India's semiconductor ecosystem: from fabs to ecosystem leadership

India's semiconductor ambitions are evolving beyond manufacturing. The next phase may be defined by ecosystem depth, innovation and talent.

In brief

• India's semiconductor ambitions are translating into results, with 12 approved projects, 23 chip tape-outs, and facilities entering production and exports.
• India's next phase of growth may depend less on new fabs and more on building capabilities in materials, equipment, advanced packaging, R&D and talent.
• Semicon 2.0 shifts the focus from attracting investments to building capabilities across design, manufacturing, materials, advanced packaging, R&D and talent.

Authors:

• Dr. Bipin Sapra - Partner, Leader, Indirect Tax & Economic Policy, EY India 
• Aisha Ali Hussaini, Partner, Indirect Tax, EY India

India's semiconductor ambitions are entering a new phase. As semiconductors become increasingly central to economic competitiveness, technological sovereignty and supply-chain resilience, countries around the world are seeking to strengthen domestic capabilities across the semiconductor value chain. For India, this opportunity is being shaped by a growing domestic market, established design strengths and an evolving policy framework led by the India Semiconductor Mission and Semicon 2.0.

The country has already made significant progress in attracting investments into semiconductor fabrication, packaging and related manufacturing activities. However, global experience shows that long-term competitiveness is built not by individual manufacturing projects alone, but by the depth of the ecosystem that supports them. This is increasingly reflected in India's semiconductor strategy, which is expanding beyond manufacturing to encompass design, research, advanced packaging, materials, equipment and talent development.

Semiconductor manufacturing in India enters a new phase

For decades, India's participation in the semiconductor industry was defined primarily by engineering and design talent. While the country emerged as a leading destination for chip design and R&D activities, manufacturing capabilities remained limited.

That equation is beginning to change. India's semiconductor market has grown from approximately US$27 billion in 2021 to nearly US$64 billion in 2026 and is projected to reach US$200 billion by 2035. In response, the Government of India launched the India Semiconductor Mission and introduced targeted interventions to support domestic manufacturing.

Under Semicon 1.0, twelve manufacturing projects across fabrication, compound semiconductors and packaging have been approved, attracting investments of approximately INR1.64 lakh crore. Several facilities have already commenced production and exports, marking an important step in the growth of semiconductor manufacturing and the broader semiconductor value chain in India.

Yet manufacturing capacity alone is unlikely to determine long-term success.

Building India’s semiconductor ecosystem

Leading semiconductor economies have demonstrated that global competitiveness depends on the strength of an interconnected ecosystem. Fabrication facilities rely on sophisticated networks of materials suppliers, equipment manufacturers, advanced packaging providers, research institutions and highly specialized talent.

As semiconductor technologies become more complex, innovation is increasingly driven by areas such as advanced packaging, chiplets, heterogeneous integration, silicon photonics and system-level design. Consequently, countries such as the United States, Japan, South Korea, Taiwan and members of the European Union are supporting not only manufacturing, but also research, commercialization, talent development and supply-chain capabilities.

Recognizing this reality, India's semiconductor strategy is increasingly focused on building ecosystem depth around emerging manufacturing investments.

Semicon 2.0 broadens India's semiconductor strategy

The evolution from Semicon 1.0 to Semicon 2.0 reflects this shift in policy thinking.

While Semicon 1.0 focused on establishing foundational capabilities through fiscal support of up to 50% of capital expenditure, Semicon 2.0 adopts a broader six-pillar approach covering design, machines and materials, fabrication, advanced packaging, R&D and talent development.

Importantly, the program introduces differentiated support aligned with strategic priorities. Projects related to research and talent development may receive support of up to 75% of total project costs when combined with state incentives, reflecting the growing importance of capability creation in areas that typically require long development cycles.

The program also expands support beyond traditional capital subsidies. Semiconductor startups and design companies can access mechanisms such as seed funding, equity co-investment and royalty-linked financing, helping bridge the gap between innovation and commercialization.

India's strengths extend beyond incentives

While incentives remain important, India's semiconductor proposition is built on a wider set of advantages.

India is estimated to host nearly 20% of the world's semiconductor design talent and continues to strengthen its position in semiconductor design through initiatives such as the Design Linked Incentive (DLI) Scheme and Chips-to-Startup (C2S) program. Growing domestic demand, expanding electronics manufacturing, a large engineering workforce and increasing adoption of digital technologies further support long-term semiconductor growth.

India's policy framework also includes a distinctive milestone-linked pari passu incentive mechanism. Unlike models that rely primarily on tax credits or retrospective reimbursements, support under the India Semiconductor Mission is disbursed alongside project implementation and investment commitments, improving project visibility and supporting execution in a highly capital-intensive industry.

The next phase may be defined by execution

India has established the foundations of a semiconductor ecosystem, but sustaining momentum will require continued execution. Strengthening supplier ecosystems, expanding semiconductor R&D capabilities, developing specialized manufacturing talent and accelerating capabilities in materials, equipment and advanced packaging will be critical.

State governments also have an important role to play in aligning policy support with the broader objectives of Semicon 2.0 and extending incentives to a larger portion of the value chain.

The opportunity is significant. With a projected semiconductor market of US$200 billion by 2035, growing manufacturing investments, world-class design talent and an increasingly comprehensive policy framework, India possesses many of the ingredients required to become a leading semiconductor ecosystem.

The next phase of India's semiconductor journey may be defined not by the number of fabs announced, but by the ecosystem built around them. The real opportunity lies in translating manufacturing momentum into ecosystem leadership.

Summary

India's semiconductor journey is entering a new phase. Having established early manufacturing momentum through strategic investments and policy support, the focus is now shifting toward ecosystem development. Strengthening materials, equipment, advanced packaging, research, talent and innovation capabilities will be critical to India's long-term competitiveness. With growing domestic demand, strong design capabilities and an expanding policy framework, India has an opportunity to emerge as a trusted and globally competitive semiconductor ecosystem.