India's Chip Industry: Quietly Pulling Off Major Moves Under the Radar?
How many people are fixated on 2nm and 3nm processes, and the process competition between TSMC and Samsung?
Yet India has poured billions of dollars into "legacy chips" ranging from 28nm to 180nm, into packaging, testing and assembly, into specialty semiconductors and design talents. Is India lagging behind? Is India being cowardly? Is India picking up unwanted business that others discard?
In fact, it does not necessarily aim to become the next TSMC, because a more realistic goal is to become a backup node, certification node and delivery node in the global chip supply chain.
This is roughly the reason why the Modi administration has repeatedly emphasized "trustworthiness", and also the underlying logic behind the $13.5 billion subsidy package.
What does India seek to gain by focusing on "legacy chips"?
Mature processes may sound unimpressive, but they underpin nearly 70% of global chip output.
Chips built on 28nm to 180nm processes are widely used in automobiles, industrial machinery, telecommunications equipment, household appliances, power grids, power management and network components. No matter how advanced AI data centers are, they can only operate with the support of power management chips, network chips and a large number of analog devices. Advanced processes define the upper limit of computing power, while mature processes determine whether the system can be delivered stably.
The two have different divisions of labor in the industrial chain, and their cash flow characteristics also vary.
On the surface, India's choice is to avoid head-on competition in cutting-edge processes, but in essence, it fully conforms to economic logic.
In India, the cost of building a cutting-edge 3nm manufacturing plant can exceed $15 billion, and 2nm production is "too costly". Krishnan, Secretary of the Ministry of Electronics and Information Technology of India, has also publicly acknowledged this point.
For an economy with limited per capita income and a manufacturing base that is still catching up, chasing 2nm right from the start will bring huge fiscal pressure, massive talent gaps, heavy reliance on external equipment and materials, and extremely long customer certification cycles.
Pouring money into the most cutting-edge processes can easily turn into an expensive vanity project.
The math for mature processes and back-end processes is completely different.
The capital threshold for back-end packaging and testing is relatively lower, the stickiness of customer certification is stronger, the quality system can be accumulated step by step, and talents can be trained on the job. India's first semiconductor plan has approved 12 manufacturing projects with a planned investment of more than $17 billion, including a silicon wafer manufacturing plant, two specialized semiconductor facilities, and nine assembly, testing and packaging units.
Five of the nine units have already started commercial production, including Micron, as well as Indian enterprises such as Kaynes Semicon, CG Semi, CDIL Semiconductor and Suchi Semicon.
These projects are mainly focused on assembly, packaging and testing, and have not yet directly manufactured integrated circuits on silicon wafers.
The next step is to build front-end wafer manufacturing capabilities.
This path is very intriguing.
The traditional semiconductor development path usually goes front-end first then back-end: build a wafer fab first, then support it with packaging and testing facilities.
India is taking the opposite approach: starting with back-end processes, and using the customer stickiness, quality certification and delivery records accumulated from back-end operations to push the development of front-end manufacturing.
Back-end processes may not seem to have high gross margins, but they can accumulate three key assets: customer trust, quality systems, and production capacity management experience.
When a customer entrusts you with their chips for packaging and testing, it means they are willing to hand over a segment of their supply chain to you; once certification is passed, the cost of switching suppliers is not low. India uses back-end operations as an entry point, mature processes as a springboard, and its domestic demand market as an order anchor. This strategy is more in line with business logic than "chasing 2nm directly".
Furthermore, one of the products India is selling is "trustworthiness".
Modi stated at the SEMICON India 2026 conference, "The world needs new, trustworthy chip manufacturing locations, and India is getting ready for that."
In the past, the global supply chain pursued Just-in-Time, focusing on zero inventory, low cost and fast delivery; now more and more countries and large enterprises are shifting to the Just-in-Case model, emphasizing backup, redundancy and security.
Redundancy is insurance, and insurance requires premiums.
What India wants to collect is exactly the premium for this "supply chain insurance".
Whether it can collect this premium depends on whether India can turn "trustworthiness" into an institutional product. Intellectual property protection, export control compliance, supply chain transparency, delivery reliability, and geopolitical neutrality may sound intangible, but they are all hard constraints in the semiconductor industry.
An automotive-grade chip has to go through lengthy certification, a wafer fab has to accept repeated audits from customers, and one quality accident may cost years of orders. The "trustworthiness" India wants to sell needs long-term records to support it.
This is also the most underrated part of India's semiconductor strategy: it is using national credit to endorse the industry, and using institutional arrangements to reduce the risk premium for foreign investment.
India also has a ready-made card in its hand, which is design talents.
India accounts for nearly one-fifth of the world's chip design talents. Companies including Intel, Qualcomm and Texas Instruments have set up major R&D centers in India. Indian engineers have participated in the development of a large number of complex chips worldwide, while the actual manufacturing is mostly completed overseas.
Imports meet 90% to 95% of India's semiconductor demand. From fiscal year 2017 to fiscal year 2025, India spent nearly $150 billion on importing semiconductor products. This figure is not only a pressure, but also a demand anchor.
Local demand from the automotive, telecommunications, home appliance, power grid and data center sectors can provide initial orders for India's local manufacturing, and reduce the risk of production capacity ramp-up after the project is put into operation.
Therefore, when it comes to India making "legacy chips", the parts worth paying attention to should be its demand structure and institutional products.
Mature processes have huge and stable demand, back-end processes have customer stickiness, the domestic demand market has order anchors, and national credit can be converted into supply chain insurance.
With this combination, India has turned semiconductors from a pure technology competition into a business centered on supply chain certainty.
What it pursues is cash flow and industrial capabilities.
As for where the money comes from, how it is spent, and whether the spending is worthwhile, it depends on the situation of the Indian government's subsidy accounts.
How to spend the $13.5 billion subsidies without losing money?
India's "Semiconductor 2.0" plan has received $13.5 billion in financial support, and the projects approved under its first plan have a total investment of more than $17 billion.
In the context of the global semiconductor subsidy race, $13.5 billion is not an astronomical figure.
The United States, the European Union and Japan have larger subsidy scales, and TSMC, Samsung and Intel have received more concentrated support. India does not have the conditions to make progress across the board, so it can only adopt a "nail strategy" to form irreplaceability in a few niche segments, and use limited fiscal funds to leverage more private capital.
Financially speaking, government subsidies are like option premiums, and projects are like underlying assets.
The role of subsidies is to reduce the risk premium of private capital, so that consortia, foreign investors and equipment vendors are willing to bet together. The Tata Group and Taiwan's Powerchip are building a $11 billion wafer fab in Dholera, Gujarat, which is scheduled to start commercial production in mid-2028, initially using 55nm and 90nm technologies, and later transitioning to 28nm.
Applied Materials of the United States announced that it will invest $5 billion in India over the next ten years, covering R&D, local supply chain and talent training.
Lam Research plans to invest about $1.04 billion to build its first silicon component manufacturing plant in India and expand its R&D business. These investments are intended to lock in India's future capital expenditure, and also to get closer to customers and policy dividends.
As an option premium, subsidies have one advantage: if successful, India gains status in the industrial and supply chains; if it fails, the fiscal loss is relatively controllable.
But it also has a downside: options have time value.
The subsidy window will pass, technology will iterate, and the production capacity cycle will reverse. If the project is delayed, the yield cannot be increased, and customer certification cannot be obtained, the option will become a sunk cost.
What India's semiconductor plan most needs to guard against now is the "announcement economy" and "MOU (memorandum of understanding) hype".
Signing agreements, laying foundation stones, and issuing press releases are easy to do; turning the plant into production capacity, turning production capacity into yield, and turning yield into customer orders are the real hard skills.
It should be noted that the semiconductor capital expenditure cycle has a clear order of benefits: equipment and material orders usually lead wafer fab production by one to two years, the commercialization of back-end packaging and testing leads front-end manufacturing, and design services benefit from talent supply.
Most of India's current projects are in the early stage from construction start to commercialization. Market narratives easily jump directly from "policy announcements" to "capacity explosion", but there are several hurdles in between: yield ramp-up, customer certification, and supply chain supporting facilities. Subsidies can shorten the first section of the road, but not the subsequent sections.
However, the Indian government is also building up the ecosystem.
The scope of support under the Semiconductor 2.0 plan has been extended to equipment manufacturers, specialty chemicals, raw materials, chip design, R&D and talent training. Raghavan Srinivasan Balakrishnan, director of the Sudit Foundation, pointed out that India currently relies almost entirely on foreign countries for basic raw materials and machinery.
This is the real shortcoming of India's semiconductor industry: back-end processes can be launched first, but front-end manufacturing has many lessons to catch up on. Cleanroom management, ultrapure water, special gases, photoresist, silicon wafers, and equipment parts all require time and capital investment.
India can use subsidies to bring in equipment vendors, use domestic demand orders to support the growth of packaging and testing plants, and use design talents to incubate fabless companies, but the learning curve of front-end manufacturing still has to be traversed step by step.
The NITI Aayog roadmap proposes to build a $120 billion to $150 billion semiconductor industrial chain by 2035, and make India one of the three major global destinations for outsourced semiconductor packaging, testing and advanced packaging.
This goal can be regarded as pragmatic.
Advanced packaging combines different chips into more complex packages, which can improve performance without fully relying on shrinking transistor size. India's efforts to find a position in advanced packaging are equivalent to occupying a niche in the value migration driven by "More than Moore".
The economics of Moore's Law is changing: the marginal cost of process shrinking is getting higher and higher, and value is shifting to packaging, power semiconductors, analog chips and system integration.
India is not chasing hard on transistor density, but looking for opportunities in system integration and packaging, which is more in line with its resource endowment.
But advanced packaging also requires equipment and materials, which India still has to import in the short term.
So this is not a cool story of "overtaking on a curve", but more like "niche arbitrage". It will first gain a firm foothold in niche segments with huge demand and existing advantages that can bring commercial benefits, and then upgrade to 28nm front-end manufacturing and advanced packaging.
The success or failure of India's semiconductor strategy does not depend on how lively the subsidy announcements are, but on whether the projects can be put into operation on schedule, whether the yield can meet standards, whether customer certification can be passed, and whether the capacity utilization rate can be increased.
Subsidies are premiums, projects are options, and the exercise date is around 2028. Before that day comes, the market will repeatedly trade on expectations, and repeatedly test execution performance.
Who will be the first to reap the dividends of India's chip industry?
The time window for India's semiconductor game is very clear.
2026 to 2027 is the back-end realization period.
Five chip production units in India have started commercial production, focusing mainly on assembly, packaging and testing. More OSAT (outsourced semiconductor assembly and test) and ATMP (assembly, testing, marking and packaging) projects will be launched, and investment in equipment and materials will start to pay off.
Market narratives will shift from "policy announcements" to "orders and capacity utilization".
In this stage, the "India semiconductor concept" is most likely to be hyped, and what needs the most attention is the customer list, certification progress and capacity ramp-up data.
2028 is the front-end verification period.
The wafer fab jointly built by Tata and Powerchip in Dholera is scheduled for commercial production in mid-2028, initially adopting 55nm and 90nm technologies, and later transitioning to 28nm.
This is the touchstone for India's front-end manufacturing capabilities.
If mass production goes smoothly, the yield meets standards, and customer certification is passed, India's semiconductor narrative will be upgraded, and equipment and material vendors and design service providers will all benefit. If the project is delayed or the yield fails to meet standards, market confidence will be frustrated, and subsidy efficiency will be re-examined.
2029 to 2031 is the differentiation period.
Differentiation will begin in 28nm processes, advanced packaging, power semiconductors, analog chips and automotive-grade semiconductors. If India can lock in long-term orders for automotive and industrial use, it can form differentiation advantages; if it only focuses on low-cost legacy chip foundry services, it will easily fall into price wars.
TrendForce stated in its June 2026 report that rising demand for power-related semiconductors, including AI infrastructure, is tightening manufacturing capacity and may keep prices rising until 2027.
This window is favorable for India: after new capacity is released from 2027 to 2028, differentiation may occur in mature processes.
India must use "trustworthiness" and "automotive-grade certification" to avoid pure cost competition.
2030 to 2035 is the big test for the roadmap.
India's semiconductor demand is expected to reach $87 billion in fiscal year 2030 and $206 billion in fiscal year 2035. There is huge room for import substitution, but the increase in manufacturing share is a slow variable.
India may become an important destination for global OSAT and advanced packaging, while front-end advanced nodes will still rely on Taiwan and South Korea.
It is not necessarily a disruptor, but more likely a complement and insurer.
As far as the stock market and industry are concerned, it is obvious that equipment and material vendors will benefit first. Applied Materials and Lam Research are investing in India to lock in future orders, but their revenue proportion from India is small and cannot be exaggerated.
Back-end OSAT and EMS (electronics manufacturing services) enterprises achieve commercialization earlier. Production lines of Kaynes, Suchi, CDIL and other enterprises have been launched, with high valuations but also high execution risks. The key lies in customer certification and capacity utilization.
Power, analog and automotive-grade semiconductors will benefit from India's automotive and industrial demand. Their certification cycle is long, but once they enter the supply chain, the stickiness is strong.
Design services benefit from talent supply, with asset-light characteristics and high gross margins, and it takes time to achieve scale effects.
Wafer foundry is at the last position to realize returns, with large capital expenditure and slow yield ramp-up. 2028 will be the real test point.
India's semiconductor targets are scarce, and the theme may spill over to automotive electronics, industry and EMS. Investors need to guard against the "announcement economy" and "MOU hype".
Signing agreements and laying foundation stones can bring market sentiment, but production capacity and cash flow can drive valuations.
India's semiconductor theme will go through four stages: "policy announcement - project construction start - commercialization - cash flow". At present, most projects are between the second and third stages, which most tests patience and due diligence.
For Chinese observers, several points of India's semiconductor strategy deserve serious attention.
Mature processes are the foundation of cash flow and industrial capabilities, and cannot be underestimated just because they are called "legacy chips". India relies on Chinese equipment, materials and components in the short term, and will form diversion in OSAT, EMS and mature processes in the long run.
China should consolidate its cost and capacity advantages in mature processes, promote the localization of equipment and materials, develop advanced packaging,