on training.

Geopolitics is redrawing the chip map

The partnership also reflects how geopolitics is reshaping the semiconductor industry.

The G7 nations, Canada, France, Germany, Italy, Japan, the UK and the US, remain heavily dependent on non-G7 countries for chip fabrication and packaging, with external reliance exceeding 50% of domestic demand in most cases.

The 2020 global chip shortage exposed the vulnerability of this model. It also drove home the reality that semiconductors are now strategic assets.

“This situation worsened for G7 nations during the chip shortage, resulting in nearly $760 billion in annual revenue loss across just three end markets, cumulatively across G7 Nations for each year of chip shortage, ”says Faruqui. “Automotive was the biggest casualty. Yet no single G7 nation, or even all of them together, can realistically replace Taiwan as the world’s primary semiconductor supplier.”

With concerns rising over a potential conflict involving Taiwan, countries are scrambling to diversify supply chains and build alternative production centres.

“This partnership with Germany could potentially position India for its biggest semiconductor opportunity under the G7’s $600-billion Partnership for Global Infrastructure and Investment (PGII) programme,” Faruqui adds.

A long-term ecosystem bet

With uncertainties clouding India–US trade ties, India’s engagement with Germany takes on added strategic weight. As New Delhi pushes to become a global semiconductor manufacturing hub, backed by aggressive incentives, political backing and faster execution, deeper cooperation with Europe’s largest economy could evolve into a long-term ecosystem alliance.
 
The India–Germany Semiconductor Ecosystem Partnership may not deliver a splashy fab announcement in the short term. But by focusing on talent, tools, technology and industrial know-how, it could quietly lay the foundations of a sustainable domestic chip industry.