Can India's $13 billion bet on semiconductors compete with China and the US?

Semiconductors have emerged as the defining strategic technology of the 21st century. The Covid-19 pandemic, the subsequent disruption of global supply chains and the geopolitical tensions that followed, particularly between the US and China, only reinforced the realisation that chips are now instruments of strategic power, thus creating an urgency around the semiconductor value chain.

Against this backdrop, India has launched an ambitious effort to build a domestic semiconductor ecosystem. The recently announced Semiconductor Mission 2.0, backed by an allocation of ₹1,27,500 crore (approximately US$ 13.25 billion), represents a significant escalation of the country’s semiconductor ambitions. Yet before examining where India is headed, it is important to ask what the first semiconductor mission achieved.

The answer is nuanced. India Semiconductor Mission 1.0 launched in 2021 with an outlay of ₹76,000 crore, did not achieve technological self-reliance, nor did it establish India as a semiconductor manufacturing powerhouse. However, it succeeded in attracting serious global semiconductor investment. Tata Electronics-PSMC fabrication plant, Micron’s assembly and testing facility in Gujarat, Tata’s OSAT facility in Assam, and the CG Power-Stars Microelectronics venture demonstrated that major firms were willing to bet on India’s semiconductor future.

But this had its limitations. While global leaders continued to push the technological frontier, India entered semiconductor manufacturing through mature and legacy nodes. As India works towards commercialising 28-nanometre fabrication, firms such as TSMC, Samsung, and IBM are operating at the cutting edge of advanced-node research. Consequently, ISM 1.0 succeeded in laying the foundation for an industry but fell short of creating a globally competitive semiconductor ecosystem. This explains the shift in emphasis on encompassing fabrication, packaging, materials, equipment, design intellectual property, and research capabilities under ISM 2.0.

One of the most important lessons emerging from India's semiconductor journey is that fabrication facilities and packaging plants, while essential, cannot by themselves create technological sovereignty. India currently imports many foundational semiconductor components, including processed silicon wafers, discrete active devices (diodes, transistors), passive components (capacitors, resistors), and complex integrated circuits. If Indian fabs only manufacture products designed by foreign companies, the country risks becoming merely a subsidised production platform.

Historically, the semiconductor ecosystem functioned as a highly globalized network. Design could happen in the United States, fabrication in Taiwan, packaging in Southeast Asia, and assembly elsewhere. However, the geopolitical fragmentation of recent years is increasingly creating three broad semiconductor spheres: an American-led ecosystem, a Chinese-led ecosystem, and a third supply chain serving the rest of the world. India's opportunity lies within this emerging third space.

Competing directly with the US in advanced AI processors or matching China's manufacturing scale in the foreseeable future would be extraordinarily difficult. America continues to dominate critical segments such as chip architecture, electronic design automation tools, and advanced computing. China, meanwhile, has established formidable strength in mature-node manufacturing, supply-chain integration, packaging, and commoditised semiconductor products.

India's advantage lies in developing affordable, efficient, and scalable semiconductor solutions for emerging markets. As the global semiconductor market grows from roughly $795 billion toward the trillion-dollar mark, much of this expansion will be driven not by premium products but by practical applications in developing economies. Demand for semiconductors in electrification, renewable energy, industrial automation, water management, transportation, and edge computing is expected to rise sharply. These sectors do not necessarily require bleeding-edge 2-nanometre chips. Instead, they require reliable, low-cost, power-efficient solutions. This aligns well with India's long-standing reputation for frugal engineering demonstrated by its ability to develop cost-effective products under resource constraints.

Power efficiency may emerge as a particularly important area of differentiation. The contemporary AI revolution has shifted attention toward ever-larger systems consuming unprecedented amounts of electricity. The resulting energy requirements raise questions about long-term sustainability. India's emphasis on low-power architectures and practical engineering solutions could allow it to carve out a distinct niche within the global semiconductor landscape.

Given China's massive scale fully integrated semiconductor ecosystem, naturally the question oft asked is whether India can ever compete. China spent decades building the ecosystem it commands today. Its rise was facilitated by technology transfers, foreign investments, acquisitions, and government-backed industrial strategy. Companies such as Motorola and Fairchild helped establish early manufacturing capabilities that Chinese firms subsequently expanded and absorbed. India today finds itself at a similar inflection point.

Moreover, India possesses several advantages of its own. The global Indian diaspora occupies leadership and technical positions across nearly every major semiconductor company, from TSMC and Nvidia to Applied Materials and Lam Research. India is also deeply integrated into global design ecosystems, with substantial engineering talent working across chip design, verification, and EDA development.

India may possess unique advantages in some emerging domains. Unlike advanced AI processors, where technological leaders possess decades-long advantages, power electronics remains a more open field. Innovations in Silicon Carbide (SiC), Gallium Nitride (GaN), and potentially diamond-based semiconductors are reshaping the sector. Since these technologies are still evolving, late entrants face fewer barriers to participation.

The country's growing expertise in lab-grown diamonds, for example, could eventually intersect with semiconductor applications requiring advanced thermal management and high-purity substrates. Similarly, India's capabilities in chemicals, materials science, and process engineering provide a foundation for participation in broader semiconductor supply chains.

A significant bottleneck is strategic capital. Building globally competitive semiconductor companies requires patient investment measured not in millions but often in hundreds of millions of dollars. While venture capital interest in semiconductors is increasing, truly transformational projects require investors willing to accept long development cycles and uncertain returns.

Ultimately, India’s semiconductor ambitions should be viewed not as an attempt to become the next Taiwan or China, but as an effort to build a distinctive position within a rapidly fragmenting global technology order. Mission 1.0 established credibility and attracted investment. Mission 2.0 aims to deepen capabilities, expand domestic design and manufacturing, and strengthen supply chains. Whether India succeeds will depend less on building a handful of fabs and more on mobilising the scale of capital, patience, and strategic coordination necessary to transform this beginning into lasting semiconductor leadership.

The author is a security and economic affairs analyst.