India’s Semiconductor Gamble: Incentives, Mandates, and the Long Road Ahead

By Sanjeev Oak

India’s semiconductor strategy is moving beyond slogans. With fiscal incentives, usage mandates, and global supply chain shifts, New Delhi seeks not just self-reliance but strategic leverage. Yet success depends on execution, not policy pronouncements.

India has unveiled an ambitious plan to extend fiscal incentives across 25 categories and mandate chip usage in consumer electronics. The intent is clear: reduce import dependence, build a robust semiconductor ecosystem, and position India as a global chip hub. Yet, the journey from announcement to execution is fraught with hurdles that go beyond subsidies and slogans.

The Policy Push

The government’s new framework is designed to accelerate semiconductor adoption across a wide spectrum—smartphones, laptops, tablets, consumer durables, automotive electronics, and even defense equipment. Fiscal incentives will be tied to domestic value addition, while mandates aim to nudge manufacturers into embedding chips sourced from Indian fabs.

“India’s semiconductor strategy is as much about security as it is about supply chains.”

This dual-pronged approach—financial carrots and regulatory sticks—signals that New Delhi is willing to intervene more aggressively to shape the market. Unlike earlier, when policy largely relied on private sector enthusiasm, the new plan compels compliance through standards and mandates.

The Global Context

The timing is crucial. The U.S. CHIPS Act and Europe’s Chips Act have shown how industrial policy can rewire global supply chains. China, meanwhile, continues to pour billions into its semiconductor sector despite sanctions and technology bans.

India’s bet is that rising geopolitical fragmentation creates a window of opportunity. Multinationals want “China plus one” destinations. For chips, however, that equation is far more complex than for textiles or smartphones.

“Chips are not garments. They require precision, scale, and a supply chain culture India is yet to master.”

The Execution Challenge

Subsidies alone won’t solve India’s deeper challenges—land acquisition delays, inconsistent power supply, bureaucratic clearances, and the lack of a skilled semiconductor workforce. Setting up fabs is capital-intensive (often $10 billion plus), and without guaranteed demand, investors remain cautious.

The mandate-driven approach might help create baseline demand, but it also risks unintended consequences. Forcing consumer electronics firms to use India-made chips before quality and reliability are proven could backfire, slowing adoption rather than boosting it.

Lessons from Past Failures

India’s earlier semiconductor efforts—from the 2007 Special Incentive Package Scheme to the more recent 2021 push—faltered because they underestimated ecosystem gaps. A chip fab is not a standalone entity; it requires a constellation of suppliers, designers, testing facilities, and logistics frameworks.

“Without ecosystem depth, a fab risks becoming an isolated island of inefficiency.”

This time, the plan appears more holistic, extending beyond fabs to packaging, assembly, testing, and design. Yet questions linger: can India align all the moving parts quickly enough to match global timelines?

Strategic Stakes

At stake is not just industrial competitiveness but national security. The Russia-Ukraine war and U.S.–China technology rivalry have underscored the dangers of over-reliance on foreign suppliers. For India, which imports over 90% of its semiconductors, this vulnerability is glaring.

A localized chip ecosystem would strengthen defense production, space research, and critical digital infrastructure. Moreover, it would insulate the economy from future supply shocks like those that crippled global auto production during the pandemic.

The Road Ahead

The government’s aggressive push will need parallel reforms:

• Education and skill-building: Creating a pipeline of engineers trained in semiconductor design and manufacturing.
• Infrastructure reliability: Ensuring uninterrupted electricity, clean water, and robust logistics.
• Ease of doing business: Reducing bureaucratic delays and policy unpredictability that often discourage investors.
• Public-private partnerships: Leveraging India’s IT strength for chip design while attracting global majors for manufacturing.

If these reforms keep pace with fiscal incentives, India could realistically build a semiconductor base by the end of this decade. If not, today’s mandates could become tomorrow’s bottlenecks.

“The race is not just to make chips, but to make them competitive, reliable, and scalable.”

Final word

India’s semiconductor policy represents both ambition and necessity. Fiscal incentives and mandates are bold moves, but they are only the scaffolding. The real test lies in execution—how swiftly India can build an ecosystem, inspire global trust, and overcome its legacy of industrial shortfalls. The stakes are high. For once, failure is not an option—because chips have become the currency of power in the 21st century.

Why this matters

• Import Dependence: India imports over 90% of its semiconductors, leaving critical sectors vulnerable to global shocks.

• Strategic Security: Domestic chip production strengthens defense, space, and digital infrastructure resilience.

• Global Openings: Supply chain realignments post-COVID and U.S.–China tech rivalry create an entry window for India.

• Execution Test: Incentives and mandates matter less than ecosystem depth—skilled talent, reliable infrastructure, and global investor trust.