In October, a small electronics manufacturer in the western Indian state of Gujarat shipped its first batch of chip modules to a customer in California.
Keynes Semicon worked with technology partners in Japan and Malaysia to assemble the chips in a new factory funded by incentives under India’s $10 billion semiconductor initiative announced by Prime Minister Narendra Modi in 2021.
Prime Minister Modi has sought to position India as an additional manufacturing hub for global companies looking to expand production beyond China, but with limited success.
One sign of this is India’s first commercial mature chip foundry, currently under construction, also in Gujarat. The $11 billion project is being supported by technology transfers from Taiwanese chipmakers, with US semiconductor giant Intel also joining as a potential customer.
With companies around the world desperate for chips, India’s entry into the business could boost its role in global supply chains. But experts warn that India still has a long way to go to attract more foreign investment and catch up with cutting-edge technology.
unprecedented momentum
Semiconductor chips are designed, manufactured in foundries, assembled and packaged for commercial use. The United States leads in chip design, Taiwan leads in manufacturing, and China increasingly leads in packaging.
The foundry to be built in Gujarat is a joint venture between India’s Tata Group, one of the country’s largest conglomerates, and Taiwan’s Power Chip Semiconductor Manufacturing Corporation (PSMC), which is supporting the plant’s construction and technology transfer.
On December 8, Tata Electronics also signed an agreement with Intel to explore product manufacturing and packaging at Tata’s upcoming facilities, including foundries. This partnership will help meet growing domestic demand.
Tata was last year approved by the Modi government for a 50% subsidy and additional state-level incentives for the foundry, which could start operations as early as December 2026.
Even if delayed, this project marks a pivotal moment for India. There have been many attempts to build commercial fabs in India.
The foundry will focus on manufacturing chips in the 28 nanometer (nm) to 110nm range. These chips are typically referred to as mature chips because they are relatively easier to manufacture than smaller 7nm or 3nm chips.
Mature chips are used in most consumer electronics and power electronics, while smaller chips are in high demand in AI data centers and high-performance computing. Globally, mature chip technologies are becoming more widely available and distributed. Taiwan is leading the production of these chips, with China rapidly catching up, but production of cutting-edge nodes below 7nm is dominated by Taiwan’s TSMC.
“India has long been strong in chip design, but the challenge is to translate that strength into semiconductor manufacturing,” said Stephen Ezell, vice president of global innovation policy at the Washington, D.C.-based Information Technology Innovation Foundation (ITIF).
“There has been greater progress on this front in the last couple of years than in the past decade, with stronger political will both at the central and state levels and a more coordinated push by the private sector to commit to these investments,” Ezer told Al Jazeera.
easy entry point
More than half of the Modi government’s $10 billion in semiconductor incentives went to the Tata PSMC venture, with the rest supporting nine other projects primarily focused on the assembly, testing and packaging (ATP) stage of the supply chain.
These are India’s first such projects, one by Idaho-based Micron Technology, also in Gujarat, and the other by Tata Group in northeastern Assam. Both will use in-house technology and involve investments of $2.7 billion and $3.3 billion, respectively.
The remaining projects are smaller, with a cumulative investment of about $2 billion, supported by technology partners including Taiwan’s Foxconn, Japan’s Renesas Electronics and Thailand’s Stars Microelectronics.
“ATP equipment has less drag compared to large foundries and requires a small investment, typically between $50 million and $1 billion. It is also less risky and the necessary technical know-how is widely available around the world,” Ashok Chandak, president of the Indian Electronics and Semiconductor Association (IESA), told Al Jazeera.
Still, most projects are behind schedule.
The Micron facility, which was approved for funding in June 2023, was originally scheduled to begin production by the end of 2024. However, the company said in its 2025 fiscal year report that its Gujarat facility “will meet demand in the second half of this decade.”
Approved in February 2024, the Tata facility was originally scheduled to be operational by mid-2025, but that schedule has now been pushed back to April 2026.
When asked about the reason for the delay, both Micron and Tata declined to comment.
One exception is Keynes Semicon’s small ATP unit, which commissioned sample chip modules to a major customer in California in October. This is a first for India.
Another project by CG Semi, part of India’s Murugappa Group, is on trial and commercial production is expected in the coming months.
Semiconductor projects under the Tata Group and Murugappa Group have been under intense public scrutiny since Indian online news media Scroll In reported that both companies made huge political donations after being selected for the project.
Just weeks after securing government subsidies in February 2024, Tata Group donated 7.5 billion rupees ($91 million) and 1.25 billion rupees ($15 million) respectively to Prime Minister Modi’s Bharatiya Janata Party (BJP), ahead of national elections, according to Scroll.in. Neither group had ever donated this much to the party before. Such donations are not prohibited by law. Both Tata Group and Murugappa Group declined to comment to Al Jazeera on this report.
Meeting domestic demand is the top priority
Upcoming projects in India (both foundry and ATP units) will primarily focus on legacy or mature chips ranging in size from 28nm to 110nm. Although these chips are not at the cutting edge of semiconductor technology, they account for much of the world’s demand for applications across automobiles, industrial equipment, and consumer electronics.
According to DBS Group Research, China has a 30% global share in the ATP field and will account for 42% of semiconductor equipment spending in 2024.
India has long positioned itself as a “China plus one” destination in the diversification of global supply chains, and Apple’s expansion of its manufacturing footprint in the country is a clear step forward. The company, in partnership with Foxconn and Tata Electronics, assembles all the latest iPhone models in India, and has emerged as a major supplier to the U.S. market this year following tariff-related uncertainty surrounding shipments to China.
But the company’s push in the ATP space is primarily driven by the need to meet growing domestic chip demand, which is expected to jump from $50 billion now to $100 billion by 2030.
“Globally, too, the market will expand from about $650 billion to $1 trillion. So, we are not looking at shifting manufacturing from China to other countries. We are looking at capturing the increasing demand that is occurring both in India and abroad,” Chandak said.
India’s imports of chips (both integrated circuits and microassemblies) have soared in recent years, reaching nearly $24 billion in 2024, up 36% year-on-year. An integrated circuit (IC) is a chip that provides logic, memory, or processing functionality, whereas a microassembly is a broader package of multiple chips that perform a complex function.
That momentum has continued this year, with imports up 20% year-on-year and accounting for about 3% of India’s total imports, according to official trade data. China remains the main supplier with a 30% share, followed by Hong Kong (19%), South Korea (11%), Taiwan (10%) and Singapore (10%).
“Even if it’s a 28nm chip, from a balance-of-trade perspective, India would rather produce and package it domestically than import it,” said ITIF’s Ezell, adding that domestic production capacity would strengthen the competitiveness of chip-dependent industries.
need better incentives
While the Modi government’s support for the chip sector is unprecedented for India, it still dwarfs the $48 billion promised by China and the $53 billion provided under the US CHIPS Act.
To achieve scale in the ATP segment for meaningful import substitution and move towards production of chips smaller than 28nm, India will need continued government support, with a second round of incentives already in the works.
“The reality is that if India wants to compete at the cutting edge of semiconductors, it needs to attract foreign partners, either American or Asian, because there are only a handful of companies around the world operating at that level. It is very unlikely that domestic companies will be able to compete in 7nm or 3nm anytime soon,” Ezell said.
He said India needs to continue to focus on improving the overall business environment, from ensuring reliable power and infrastructure to streamlining regulations, tariffs and customs policies.
Indian engineers make up about a fifth of the world’s chip design workforce, but increased competition from China and Malaysia to attract multinational design firms could erode that advantage.
In its latest round of incentives, the Indian government limited benefits to domestic companies that promote local intellectual property, a move that risks pushing multinational design work elsewhere, said Alpa Sood, legal director of India operations at California-based Marvell Technology.
“India already has a thriving chip design ecosystem, strengthened by early-stage incentives from the government. What we need to further accelerate R&D and build a stronger force are incentives that mirror those of our competitors such as China (220 percent tax break) and Malaysia (200 percent tax break). This will ensure that we do not lose the advantages we have built over the years,” Sood told Al Jazeera.
Marvell’s India operations will be its largest outside the United States.
trump effect
India’s upcoming chip facility is aimed at meeting domestic demand, but will also export to customers in the US, Japan and Taiwan. US President Donald Trump has threatened to impose 100% tariffs on semiconductors made outside the US, but nothing has been imposed yet.
Of greater concern for India and the US’ engagement, which has so far been limited to education and training, is the US imposing a 50% tariff on India on crude oil imports from Russia. Semiconductors remain exempt, but the broader trade environment is uncertain.
“More than half of the global semiconductor market is controlled by U.S.-based companies, making engagement with those companies important,” Chandak said. “Partnering with these companies through joint ventures or technology alliances is the preferred option.”
The global chip race is accelerating, and India’s policies will need to keep pace if it is to become a serious player amid increasing geoeconomic fragmentation.
“These new 1.7nm fabs are so advanced that they also take into account the gravitational pull of the moon. This is literally a moonshot,” Ezell said. “Semiconductor manufacturing is the most complex engineering task undertaken by humanity, and the policy decisions behind it must be equally precise.”
