India’s Semiconductor Manufacturing Plans Take Shape Amid Rapid Global Node Advancements

Scale of India’s semiconductor programme

India’s semiconductor push is being driven by a combination of production-linked incentives (PLI) and targeted design support. Since June 2023, the Union government has approved 10 semiconductor manufacturing projects with cumulative investments exceeding ₹1.60 lakh crore, spread across six states: Gujarat, Assam, Uttar Pradesh, Punjab, Odisha, and Andhra Pradesh.

The projects cover a mix of memory, packaging, and specialty chip manufacturing rather than cutting-edge logic nodes. Officials stress that the objective is not immediate parity with global leaders, but the creation of a reliable domestic supply base for chips used in electronics, automotive systems, telecom equipment, defence platforms, and space applications.

The global benchmark: TSMC’s 2nm milestone

While India prepares to ship its first domestically produced chips at scale, the global frontier continues to advance. Taiwan Semiconductor Manufacturing Company confirmed that it began volume production of 2nm chips in the fourth quarter of 2025 at its Fab 22 facility in Kaohsiung.

TSMC’s 2nm process uses first-generation nanosheet transistor technology, delivering a 10–15% performance gain at the same power or a 25–30% reduction in power at the same performance, compared to its 3nm chips. Transistor density is also reported to be over 15% higher, making the node especially attractive for AI, high-performance computing, and advanced mobile processors.

TSMC is already developing N2P, an enhanced 2nm variant scheduled for mass production in the second half of 2026, underscoring the rapid pace of global semiconductor innovation.

What Chips India Will Actually Make — and Why That Matters

India’s first wave of semiconductor manufacturing is not aimed at cutting-edge chips such as 2–3 nanometre processors used in flagship smartphones or AI accelerators. Instead, approved projects are expected to focus on mature and specialty nodes, typically 28 nm to 65 nm and above, along with advanced packaging and testing (OSAT/ATMP).

These segments dominate the market by volume. Over 70% of global semiconductor output is still produced at 28 nm or larger nodes, supplying power electronics, automotive controllers, sensors, memory packaging, and analog chips. These components underpin everyday systems—from electric vehicles and telecom networks to medical devices and defence equipment.

Their strategic importance became clear during the 2020–22 chip shortage, when low-cost mature-node chips—often worth only a few dollars each—shut down automobile and electronics factories worldwide. A modern electric vehicle alone can use 2,000–3,000 such chips, most of them made on mature processes.

For India, the payoff is immediate. The country currently imports over 90% of its semiconductors, with annual imports of $30–35 billion, projected to exceed $100 billion by 2030. Even partial domestic production can improve supply security, reduce import dependence, and build the operational expertise needed for future upgrades.

This focus is deliberate. Mature-node manufacturing allows India to prioritise yield stability, skilled workforce development, and assured domestic demand before attempting more advanced nodes—where capital intensity and technological risk are far higher.

Manufacturing and Design: Why India Is Betting on Both — Differently

India already plays a significant role in global semiconductor design, contributing to chip architecture, verification, and IP development for multinational firms. Manufacturing, by contrast, remains nascent.

A credible strategy treats these as complementary but distinct. Design capability generates high value but depends on external fabs; manufacturing builds supply security but requires patient capital and demand assurance. India’s redesigned Design Linked Incentive (DLI 2.0) to sharpen accountability on this front. Minister Vaishnaw said India’s chip design ecosystem has advanced from working on 5–7 nanometre designs to 2-nanometre-class architectures, at least at the conceptual and design level.

Under the redesigned scheme, the government will fully fund early-stage chip design, but continued support will depend on market validation and co-investment by venture capital. The intent, officials say, is to prevent public funds from backing designs that never reach commercial deployment — aligning India’s approach with global best practices.

China’s Semiconductor Push: What It Did, What It Cost, and Where It Stands

China’s semiconductor expansion offers the clearest case study of what state-led scaling looks like — and its limits.

What China did

China adopted a whole-of-state approach. Beginning in the mid-2010s, it channelled capital through centrally backed investment vehicles, most notably the China Integrated Circuit Industry Investment Fund, widely known as the “Big Fund”. This capital was paired with aggressive execution by provincial governments, which competed to host fabs by offering land, infrastructure, tax concessions, and cheap credit. Policy emphasis extended beyond fabs to equipment, materials, packaging, and domestic demand creation.

As export controls tightened in the late 2010s and early 2020s, China doubled down on domestic substitution, pushing chipmakers to use locally made tools and inputs wherever possible. This accelerated learning in some segments but also exposed capability gaps at the cutting edge.

How much it cost

The most defensible recent benchmark is the launch of Big Fund Phase III in 2024, capitalised at 344 billion yuan (approximately $47.5 billion). This figure does not include earlier phases, local-government incentives, or indirect support such as state-backed loans and procurement guarantees. Independent analyses suggest that, relative to firm revenues, Chinese semiconductor companies continue to receive significantly higher state support than peers in other regions.

Where China is now

China has made tangible progress under constraint. Public evidence points to successful production at 7-nanometre-class nodes using domestically adapted processes. At the same time, China remains constrained at the frontier due to limited access to the most advanced lithography equipment, making parity with global leaders such as TSMC difficult in the near term.

Importantly, scale has come with inefficiencies. Multiple high-profile fab projects failed or stalled, producing what industry analysts describe as “zombie fabs”. These outcomes underline a central truth of semiconductors: capital can accelerate progress, but it cannot replace process maturity, yield learning, and ecosystem depth.

How long it took

China’s modern semiconductor drive spans more than a decade, from the first Big Fund phase in the mid-2010s to the latest capital injection in 2024. Even with sustained political backing and large financial resources, progress has been incremental rather than instantaneous.

What India Can Learn — and What It Should Avoid

China’s experience offers lessons, but not a template.

First, ecosystem sequencing matters. Durable progress came where fabs were linked to materials, equipment, packaging, and assured demand. Announcing plants without these linkages proved costly.

Second, yield learning is the true bottleneck. Semiconductor competitiveness is built over years of iterative refinement. Chasing advanced nodes without operational readiness increases failure risk.

Third, substitution must be selective. China’s push for domestic equipment worked where alternatives existed, but policy flexibility remained necessary where capability gaps persisted. India can adopt the targeting discipline without promising instant self-reliance.

Finally, governance matters as much as money. China’s setbacks illustrate that poorly coordinated subsidies can destroy value as easily as they create capacity.

The Time-Gap Reality: Why Semiconductor Catch-Up Takes Decades

Semiconductor manufacturing scales through accumulated, often tacit knowledge. Each generation of engineers builds on prior experience in defect control, yield optimisation, and equipment calibration. These learning curves cannot be compressed beyond a point.

China’s trajectory demonstrates this constraint clearly: massive investment produced real gains, yet frontier leadership remains elusive under tool restrictions. For India, this implies that early success should be measured by stable output and quality, not by how quickly node sizes shrink.

Why Taiwan, Japan, and South Korea Matter

The semiconductor ecosystem is fragmented across specialisations. Taiwan dominates advanced foundry manufacturing. Japan controls critical materials and equipment segments. South Korea leads in memory and large-scale fabrication.

India’s strategy implicitly recognises that no country builds a full stack alone. Partnerships with these ecosystems allow India to import process know-how while developing domestic capability, avoiding the false choice between openness and self-reliance.

Government officials point to “immense” interest from Taiwan, Japan, and South Korea as evidence that India is positioning itself as a complementary manufacturing and design hub rather than a direct rival to established foundries.

The Under-Discussed Risk: Sustaining Demand and Utilisation

Finally, semiconductor fabs are viable only if they run close to capacity. This requires anchor customers, long-term procurement commitments, and predictable policy. Without assured demand from electronics manufacturing, automotive, telecom, and defence sectors, fabs risk underutilisation regardless of incentives.

This is where geopolitics loops back into economics. As countries subsidise capacity simultaneously, global overcapacity becomes a real risk. For India, success will depend not just on building fabs, but on integrating them into a broader manufacturing and procurement strategy that keeps them running.

Why this matters

Semiconductors are no longer just an industrial input; they are a strategic asset underpinning healthcare devices, transport systems, communications networks, defence equipment, and space missions. India’s move toward commercial chip production in 2026 represents a meaningful step toward reducing import dependence and supply-chain vulnerability.

At the same time, TSMC’s 2nm breakthrough is a reminder that the technology frontier is moving fast. India’s challenge will be to convert early manufacturing successes into a durable ecosystem — spanning fabrication, design, talent, and downstream demand — while avoiding the trap of chasing the most advanced nodes before the fundamentals are firmly in place.