India's Semiconductor Moment: Can India Move From Assembly to Actual Chip Manufacturing?

Aspiro Living | UPSC Current Affairs | 10 min read

Every smartphone you own has a chip made in one of three places: Taiwan, South Korea, or a handful of facilities in the United States and Japan. No chip was made in India. None.

India wants to change this. The semiconductor sector is experiencing a major AI-driven demand cycle, while India is attempting to move beyond assembly and packaging, as reported in The Indian Express. The India Semiconductor Mission has approved its first major fabrication investments. The question is whether India can move from being an assembly location to being an actual chip manufacturer.

This matters for GS-III in ways that go beyond technology. Semiconductors are simultaneously an economic opportunity, a supply chain security question, and a strategic autonomy issue. The 2025 UPSC GS-III question on semiconductors confirmed this is examinable at the highest level.

The Basics: What a Semiconductor Actually Is

A semiconductor is a material - usually silicon - whose electrical conductivity sits between a conductor (like copper) and an insulator (like rubber). By precisely controlling its conductivity through a process called doping, engineers can create the transistors that form the building blocks of all modern electronics.

A modern processor chip contains billions of transistors etched onto a piece of silicon roughly the size of a thumbnail. The smallest transistors in leading-edge chips are measured in nanometres - a nanometre is one-billionth of a metre. The latest chips from TSMC and Samsung are at 3nm and 2nm nodes.

Key Distinctions for UPSC

• Chip vs Processor vs Memory: A chip is the general term for an integrated circuit. A processor (CPU, GPU) performs computations. Memory (DRAM, NAND flash) stores data. These are made through different processes and serve different purposes.
• Fab (Fabrication Plant): The facility where chips are actually manufactured. Requires extreme precision, clean room environments, and equipment costing hundreds of millions of dollars per machine. A leading-edge fab costs $15-20 billion to build.
• OSAT/ATMP: Outsourced Semiconductor Assembly, Test, and Packaging / Assembly, Testing, Marking, and Packaging. The backend process where fabricated chips are assembled into packages, tested, and marked. Lower capital intensity than fab. Where India currently has most of its semiconductor activity.

Why Taiwan Matters - And Why That Is a Problem

Taiwan Semiconductor Manufacturing Company (TSMC) manufactures approximately 90 percent of the world's most advanced chips. This concentration is one of the most significant single points of failure in global technology supply chains.

If TSMC's operations were disrupted - by natural disaster, conflict across the Taiwan Strait, or industrial accident - the global electronics industry would face a crisis with no short-term alternative. This is not hypothetical. The COVID-19 pandemic created a mild version of this scenario: demand shifted and supply chains could not adapt quickly, producing chip shortages that shut down automobile factories in Europe and the United States in 2021-22.

The US CHIPS and Science Act (2022), the EU Chips Act (2023), Japan's semiconductor incentives, and India's semiconductor mission are all responses to this same strategic vulnerability. Every major power wants domestic chip manufacturing capacity so it is not entirely dependent on a concentration in a geopolitically sensitive location.

The AI Chip Demand Cycle: Why Now

The demand for semiconductors has always been significant. The AI boom since 2022 has changed its character and scale.

Training large AI models requires Graphics Processing Units (GPUs) - originally designed for rendering video game graphics but now repurposed for the parallel mathematical operations that neural network training requires. NVIDIA's H100 and H200 GPUs are in extreme shortage globally. Each costs approximately $25,000-$40,000. A large AI training cluster requires thousands of them.

High Bandwidth Memory (HBM) - the specialised memory that connects to AI processors - is made only by SK Hynix, Samsung, and Micron. Its production is constrained. Data centres requiring AI infrastructure are being built faster than the supply chain can support.

This AI-driven demand cycle is what makes the 2024-2030 window a genuine opportunity for countries building semiconductor capacity. The market is growing faster than existing supply chains can expand.

India's Current Position: Honest Assessment

Weaknesses

• No leading-edge fabrication: India has no chip fab at any commercial scale. The closest India has come is the Tata-PSMC joint venture approved under ISM, targeting 28nm chips - relevant for automotive, industrial, and some consumer electronics, but not for cutting-edge AI or smartphone processors.
• Talent gap in fab operations: Running a fab requires not just engineers but a specific skill profile - semiconductor process engineers, yield engineers, equipment engineers. India has strong software engineering talent. It does not yet have deep fab operations talent.
• Ecosystem gaps: A complete semiconductor ecosystem requires chemical suppliers, equipment maintenance specialists, logistics infrastructure for ultra-pure materials, and a dense cluster of design firms, packaging firms, and test facilities. This ecosystem takes decades to build.

Strengths

• Design talent: India has a large, established semiconductor design community. Companies like Qualcomm, Intel, Texas Instruments, and AMD have significant R&D and design centres in Bangalore and Hyderabad. Chip design is a different skill from chip manufacturing.
• ATMP opportunity: Assembly, testing, and packaging is a $40 billion global market growing with overall semiconductor demand. India can capture a significant share without building leading-edge fabs.
• Government support: The India Semiconductor Mission (ISM) has approved incentives for three semiconductor facilities - the Tata fab (28nm), the Micron ATMP facility in Gujarat, and the CG Power-Renesas ATMP facility. These are real investments with real timelines.

India Semiconductor Mission: ISM 1.0 and 2.0

ISM 1.0, launched in December 2021, offered incentives of up to 50 percent of project cost for fab investments and 25-30 percent for ATMP facilities. The scheme attracted applications but faced challenges in attracting leading-edge fab technology from TSMC or Samsung, which were committed to their existing expansion plans in the US, Japan, and Europe.

ISM 2.0 revisions have focused on making the incentive structure more attractive for compound semiconductors (used in defence, telecommunications, and power electronics), expanding support for design-linked manufacturing, and building the ecosystem infrastructure - not just the fabs themselves.

The strategic vision is a three-stage progression: ATMP and compound semiconductors first (now), mature node fab (28nm+) by 2026-28, and eventually advanced node participation through technology partnerships or fab-lite strategies.

Semiconductor Sovereignty: The Strategic Argument

India's semiconductor ambitions are explicitly framed in both economic and strategic terms - and the strategic argument is, if anything, stronger than the economic one.

India's defence electronics are currently dependent on imported chips. Advanced radar systems, missile guidance, communication equipment, and satellite systems all use semiconductors that India cannot manufacture domestically. In a scenario of geopolitical tension - where export controls or supply disruptions could be weaponised - this dependence is a strategic vulnerability.

The US Export Control regulations that restricted semiconductor equipment exports to China in 2022-23 demonstrated exactly how technology supply chains can be turned into strategic instruments. India's position as a strategic partner of the US has so far insulated it from such controls, but reliance on this partnership is itself a dependency.

Mains framing: 'India's semiconductor ambitions are as much about strategic autonomy as they are about economic growth.' Discuss. Cover: ISM, ATMP vs fab distinction, AI demand cycle, Taiwan concentration risk, defence electronics dependence, and India's realistic 10-year pathway.

UPSC Mapping

Prelims MCQ Practice

1. The India Semiconductor Mission was launched in: (a) 2019 (b) 2021 (c) 2022 (d) 2023 | Answer: (b)
2. OSAT stands for: (a) Offshore Semiconductor Assembly Technology (b) Outsourced Semiconductor Assembly and Test (c) Original Semiconductor Automation Tool (d) Open Source Automation Technology | Answer: (b)
3. Which company's fab was approved under ISM for a 28nm fabrication plant in India? (a) Intel (b) Samsung (c) Tata Electronics-PSMC joint venture (d) TSMC | Answer: (c)
4. HBM (High Bandwidth Memory) is primarily used in: (a) Consumer smartphones (b) AI and machine learning processors (c) Automotive electronics (d) Household appliances | Answer: (b)
5. A 'nanometre node' in semiconductor manufacturing refers to: (a) The size of the chip package (b) The approximate size of transistor features on the chip (c) The clean room classification (d) The energy consumption of the fab | Answer: (b)

Mains GS-III Question

India's semiconductor ambitions are as much about strategic autonomy as they are about economic growth. Discuss with reference to the India Semiconductor Mission, the global supply chain concentration in Taiwan, and India's defence electronics requirements.

Essay topic: Technological Self-Reliance in a Geopolitically Contested World: India's Semiconductor Moment.

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