India Semiconductor Mission Phase-II: Boosting India’s Semiconductor Ecosystem

GS 3: Science and Technology- Developments and their Applications and Effects in Everyday Life.

Context: The Government of India has approved the India Semiconductor Mission (ISM) Phase-II with a significantly enhanced financial outlay to strengthen the country’s semiconductor ecosystem. 

The initiative seeks to reduce India’s dependence on imports, enhance technological self-reliance, and position India as a global semiconductor manufacturing hub amid growing geopolitical uncertainties.

What are Semiconductors?

• Semiconductors are materials that possess electrical conductivity between conductors and insulators, making them essential for manufacturing integrated circuits (ICs) or microchips.
• They serve as the “brain” of modern electronic devices, including smartphones, computers, automobiles, defence equipment, artificial intelligence systems, and communication networks.

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Why is the Semiconductor Mission Important?

Growing Global Supply Chain Risks

• More than 60% of global semiconductor manufacturing and nearly 90% of advanced semiconductor chips are concentrated in Taiwan, creating a major supply chain vulnerability.
• Any geopolitical conflict, particularly in the Taiwan Strait, could severely disrupt global electronics production.

Strategic Importance

• Semiconductors are no longer merely commercial products but have become strategic assets essential for economic growth, national security, and technological sovereignty.
• Countries worldwide are investing heavily in domestic semiconductor manufacturing to reduce external dependence.

India Semiconductor Mission (ISM)

Objective

• To establish a comprehensive semiconductor manufacturing ecosystem in India.
• To promote fabrication (Fab) plants, chip packaging, semiconductor design, testing, and research.
• To strengthen India’s participation in global semiconductor value chains.

India Semiconductor Mission Phase-II

Enhanced Financial Commitment

• The Government has announced an outlay of approximately ₹1.27 lakh crore for Phase-II, significantly higher than the ₹76,000 crore allocated under Phase-I.
• The increased investment reflects the government’s long-term commitment towards building a globally competitive semiconductor industry.

Major Features

Reduced Capital Subsidy

• Unlike Phase-I, where the Government provided up to 50% capital support, Phase-II introduces a relatively lower capital subsidy.
• However, overall incentives have been broadened through multiple support mechanisms.

Production-Linked Incentive (PLI)

• Manufacturers will receive incentives based on their actual semiconductor production and sales.
• This encourages companies to establish commercially viable manufacturing facilities rather than merely constructing factories.

Domestic Component Bonus

• Additional incentives will be provided to firms that source components domestically.
• This aims to strengthen the domestic supply chain and promote the vision of Atmanirbhar Bharat.

Comprehensive Ecosystem Development

• The mission focuses not only on fabrication plants but also on:
  • Semiconductor packaging
  • Assembly and testing facilities
  • Electronic component manufacturing
  • Research and development
  • Skilled workforce development

Progress under Phase-I

Approved Projects

• Several semiconductor projects have received government approval under Phase-I.
• The Tata Electronics–PSMC semiconductor fabrication project at Dholera, Gujarat, is among the flagship initiatives.

Current Status

• Although construction has begun, commercial semiconductor production has not yet started.
• Semiconductor fabrication is a highly complex industry requiring several years before operational output becomes commercially viable.

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Why was Phase-II Announced Before Phase-I Results?

Long Gestation Period

• Semiconductor fabrication plants generally require 8–10 years before reaching full-scale production.
• Waiting for Phase-I outcomes could delay India’s strategic ambitions.

Strategic Necessity

• Developing domestic semiconductor manufacturing has become a national strategic necessity rather than merely an industrial policy choice.
• Reducing dependence on imports is essential for economic resilience and national security.

Challenges in Semiconductor Manufacturing

Capital Intensive Industry

• Semiconductor manufacturing requires massive financial investments, sophisticated infrastructure, and advanced manufacturing technologies.
• It generates relatively fewer direct jobs compared to labour-intensive industries such as textiles or construction.

Technology Dependence

• India continues to depend heavily on foreign technologies for advanced chip fabrication.
• Access to cutting-edge manufacturing equipment remains limited.

EUV Lithography Monopoly

Extreme Ultraviolet (EUV) Lithography

• EUV lithography machines are used to print nanometre-scale circuits onto silicon wafers, making them indispensable for manufacturing advanced semiconductor chips.

Global Monopoly

• Only ASML (Netherlands) currently manufactures commercial EUV lithography machines.
• Even technologically advanced countries such as Japan have not yet developed a comparable commercial alternative.

Talent Retention

• India produces a large number of highly skilled engineers every year.
• However, brain drain continues to divert talented professionals toward developed economies due to superior research opportunities and innovation ecosystems.

Importance for India

Economic Security

• Domestic semiconductor production reduces dependence on imports and improves supply chain resilience.

National Security

• Indigenous chips are critical for defence electronics, communication systems, satellites, and strategic technologies.

Technological Leadership

• Semiconductor manufacturing supports emerging sectors such as:
  • Artificial Intelligence (AI)
  • 5G and 6G technologies
  • Internet of Things (IoT)
  • Electric Vehicles (EVs)
  • Quantum Computing

Industrial Growth

• A robust semiconductor ecosystem encourages investment across electronics manufacturing and advanced technology sectors

Challenges Ahead

• High capital requirements and long payback periods.
• Dependence on imported manufacturing equipment.
• Global technological monopolies, particularly in advanced lithography.
• Need for skilled manpower and advanced research infrastructure.
• Intense global competition from countries such as Taiwan, South Korea, the United States, Japan, and China.

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Way Forward

• Increase long-term investment in semiconductor research and indigenous technology development.
• Strengthen public-private partnerships for fabrication, design, and advanced manufacturing.
• Develop frontier technologies, including indigenous lithography capabilities.
• Create world-class research ecosystems to retain highly skilled engineers and scientists.
• Promote domestic semiconductor supply chains through targeted incentives and local value addition.
• Support globally competitive Indian semiconductor companies, similar to how South Korea nurtured firms like Samsung.
• Enhance international cooperation while simultaneously building technological self-reliance under Atmanirbhar Bharat.

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