India aims to become a semiconductor manufacturing hub. What are the challenges faced by the semiconductor industry in India? Mention the salient features of the India Semiconductor Mission.

Q16. India aims to become a semiconductor manufacturing hub. What are the challenges faced by the semiconductor industry in India? Mention the salient features of the India Semiconductor Mission.

Semiconductors, with their unique property of controlled conductivity, are the foundation of modern electronics—powering smartphones, defence systems, AI, and renewable energy. For India, which imports ~90% of its chips, building domestic capability is critical to reduce strategic dependence, strengthen digital sovereignty, and drive its $1 trillion digital economy vision.

Challenges in India’s Semiconductor Industry

1. Scientific & Technological Gaps

• No capability in advanced nodes (<10 nm); current focus is on older 28–65 nm chips.
• Dependence on foreign firms for lithography, wafers, photoresists, specialty gases.
• Weak domestic IP and limited translation of nanoelectronics research to industry.
• Achieving high-yield defect-free chips requires decades of know-how.

2. Infrastructure Constraints

• Fabs need 24×7 reliable power and >10 MLD ultrapure water.
• Hazardous waste handling, cleanroom standards, and logistics still inadequate.

3. Financial Barriers

• Each fab costs $5–10 billion; India’s ₹76,000 crore package is modest vs US ($52 bn) or EU (€43 bn).
• Long gestation and investor risk highlighted by the collapse of Vedanta–Foxconn JV.

4. Supply Chain & Ecosystem Weakness

• Import dependence for raw materials and spares.
• Thin domestic vendor base for chemicals, gases, and packaging.

5. Human Capital

• Shortage of trained fab engineers; design talent strong but operations expertise limited.

6. Policy & Governance

• Slow approvals, Centre–State coordination issues, regulatory uncertainty.
• Delays in disbursement reduce investor confidence.

7. Geopolitical Risks

• Supply shocks from US–China tensions and Ukraine war.
• China is flooding the mature-node market, eroding India’s entry-level competitiveness.

Strengths of India in Semiconductor sector

India possesses a vast pool of semiconductor design engineers, a rapidly growing domestic electronics market, strong policy support through ISM, expanding manufacturing capacity, and geopolitical advantage as a trusted alternative to China.

Need for India to develop semiconductor manufacturing

India imports ~90% of semiconductors, making domestic manufacturing vital for strategic autonomy, defence security, resilient supply chains, high-skill job creation, and achieving its $1 trillion digital economy and Atmanirbhar Bharat vision.

Salient Features of the India Semiconductor Mission (ISM)

• Approved in 2021 under the Ministry of Electronics and Information Technology (MeitY) with a total outlay of ₹76,000 crore. 
• Aim: reduce import dependence, strengthen India’s position in the global semiconductor value chain, and promote indigenous manufacturing.
• Focus Areas: 
  • Establish semiconductor fabrication (fab) plants and display fabs.
  • Set up ATMP (Assembly, Testing, Marking, Packaging) / OSAT (Outsourced Semiconductor Assembly and Test) units.
  • Support chip design startups, research, and indigenous intellectual property (IP).
  • Build a skilled talent pool of engineers and technicians.
• Semiconductor Fabs Scheme: Provides up to 50% fiscal support for setting up advanced wafer fabrication units.
• Display Fabs Scheme: Offers up to 50% financial support for AMOLED (Active-Matrix Organic Light-Emitting Diode) and LCD (Liquid Crystal Display) units.
• Compound Semiconductors & ATMP/OSAT Scheme: Extends up to 50% incentives for manufacturing compound semiconductors, silicon photonics, micro-electromechanical systems (MEMS), sensors, and packaging facilities.
• Design Linked Incentive (DLI) Scheme: Financial support of up to ₹15 crore per company across stages of chip design and product development, encouraging startups and Micro, Small & Medium Enterprises (MSMEs).
• Ecosystem Support: Complemented by schemes like:
  • PLI (Production Linked Incentive) for electronics & IT hardware.
  • SPECS (Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors).
  • EMC 2.0 (Electronics Manufacturing Clusters 2.0) for infrastructure.

India’s Semiconductor Mission struggles with small funding, tech/IP gaps, infra shortages, import dependence, skill deficits, and execution delays; global competition and China’s mature-node surge threaten viability without stronger R&D, partnerships, and ecosystem support.

India must shift from subsidy-led fabs to a knowledge-driven semiconductor ecosystem rooted in R&D, resilient supply chains, talent, and green innovation, positioning itself as a leader in next-gen chips for AI, quantum, EVs, and clean energy.

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