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Why Semiconductors are the New Strategic Resource
A semiconductor chip — smaller than a thumbnail — determines whether your phone connects to a satellite, whether a missile tracks its target, whether an MRI machine produces a diagnostic image. Semiconductors are the irreplaceable foundation of every modern technology sector: artificial intelligence, 5G telecommunications, electric vehicles, defence systems, and space exploration all depend on them without exception. A nation that cannot make chips must import them — and in a world where geopolitics increasingly follows technology, that dependence translates directly into strategic vulnerability.
The global semiconductor market was valued at approximately $628 billion in 2024 and is projected to exceed $1 trillion by 2030. Advanced chip manufacturing is concentrated in a remarkably small geography. Taiwan Semiconductor Manufacturing Company (TSMC) alone produces over 90 per cent of the world's most advanced chips — those at 5 nanometre and below — and a single state-of-the-art fabrication plant costs between $10 billion and $20 billion to construct. The Strait of Taiwan, one of the world's most geopolitically contested waterways, separates that manufacturing concentration from every country that depends on it.
India currently imports virtually all of its semiconductor requirements. Every chip in an Indian smartphone, every processor powering an Indian defence platform, every integrated circuit embedded in India's growing electronics sector arrives from East Asia. This is the strategic vulnerability that the Semicon India Programme 2.0, notified on August 31, 2026, is systematically designed to address.
The Road from ISM 1.0 to ISM 2.0
The 2021 Chip Shortage — A National Wake-Up Call
The COVID-19 pandemic triggered a global semiconductor shortage that halted automobile assembly lines, delayed mobile phone launches, and disrupted the supply of medical equipment worldwide. India, importing virtually all its chips, experienced these disruptions acutely. The crisis revived a policy conversation suspended since the 1980s — when Semiconductor Complex Limited (SCL) in Chandigarh, India's original chip ambition, never achieved the scale envisioned.
India Semiconductor Mission 1.0 — Laying the Foundation (2021–2026)
In December 2021, the Union Cabinet approved the India Semiconductor Mission (ISM) under a ?76,000 crore Semicon India Programme. The scheme offered fiscal support of up to 50 per cent for silicon fabrication plants, compound semiconductor units, ATMP (Assembly, Testing, Marking and Packaging) facilities, and chip design companies. A dedicated nodal agency — the India Semiconductor Mission — was established under the Ministry of Electronics and Information Technology (MeitY) to implement the programme.
Despite these achievements, ISM 1.0 revealed structural gaps. Most approved units were in the ATMP segment — the lower-value portion of the semiconductor supply chain. India approved its first advanced silicon fabrication plant (in the Dholera Special Investment Region, Gujarat), but commercial production remained years away. Equipment suppliers, specialty chemical producers, and advanced design companies capable of global competition were largely absent from India's ecosystem. ISM 2.0 was built to address precisely these structural deficiencies.
Semicon India Programme 2.0:
The Union Cabinet formally notified the Semicon India Programme 2.0 on August 31, 2026. Announced in Union Budget 2026-27, the programme carries a total financial outlay of ?1,27,500 crore — a 68 per cent increase over ISM 1.0's ?76,000 crore. The programme marks a strategic shift: from building India's semiconductor ecosystem to consolidating it and integrating India into global supply chains as a reliable, democratic manufacturing partner.
The Six Pillars of Semicon India 2.0
The programme is structured around six mutually reinforcing pillars, each targeting a specific gap in India's semiconductor value chain:
|
Pillar |
Focus Area |
|---|---|
|
1. Design |
Chip IP development, EDA tools, fabless design companies |
|
2. Equipment & Materials |
Semiconductor equipment, specialty chemicals, specialty gases |
|
3. Fab Expansion |
CMOS silicon, compound semiconductor, display fabrication |
|
4. Backend Manufacturing |
ATMP and OSAT (Outsourced Semiconductor Assembly and Test) |
|
5. Advanced Technology |
Next-generation nodes beyond the 28-110 nm capability range |
|
6. Talent Development |
Workforce pipeline across universities, ITIs, industry partners |
Why Nations Are Racing to Build Chip Capacity
The global semiconductor landscape has transformed from a commercial matter into a question of national security. Several converging forces explain why India's ?1.27 lakh crore commitment must be understood in its geopolitical context, not merely as industrial policy.
The US CHIPS Act and Great Power Technology Competition
In August 2022, the United States passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act with a $52.7 billion commitment to domestic semiconductor manufacturing — the largest single industrial policy intervention in American history for a specific technology sector. Simultaneously, the US imposed sweeping export restrictions on advanced semiconductor equipment and high-bandwidth memory exports to China, triggering China's own trillion-yuan semiconductor push. The world's two largest economies are now in direct competition to control the technology that underpins advanced military systems, artificial intelligence, and the next industrial revolution.
Taiwan Concentration Risk and the 'Silicon Strait' Problem
TSMC's dominance — producing over 90 per cent of chips at 5 nm and below — represents a structural fragility in the global supply chain. A conflict in the Taiwan Strait, or even a temporary disruption to shipping lanes, could collapse global advanced chip supplies within weeks. This scenario has accelerated semiconductor nationalism across the world: the United States, European Union, Japan, South Korea, and now India have all launched major domestic chip programmes in direct response. Building geographic redundancy into the global semiconductor supply chain has become a geopolitical necessity rather than an industrial preference.
US-India iCET: Technology Sovereignty through Strategic Partnership
The Initiative on Critical and Emerging Technologies (iCET), launched in January 2023 between India and the United States, specifically identified semiconductors as a priority cooperation area. Under this framework, US semiconductor companies can engage with Indian facilities under eased technology-transfer arrangements. Lam Research — one of the world's leading semiconductor equipment suppliers — has committed to training 60,000 Indian semiconductor professionals through an iCET-linked partnership. These arrangements give ISM 2.0 an external technology ecosystem that ISM 1.0 did not possess.
India's Asymmetric Advantages
India's advantages in this race are real but asymmetric. The world's second-largest engineering talent pool (by count), relatively low operating costs, democratic governance that makes India a trusted supply chain partner for Western companies, and English-language capability — these are genuine competitive assets. However, India lacks TSMC's four-decade head start, South Korea's integrated chip corridor, Japan's materials ecosystem, and the deep industrial infrastructure that underlies East Asian precision manufacturing. Semicon India 2.0 is a recognition that closing this gap requires not merely capital but a long-horizon, patient industrial strategy.
ODISHA PERSPECTIVE:
Odisha's semiconductor ambition is neither incidental nor merely policy compliance. It reflects a deliberate industrial strategy by Chief Minister Mohan Charan Majhi's government — one that recognises semiconductors as the instrument through which Odisha can transition from a mineral-extraction economy to a high-technology manufacturing state aligned with India's 21st-century industrial vision.
- Odisha's Fiscal Framework
- In August 2026, the Odisha Cabinet approved a 25 per cent additional capital expenditure subsidy for all semiconductor projects receiving approval under the India Semiconductor Mission. This state-level incentive is disbursed on a pari-passu basis with GoI's fiscal assistance — meaning Odisha's financial contribution flows simultaneously with central government disbursements, structurally aligning risk and accountability between the two governments.
- As of September 2026, five semiconductor projects with a cumulative investment of ?10,899 crore have been approved in Odisha. Two projects secured ISM 1.0 support; three are in the implementation phase with commercial operations expected within 12 to 18 months. Odisha has been ranked among India's top five states for semiconductor land incentives, and has enacted the dedicated Semiconductor Manufacturing and Fabless Policy — providing land incentives, power tariff concessions, and single-window clearance to semiconductor investors across all districts of the state.
- India's First 3D Semiconductor Facility: Info Valley, Bhubaneswar
- The flagship development in Odisha's semiconductor journey is the planned 3D Glass Solutions (3DGS) facility at Info Valley, Bhubaneswar. 3DGS — a US-based advanced semiconductor packaging company — has signed a Memorandum of Understanding with Intel Corporation to establish India's first advanced 3D glass substrate technology facility in Odisha.
- Glass substrate technology represents a paradigm shift in chip packaging. Unlike conventional organic substrates, glass offers superior thermal stability, higher interconnect bandwidth, better electrical signal integrity, and lower power losses — critical attributes for artificial intelligence processors, next-generation data centres, and high-performance computing chips. If commissioned, this facility would make Odisha the first state in India to host this category of advanced semiconductor packaging technology.
- Chief Secretary Anu Garg described the initiative as "a transformative step in Odisha's journey towards becoming a key player in advanced semiconductor and electronics manufacturing." CM has framed this within Vision 2036 — Odisha's long-term economic transformation blueprint — expressing the state's ambition to be firmly placed on the global semiconductor map.
The Competitive Gap: Where Odisha Must Improve
A candid assessment reveals a significant incentive gap. While Odisha's 25 per cent additional capex support is a meaningful commitment, competing states have structured more aggressive packages to attract tier-1 semiconductor investments:
|
State |
Additional Capex Support for ISM-Backed Projects |
|---|---|
|
Uttar Pradesh |
Up to 75% (on initial acreage acquisition) |
|
Andhra Pradesh |
50% additional support |
|
Gujarat |
40% additional support |
|
Assam |
40% additional support |
|
Odisha |
25% additional support (pari-passu with GoI) |
For Odisha to attract not just ATMP units but advanced fabrication investments, the state must review its incentive structure upward, accelerate land bank creation at technology parks, strengthen the semiconductor research pipeline at IIT Bhubaneswar and KIIT University, and build a dedicated semiconductor workforce programme aligned with ISM 2.0's talent development pillar. The 3DGS facility at Info Valley must be treated as an anchor — a hub around which related investments in packaging materials, glass chemistry, and advanced testing can be clustered.
The Structural Gaps:
Semicon India 2.0 is a necessary initiative, but ambition requires honest accounting. Several structural headwinds persist that financial investment alone cannot overcome.
- ATMP-heavy, fab-light reality: Most of India's approved semiconductor units are in the Assembly, Testing, Marking and Packaging segment — the lower-value end of the semiconductor supply chain. ATMP operations add approximately 15-20 per cent of a chip's final value; front-end wafer fabrication adds 50-60 per cent. While India has approved its first advanced silicon fabrication plant, commercial wafer production at scale remains years away.
- Lithography dependence: The single most critical tool in semiconductor fabrication is the Extreme Ultraviolet (EUV) lithography machine, which etches circuit patterns onto silicon wafers at atomic precision. The Netherlands-based ASML holds a near-monopoly on EUV systems, with each machine costing approximately $200 million and requiring years-long delivery queues. India has no indigenous lithography capability and no viable path to developing one independently within this decade.
- No domestic silicon wafer production: Silicon wafers — the raw substrate on which every chip is fabricated — are almost entirely sourced from Japan (Shin-Etsu, SUMCO) and Germany (Siltronic). India produces no commercial-grade silicon wafers. This upstream dependence limits how much of the semiconductor value chain India can genuinely own even if it builds significant fabrication capacity.
- The curriculum-industry mismatch: Training 1 lakh semiconductor engineers is an admirable target, but semiconductor engineering — spanning materials science, device physics, process engineering, and yield management — requires deep curriculum transformation, not merely the addition of EDA software tools. India's engineering education has historically skewed towards software services; reorienting it for hardware fabrication is a multi-year institutional challenge that investment alone cannot accelerate.
Way Forward:
- Build Geographic Clusters — Lessons from Taiwan's Hsinchu Science Park
- Taiwan's semiconductor dominance was built over four decades through deliberate co-location of fabs, equipment suppliers, specialty chemical producers, design houses, and research universities in the Hsinchu Science Park. India's Semicon India 2.0 must move beyond individual project approvals to creating geographic clusters where the full semiconductor value chain co-exists, sharing infrastructure, logistics, and talent pipelines. Dholera (Gujarat), Info Valley (Odisha), and Hyderabad's emerging semiconductor corridor are natural cluster anchors that must be intentionally developed as ecosystems, not merely project sites.
- Design-Led Differentiation — India's Genuine Competitive Advantage
- India's genuine competitive advantage in semiconductors lies in design. With the world's second-largest pool of electrical and electronics engineers, a vibrant technology startup culture, and decades of software IP development, India can become a global hub for semiconductor design IP even while fabrication capacity matures. The Design Linked Incentive Scheme under ISM 2.0 must be expanded aggressively, targeting 100-plus fabless companies, with India-developed semiconductor IP protected through a strengthened domestic patent framework and an expedited examination track.
- Building the Domestic Ancillary Ecosystem — The Specialty Chemical Gap
- A semiconductor fabrication plant consumes hundreds of specialty chemicals, gases (argon, nitrogen, hydrogen fluoride), and ultra-pure materials in production. India currently imports most of these from Japan, Germany, and South Korea. ISM 2.0's Equipment and Materials pillar must be backed by a dedicated PLI sub-scheme for specialty chemical manufacturing — one linked to guaranteed off-take agreements with ISM-approved fabs from day one, so domestic ancillary suppliers have a secured market before they have a product.
- Formalise the State-Centre Co-Investment Model
- The Odisha model — where state-level incentives are structured on a pari-passu basis with central disbursements — creates accountability, aligns financial risk between governments, and prevents subsidy front-loading. MeitY and DPIIT should formalise this as the standard template for all state-level semiconductor investments under ISM 2.0, replacing ad hoc state packages that attract project approvals without committing investors to production milestones and employment benchmarks.