Shaping India's Semiconductor Ecosystem through Semicon 2.0
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Key takeaways
- MeitY introduced Semicon 2.0 with an extra outlay of ₹1.28 lakh crore to support equipment manufacturing, chip design, packaging, and R&D.
- Under ISM 1.0 launched in 2021 with ₹76,000 crore, the government approved 10 projects across 6 states representing ₹1.60 lakh crore in total investment.
- Major investments include Tata Electronics-PSMC's ₹91,000-crore fab in Dholera targeting 50,000 wafers per month and Tata's ₹27,000-crore packaging plant in Assam yielding 48 million chips per day.
- India spent $150 billion on semiconductor imports between FY17 and FY25, highlighting the need to reduce foreign reliance on software, equipment, and advanced process nodes.
- The Semicon 2.0 policy aims to create 50,000 to 60,000 direct jobs and train 100,000 new engineers while offering up to 75% financial support for advanced semiconductor R&D.
Why in News
- The Ministry of Electronics and Information Technology (MeitY) launched Semicon 2.0 with an additional financial allocation of ₹1.28 lakh crore.
- This policy shifts India's approach from isolated manufacturing plants to a fully integrated semiconductor ecosystem covering chip design, advanced packaging, and raw materials.
- Long-term success will require effective administrative execution, local supply chain development, and strong venture funding for deep-tech start-ups.
Key Developments in India's Semiconductor Ecosystem
- The India Semiconductor Mission (ISM) 1.0 started in 2021 with a ₹76,000-crore budget and offered up to 50% fiscal support for fabs and packaging units.
- By December 2025, the government approved 10 projects across 6 states representing around ₹1.60 lakh crore in total investment.
- The Union Budget 2026-27 introduced ISM 2.0 with a ₹1,000-crore budget for FY2026-27 to focus on domestic equipment, materials, and sovereign technology.
- Tata Electronics partnered with PSMC to build a ₹91,000-crore fab in Dholera, Gujarat designed to produce 50,000 wafers per month across mature nodes like 28 nm, 40 nm, 55 nm, and 110 nm.
- International collaborations with firms like Taiwan's PSMC and the Netherlands' ASML allow India to combine local scale with global technical experience.
- Micron is setting up a ₹22,516-crore memory packaging plant in Sanand, while Tata Semiconductor Assembly and Test is constructing a ₹27,000-crore facility in Jagiroad, Assam to yield 48 million chips per day.
- Packaging projects by CG Power-Renesas and Kaynes Semicon offer lower capital requirements and shorter setup times than front-end wafer fabrication facilities.
- India is expanding into advanced materials, including the SiCSem project in Odisha for silicon carbide power chips used in electric vehicles and railways.
- In 2026, Crystal Matrix Limited secured approval for a Dholera gallium nitride fab to manufacture 72,000 square metres of display panels annually.
- By January 2026, the Design Linked Incentive (DLI) Scheme backed 24 semiconductor start-ups that raised nearly ₹430 crore in private venture capital.
- C-DAC built DHRUV64, a domestic 64-bit microprocessor, expanding on earlier indigenous designs such as SHAKTI, AJIT, VIKRAM, and THEJAS.
- The Digital India RISC-V (DIR-V) Programme uses open-source architecture to support DHANUSH and DHANUSH+ chips for 5G networks, industrial devices, and defence.
- By January 2026, the national Advanced Electronic Design Automation (EDA) platform delivered 2.25 crore tool-hours to 67,000 students and 1,000 start-up engineers.
- Programs like Chips to Startup (C2S) train engineering talent in VLSI design, clean-room operations, and yield engineering across premier institutions.
- India joined the US-led Pax Silica initiative to secure critical mineral processing, chip manufacturing partnerships, and resilient AI supply chains.
Semicon 2.0 Policy Framework
- Semicon 2.0 serves as the second phase of the India Semiconductor Mission to transition the country from component assembly toward a full-stack domestic industry.
- The policy focuses on domestic chip design, local equipment, material sourcing, and technology sovereignty, aiming to create 50,000 to 60,000 direct jobs.
- It operates across six key pillars: chip design, equipment and materials, wafer fabrication, advanced packaging, R&D, and workforce training.
- Eligible start-ups and small businesses receive seed funding up to ₹15 crore or 50% of project cost, alongside free access to EDA tools and prototyping resources.
- Large wafer fabs receive 40% capital support, compound semiconductor and packaging projects get 35%, and equipment facilities qualify for 30% support.
- R&D and talent initiatives can receive up to 75% financial support, aiming to train 100,000 new professionals beyond the 85,000 engineers already trained.
Challenges Facing India's Semiconductor Sector
- India remains dependent on foreign providers for photolithography equipment and EDA software like Synopsys, having spent $150 billion on semiconductor imports between FY17 and FY25.
- Global supplier ASML maintains a monopoly on Extreme Ultraviolet lithography machines, limiting complete domestic control over high-end chip making.
- Current domestic facilities concentrate on legacy mature nodes, while cutting-edge AI processing relies on advanced 5 nm, 3 nm, and 2 nm nodes controlled by TSMC, Samsung, and Intel.
- High-tech projects face commercial execution risks, as shown by the collapse of the Vedanta-Foxconn joint venture in 2023 due to partner licensing hurdles.
- While India possesses strong chip design engineers, the country lacks experienced personnel in physical clean-room operations, lithography maintenance, and yield optimization.
- Semiconductor manufacturing demands constant high-purity water, stable electricity, and specialty gases, making spatial concentration in Dholera and Sanand vulnerable to local supply shocks.
- Heavy government subsidies of up to 50% create fiscal risks, especially when competing against global programs like the US CHIPS Act of 2022 and the EU Chips Act of 2023.
- Academic research from institutions like IIT Madras and C-DAC frequently struggles to bridge the lab-to-fab gap into full commercial manufacturing.
Way Forward to Strengthen the Ecosystem
- Financial incentives should transition to a performance-linked model verified by an independent Semiconductor Programme Evaluation Office based on actual factory output and yield rates.
- The government should launch a localized input challenge to produce semiconductor-grade chemicals, quartzware, photoresists, and silicon wafers domestically.
- Creating a Trusted Indian Chip Procurement Framework will guarantee state demand from public projects like BharatNet, Indian Railways, and defence public-sector units.
- Establishing a Semiconductor Deep-Tech Fund of Funds can provide long-term patient capital, tape-out vouchers, and IP-backed loans over 10 to 12 years.
- A National Semiconductor Apprenticeship Grid should link technical institutes directly with operating packaging and fabrication facilities for hands-on clean-room training.
- India should deepen technology partnerships under the India-US iCET, India-Japan Semiconductor Partnership, and India-EU Trade Council to share equipment and co-develop IP.
- New clusters must mandate wastewater recycling, zero-liquid discharge, and hardware security checks through a Trusted-Chip Certification Authority.
- Establishing a single-window clearance mechanism for environmental, land, and customs approvals will reduce administrative delays and speed up factory construction.
Conclusion
- Semicon 2.0 redefines India's national strategy by building an integrated ecosystem of design, equipment, and advanced packaging rather than focusing solely on factory subsidies.
- Sustainable success relies on strong policy execution, skilled workforce development, local material supply lines, and bridging the gap between research labs and commercial fabrication plants.