\n<\/p>\n
In October, a small electronics manufacturer in the western Indian state of Gujarat shipped its first batch of chip modules to a client in California.<\/p>\n
Kaynes Semicon, together with Japanese and Malaysian technology partners, assembled the chips in a new factory funded with incentives under Indian Prime Minister Narendra Modi\u2019s $10bn semiconductor push announced in 2021.<\/p>\n
Modi has been trying to position India as an additional manufacturing hub for global companies that may be looking to expand their production beyond China, with limited success.<\/p>\n
One sign of that is India\u2019s first commercial foundry for mature chips that is currently under construction, also in Gujarat. The $11bn project is supported by technology transfer from a Taiwanese chipmaker and has onboarded the United States chip giant Intel as a potential customer.<\/p>\n
With companies the world over hungering for chips, India\u2019s entry into that business could boost its role in global supply chains. But experts caution that India still has a long way to go in attracting more foreign investment and catching up in cutting-edge technology.<\/p>\n
Semiconductor chips are designed, fabricated in foundries, and then assembled and packaged for commercial use. The US leads in chip design, Taiwan in fabrication, and China, increasingly, in packaging.<\/p>\n
The upcoming foundry in Gujarat is a collaboration between India\u2019s Tata Group, one of the largest conglomerates in the country, and Taiwan\u2019s Powerchip Semiconductor Manufacturing Corporation (PSMC), which is assisting with the plant\u2019s construction and technology transfer.<\/p>\n
On December 8, Tata Electronics also signed an agreement with Intel to explore the manufacturing and packaging of its products in Tata\u2019s upcoming facilities, including the foundry. The partnership will address the growing domestic demand.<\/p>\n
Last year, Tata was approved for a 50 percent subsidy from the Modi government for the foundry, along with additional state-level incentives, and could come online as early as December 2026.<\/p>\n
Even if delayed, the project marks a pivotal moment for India, which has seen multiple attempts to build a commercial fab stall in the past.<\/p>\n
The foundry will focus on fabricating chips ranging from 28 nanometres (nm) to 110nm, typically referred to as mature chips because they are comparatively easier to produce than smaller 7nm or 3nm chips.<\/p>\n
Mature chips are used in most consumer and power electronics, while the smaller chips are in high demand for AI data centres and high-performance computing. Globally, the technology for mature chips is more widely available and distributed. Taiwan leads production of these chips, with China fast catching up, though Taiwan\u2019s TSMC dominates production for cutting-edge nodes below 7nm.<\/p>\n
\u201cIndia has long been strong in chip design, but the challenge has been converting that strength into semiconductor manufacturing,\u201d said Stephen Ezell, vice president for global innovation policy at the Washington, DC-based Information Technology and Innovation Foundation (ITIF).<\/p>\n
\u201cIn the past two to three years, there\u2019s been more progress on that front than in the previous decade \u2013 driven by stronger political will at both the central and state levels, and a more coordinated push from the private sector to commit to these investments,\u201d Ezell told Al Jazeera.<\/p>\n
More than half of the Modi government\u2019s $10bn in semiconductor incentives is earmarked for the Tata-PSMC venture, with the remainder supporting nine other projects focused mainly on the assembly, testing and packaging (ATP) stage of the supply chain.<\/p>\n
These are India\u2019s first such projects \u2013 one by Idaho-based Micron Technology, also in Gujarat, and another by the Tata Group in the northeastern Assam state. Both will use in-house technologies and have drawn investments of $2.7bn and $3.3bn, respectively.<\/p>\n
The remaining projects are smaller, with cumulative investments of about $2bn, and are backed by technology partners such as Taiwan\u2019s Foxconn, Japan\u2019s Renesas Electronics, and Thailand\u2019s Stars Microelectronics.<\/p>\n
\u201cATP units offer a lower path of resistance compared to a large foundry, requiring smaller investments \u2013 typically between $50m and $1bn. They also carry less risk, and the necessary technology know-how is widely available globally,\u201d Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA), told Al Jazeera.<\/p>\n
Still, most of the projects are behind schedule.<\/p>\n
Micron\u2019s facility, approved for incentives in June 2023, was initially expected to begin production by late 2024. However, the company noted in its fiscal 2025 report that the Gujarat facility will \u201caddress demand in the latter half of this decade\u201d.<\/p>\n
Approved in February 2024, the Tata facility was initially slated to be operational by mid-2025, but the timeline has now been pushed to April 2026.<\/p>\n
When asked for reasons behind the delays, both Micron and Tata declined to comment.<\/p>\n
One exception is a smaller ATP unit by Kaynes Semicon, which in October exported a consignment of sample chip modules to an anchor client in California \u2013 a first for India.<\/p>\n
Another project by CG Semi, part of India\u2019s Murugappa Group, is in trial runs, with commercial production expected in the coming months.<\/p>\n
The semiconductor projects under the Tata Group and the Murugappa Group have drawn public scrutiny after Indian online news outlet Scroll.in reported that both companies made massive political donations after they were picked for the projects.<\/p>\n
As per Scroll.in, the Tata Group donated 7.5 billion rupees ($91m) and 1.25 billion rupees ($15m), respectively, to Modi\u2019s Bharatiya Janata Party (BJP) just weeks after securing government subsidies in February 2024 and ahead of national elections. Neither group had made such large donations to the party before. Such donations are not prohibited by law. Both the Tata Group and the Murugappa Group declined to comment to Al Jazeera regarding the reports.<\/p>\n
The upcoming projects in India \u2013 both the foundry and the ATP units \u2013 will primarily focus on legacy, or mature, chips sized between 28nm and 110nm. While these chips are not at the cutting-edge of semiconductor technology, they account for the bulk of global demand, with applications across cars, industrial equipment and consumer electronics.<\/p>\n
China dominates the ATP segment globally with a 30 percent share and accounted for 42 percent of semiconductor equipment spending in 2024, according to DBS Group Research.<\/p>\n
India has long positioned itself as a \u201cChina Plus One\u201d destination amid global supply chain diversification, with some progress evident in Apple\u2019s expansion of its manufacturing base in the country. The company assembles all its latest iPhone models in India, in partnership with Foxconn and Tata Electronics, and has emerged as a key supplier to the US market this year following tariff-related uncertainties over Chinese shipments.<\/p>\n
Its push in the ATP segment, however, is driven largely by the need to meet the growing domestic demand for chips, anticipated to surge from $50bn today to $100bn by 2030.<\/p>\n
\u201cGlobally, too, the market will expand from around $650bn to $1 trillion. So, we\u2019re not looking at shifting manufacturing from China to elsewhere. We\u2019re looking at capturing the incremental demand emerging both in India and abroad,\u201d Chandak said.<\/p>\n
India\u2019s import of chips \u2013 both integrated circuits and microassemblies \u2013 has jumped in recent years, rising 36 percent in 2024 to nearly $24bn from the previous year. An integrated circuit (IC) is a chip serving logic, memory or processing functions, whereas a microassembly is a broader package of multiple chips performing combined functions.<\/p>\n
The momentum has continued this year, with imports up 20 percent year-on-year, accounting for about 3 percent of India\u2019s total import bill, according to official trade data. China remains the leading supplier with a 30 percent share, followed by Hong Kong (19 percent), South Korea (11 percent), Taiwan (10 percent), and Singapore (10 percent).<\/p>\n
\u201cEven if it\u2019s a 28 nm chip, from a trade balance perspective, India would rather produce and package it domestically than import it,\u201d Ezell of ITIF said, adding that domestic capability would enhance the competitiveness of chip-dependent industries.<\/p>\n
The Modi government\u2019s support for the chip sector, while unprecedented for India, is still dwarfed by the $48bn committed by China and the $53bn provisioned under the US\u2019s CHIPS Act.<\/p>\n
To achieve scale in the ATP segment for meaningful import substitution \u2013 and to advance towards producing chips smaller than 28nm \u2013 India will need continued government support, and there is a second round of incentives already in the works.<\/p>\n
\u201cThe reality is, if India wants to compete at the leading edge of semiconductors, it will need to attract a foreign partner \u2013 American or Asian \u2013 since only a handful of companies globally operate at that level. It\u2019s highly unlikely that a domestic firm will be competitive at 7nm or 3nm anytime soon,\u201d Ezell said.<\/p>\n
According to him, India needs to continue focusing on improving its overall business environment \u2013 from ensuring reliable power and infrastructure to streamlining regulations, customs and tariff policies.<\/p>\n
India\u2019s engineers make up about a fifth of the global chip design workforce, but rising competition from China and Malaysia to attract multinational design firms could erode that edge.<\/p>\n
In its latest incentive round, the Indian government limited benefits to domestic firms to promote local intellectual property \u2013 a move that, according to Alpa Sood, legal director at the India operations of California-based Marvell Technology, risks driving multinational design work elsewhere.<\/p>\n
\u201cIndia already has a thriving chip design ecosystem strengthened by early-stage incentives from the government. What we need, to further accelerate and build stronger R&D muscle \u2013 is incentives that mirror competing countries like China [220 percent tax incentives] and Malaysia [200 percent tax incentives]. This will ensure we don\u2019t lose the advantage we\u2019ve built over the years,\u201d Sood told Al Jazeera.<\/p>\n
Marvell\u2019s India operations are its largest outside the US.<\/p>\n
India\u2019s upcoming chip facilities, while aimed at meeting domestic demand, will also export to clients in the US, Japan, and Taiwan. Though US President Donald Trump has threatened 100 percent tariffs on semiconductors made outside the US, none have yet been imposed.<\/p>\n
A bigger concern for India-US engagement \u2013 so far limited to education and training \u2013 is Washington\u2019s 50 percent tariff on India over its Russian crude imports. Semiconductors remain exempt, but the broader trade climate has turned uncertain.<\/p>\n
\u201cOver half the global semiconductor market is controlled by US-headquartered firms, making engagement with them crucial,\u201d Chandak said. \u201cAny alignment with these firms, either through joint ventures or technology partnerships \u2013 is a preferred option.\u201d<\/p>\n
The global chip race is accelerating, and India\u2019s policies will need to keep pace to become a serious player amid growing geo-economic fragmentation.<\/p>\n
\u201cThese new 1.7nm fabs are so advanced they even factor in the moon\u2019s gravitational pull \u2013 it\u2019s literally a moonshot,\u201d Ezell said. \u201cSemiconductor manufacturing is the most complex engineering task humanity undertakes \u2013 and the policymaking behind it must be just as precise.\u201d<\/p>\n<\/div>\n
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