India's Big Bet on the Semiconductor Industry

Can India build a sustainable semiconductor industry? If things go according to plan, the country could become a major player in global supply chains. This would provide high-quality jobs within India, reduce the West’s dependence on China, and strengthen technological ties between the United States and India.

However, success is by no means guaranteed. If this ambitious initiative falters, it is likely to be cited as another example of a wasteful government program that squandered taxpayers’ money on a showy, fruitless project.

Nevertheless, Narendra Modi’s government cannot be accused of lacking ambition. Over the past five years, it has allocated approximately $23 billion to support the construction of a sustainable semiconductor industry ecosystem in India, while state governments have added generous incentives from their own budgets.

A report issued last year by the Center for Strategic and International Studies described this initiative as an attempt to “compress decades of building an integrated industrial ecosystem into just a few years.” Among the roughly 12 projects approved so far, a silicon wafer fabrication plant in Gujarat is expected to begin operations in 2028, an assembly and testing facility in the northeastern state of Assam is slated to start commercial production next year, and another plant in Gujarat has already begun production earlier this year.

In a phone interview, Chris Miller, a professor at Tufts University and author of “Chip War,” cited India’s strengths as its broad base of chip designers, strong ties to Silicon Valley, and government support. He noted that “the electronics sector is looking for a home for a significant portion of manufacturing outside China.” He added that India’s size and massive domestic market give it an advantage over smaller Asian countries such as Malaysia, Thailand, and the Philippines.

Yet there are reasons for skepticism. India’s previous attempts to establish a semiconductor industry yielded little result. In the 1950s, during the height of economic planning under Jawaharlal Nehru, India laid the foundations for a public-sector electronics industry, which later expanded into semiconductor manufacturing, but its projects stalled after promising beginnings.

Efforts in this century fared no better. In 2006, an ambitious project near Hyderabad was announced, which was supposed to include a $500 million investment from Advanced Micro Devices for chip manufacturing, but it never materialized. Eight years later, two other prominent projects to build chip fabrication plants in India failed to move beyond the announcement stage.

The 2023 book “When Chips Are Down,” by Indian technology experts Pranay Kotasthane and Abhiram Mantche, attributes these failures to a common factor: “an unfavorable business environment in India.” The authors point out that policy and tax ambiguity, weak infrastructure, and high trade barriers have made chip manufacturing an unattractive investment in the country.

So, is this time different? Optimists point to Prime Minister Modi’s personal interest in the initiative. He has opened all five sessions of the annual “Semicon India” conference, a relatively new event compared to its counterparts in the United States, Taiwan, South Korea, Japan, and China. Modi also regularly meets with semiconductor company executives and has elevated the issue to the highest levels of Indian diplomacy. He appointed Ashwini Vaishnaw, a widely respected technocrat, as Minister of Electronics and Information Technology.

Moreover, India’s ambitions are relatively modest. Policymakers recognize that the country is far from the frontier of advanced technology in this field. The $11 billion chip manufacturing plant, being built by Tata Electronics in partnership with Taiwan’s Powerchip, is scheduled to begin producing simple, traditional chips using 90-nanometer technology, which are used in automobiles, mobile phones, and power management equipment. This is far removed from the fierce competition between the United States and China to dominate the most advanced chip industry.

Most of the other projects approved under India’s initiative focus on chip assembly and testing, activities that are more labor-intensive. Miller argues that India’s success in assembling mobile phones in the southern state of Tamil Nadu could serve as a model, stating, “You shouldn’t start with the hardest problem, which is advanced manufacturing.”

India’s stakes are high. The semiconductor industry is capital-intensive, deeply integrated with global markets, and requires a level of policy predictability and regulatory stability—the opposite of the reputation India has acquired due to the volatility of its policy decisions. If Modi and Vaishnav can change this image, they will deliver a service to their country that far exceeds the boundaries of the chip industry.

For the United States, India can help reduce the world’s dependence on China and provide a degree of geographic diversification for an industry currently concentrated in North America and East Asia. Miller says, “India is an important partner for the United States, but it has the potential to become much more significant.”

* The author is a biweekly columnist for “East of the East,” focusing on politics, economics, and foreign policy in India and South Asia.