Outlook 2026: India’s semiconductor push clears capacity hurdle; next phase must ensure buyers and supply chains

India’s first wave of industrialisation built a backbone spanning steel, coal, power and defence. In the second, the government is attempting the same with electronic goods and semiconductors. 

India imports almost all the chips that it consumes. With electronics and chip import bills touching $100 billion-120 billion in FY25, the government is funding up to half of the capex for semiconductor fabrication and packaging. These investments are building India’s manufacturing capacity at scale. 

The country has clearly passed the first hurdle. The next phase—that is ensuring these chip facilities have local supply chains and customers—will decide whether the chip ambition becomes a costly experiment or puts the country on the global map.

Early milestones

What India has achieved is no small feat. In the last 11 years, the local electronic goods production has zoomed 6X, electronic goods exports by 8X, export of mobile phones by 127X, according to the government’s response to questions in Lok Sabha. 

India produced Rs 11.3 lakh crore worth of electronics in FY25, as against Rs 1.9 lakh crore in FY15. Mobile phones exports stood at Rs 2 lakh crore as against Rs 1,500 crore in FY15. Electronics goods exports grew to Rs 3.37 lakh crore from Rs 38,000 crore in the given period. 

These gains provided the ground for the semiconductor push.

In just four years of unveiling a $10-billion semiconductor mission, India has got 10 silicon and silicon carbide fabs, assembly, testing and packaging investments. The government has unveiled a design linked incentive scheme and an electronics component manufacturing scheme, besides a production linked incentives for large-scale electronics, mobile and IT hardware. 

Under the electronics components manufacturing scheme, the government cleared seven proposals with cumulative investments of Rs 5,532 crore in October. A large part of these investments are in printed circuit boards (PCBs). They will help meet 20% of the domestic demand for PCB, Electronics and IT Minister Ashwini Vaishnaw said during a press conference.   

The government is spending Rs 4,500 crore on capacity expansion of SCL Lab in Mohali, which is used by space and defence agencies for their silicon requirements.

From basic assembly of semi-knocked-down components (the first phase of Make-in-India), tech manufacturing has moved to completely-knocked-down, sophisticated assembly of smart devices.

However, compute chips, memory and other semiconductor parts constitute the bulk of the costs in smart devices and servers. This is what the government is trying to address in the third phase of Make-in-India, said Neil Shah, Co-founder and Vice President, Counterpoint Research.   

Overall, the next two years will be inflection points for India’s semiconductor manufacturing journey from front-end chip production to back-end chip packaging, said Shah. 

What to expect in 2026

Chip fabrication, which is highly capex intensive, is largely dominated by three players globally: TSMC, Samsung, and Global Foundries. Chip wafers coming out of foundries go through assembly, testing and packaging—a relatively less capex intensive, yet highly specialised process—before it is used in final products.   

Chip packaging and assembly facilities, including Micron, Tata Semiconductor Assembly and Test, CG Power-Renasas-Star, and Kaynes Semicon, are likely to go into commercial production in 2026 and 2027.

“At least one of these ATMP (assembly, testing, marking, and packaging) facilities will go into commercial production next year,” said Jaswinder Ahuja, a member of the advisory committee of India Semiconductor Mission (ISM) and a former corporate vice president of Cadence Design Systems, a chip design software company. 

The chips coming out of these facilities will be used by original equipment manufacturers (OEMs) in automotive, industrial electronics, IoT, and consumer appliances.  

Micron is running late due to construction delays. As per the original timeline, the company should have started  commercial production by the end of 2025. The CapTable wrote about the challenges faced by Micron. The company’s facility is likely to go live in the first half of 2026.

CG Power has told the government that it will go into commercial production in 2026.  

Fabs are more complex and time-taking. The physical structure and equipment required for fabs will get ready only in 2027, and are expected to go live in 2028. “That’s an optimistic scenario. Pessimists will tell you 2030,” said Ahuja. 

Setting up electronics manufacturing services facilities or assembly lines is a lot easier. “It doesn’t have the same level of specs and requirements as semiconductors. EMS (electronics manufacturing services) can be up and running, 18 months to production,” explained Ahuja.

A make-or-break moment

As these fab and outsourced semiconductor assembly and test (OSAT)  facilities become operational, it will be a key milestone in India’s quest for self-reliance.   

But now the focus must shift towards getting the entire ecosystem in India—essentially the supply chain, which is believed to be the focus area under the proposed ISM 2.0.  

“In the next phase, India now needs to focus on downstream and upstream players which will ensure that these fab and OSAT players stay viable,” said an executive close to CG Power.

Upstream companies include raw material suppliers, gas and chemical companies, and equipment makers which aid in the process of fabrication and packaging. The downstream companies are the OEMs or electronics component manufacturers which use the chip in the end product.  

“The OSAT players are importing (or in the process of importing) raw materials and other key ingredients. This reduces their cost competitiveness,” said the executive quoted earlier. 

While there are industrial gas companies such as Linde, Air Liquid, Inox, there aren’t companies making specialised chemicals and glue. “Epoxy (molding compound), plating chemicals such as tin methanesulphonate and additives have to be imported,” the executive said. Without chemical localisation, India cannot be globally cost competitive, regardless of subsidies.

While the large players such as Micron, Tata, CG, Kaynes may not be enough for raw material suppliers to shift to India, they are a good starting point.

“The combined capacity of these facilities will make India among the top 10 ATMP facilities globally. So, in the long run, there will be enough market for the raw material suppliers to cater to,”  the executive close to CG Power said. 

Moreover, the OSAT facilities are typically contracted by either OEMs or their suppliers. Their growth and sustainability depends on how the downstream OEM ecosystem develops in India. “There is no startup ecosystem which is looking for ATMP facilities in India. There are established OEMs which have to get their entire supply chain to India.” 

If OEM factories are in Southeast Asia, then these chips will go to those countries, and the OSAT players will remain dependent on contracts from outside India. 

“For OSATs to be successful, we will need to push OEMs to make in India. To have a deeper India presence. For example, in mobile all we do is assembly. But the manufacturing happens in China. We need a policy that will push manufacturing in India,” the CG executive said.

Similarly, while India has got a mega instrument in fab, thanks to Tata Group and Taiwan’s PSMC investment, this alone won’t be enough. 

“India needs fabless companies—an Indian version of Qualcomm, Intel—which does chip design. It also needs more successful product companies which actually use the chips produced locally, say an Indian Samsung or Apple,” said Ahuja. 

“India has a couple of strengths on two ends of the spectrum: chip design engineers who work with Qualcomm or Intel, and a large user base of 1.4 billion. Everything else connecting these two ends is missing,” Ahuja said. 

This is the missing link India needs to focus on. 

It is important to build the entire ecosystem to get more fabs in India, especially the advanced ones such as Intel, SK Hynix or Samsung, said Shah of Counterpoint Research.