India’s semiconductor strategy is entering a more ambitious phase. The country is no longer focusing only on attracting electronics assembly; the policy push is increasingly aimed at building a broader hardware ecosystem covering semiconductor fabrication, packaging, components, chip design and the infrastructure needed to support artificial intelligence.

The scale of the opportunity is significant. The government’s 2026-27 Budget proposed India Semiconductor Mission 2.0, with a focus on semiconductor equipment and materials, full-stack Indian intellectual property, stronger supply chains, industry-led research and training. The Budget also proposed increasing the outlay of the Electronics Components Manufacturing Scheme from ₹22,919 crore to ₹40,000 crore. citeturn0search36

Why India Is Expanding Beyond Chip Assembly

Semiconductors sit at the centre of almost every modern technology system: smartphones, automobiles, telecom equipment, industrial machines, cloud infrastructure and AI servers. A disruption in chip supply can therefore affect industries far beyond the technology sector.

India has traditionally been stronger in software, engineering services and chip design than in large-scale semiconductor manufacturing. The current strategy is intended to close part of that gap by creating capabilities across the semiconductor value chain.

The Ministry of Electronics and Information Technology says the India Semiconductor Mission is designed to build a strong semiconductor and display ecosystem and position India as a global hub for electronics manufacturing and design. citeturn0search0turn0search37

What the ₹1.27 Lakh Crore Push Means

The roughly ₹1.27 lakh crore figure increasingly associated with India’s semiconductor and electronics push reflects the scale of the wider investment opportunity developing around chips, components and related manufacturing. It should not be interpreted as a single government cheque for semiconductor factories. Instead, it represents a broader ecosystem of policy support and investment themes around domestic electronics and semiconductor capacity.

India’s original semiconductor programme established a ₹76,000 crore incentive framework for semiconductor and display manufacturing. The Economic Survey reported that, by August 2025, ten semiconductor manufacturing and packaging projects had been approved with cumulative investment of about ₹1.60 lakh crore across six states. citeturn0search38

By February 2026, MeitY reported approvals for one semiconductor fab, eight ATMP/OSAT facilities, one compound semiconductor fab and 24 semiconductor-design companies under the Design Linked Incentive programme. citeturn0search40

AI Is Changing the Semiconductor Opportunity

The semiconductor push is becoming even more important because of the rapid expansion of artificial intelligence.

AI workloads require large quantities of computing hardware, as discussed in the expansion of AI-assisted cybersecurity, including GPUs and other accelerators, high-bandwidth memory, storage, networking equipment and power-management components. The infrastructure surrounding these chips is also becoming more demanding.

India’s Economic Survey projects the country’s data-centre capacity could rise from about 1.4 GW in the second quarter of 2025 to around 8 GW by 2030, driven by data consumption, cloud adoption and AI. That expansion will increase demand for computing hardware as well as electricity, cooling, networking and supporting electronics. citeturn0search41

This creates a potential feedback loop: more AI adoption increases demand for data centres; more data centres increase demand for advanced computing hardware; and a larger domestic electronics ecosystem can create opportunities for Indian manufacturers and component suppliers.

From Fabs to OSAT: Why the Whole Supply Chain Matters

A semiconductor ecosystem is much larger than a fabrication plant.

  • Fabrication: manufacturing chips on silicon wafers.
  • ATMP/OSAT: assembling, testing, marking and packaging semiconductor devices.
  • Components: producing critical electronic parts used in finished systems.
  • Chip design: developing semiconductor architectures, IP and specialised integrated circuits.
  • Equipment and materials: supplying the machinery, chemicals and other inputs required by semiconductor manufacturing.
  • Electronics manufacturing: integrating chips and components into phones, computers, telecom equipment, industrial systems and other products.

This is why the government’s next phase is important. Budget 2026-27 explicitly identifies equipment, materials, Indian IP and supply-chain resilience as priorities under ISM 2.0. citeturn0search36

Electronics Components Could Become the Next Big Battleground

Building fabs is only one part of reducing import dependence. A finished electronic product contains numerous components, and domestic value addition depends on how much of that supply chain can be developed locally.

MeitY’s Electronics Components Manufacturing Scheme is therefore strategically important. The scheme’s objective is to strengthen domestic manufacturing of electronic components and increase value addition in the electronics ecosystem. citeturn0search9turn0search1

The government has set an ambitious long-term target: the electronics sector is currently valued at more than $150 billion, while the stated goal is to reach $500 billion in production by the end of the decade, potentially creating around six million jobs. citeturn0search9

The Biggest Challenges India Still Faces

The opportunity is large, but semiconductor manufacturing is one of the most technically demanding industrial activities in the world.

1. Capital intensity

Modern fabs require enormous upfront investment. Incentives can reduce the financial burden, but projects still need long-term private capital and strong execution.

2. Supply-chain depth

A fab cannot operate in isolation. Equipment, specialty chemicals, gases, wafers, packaging materials and precision engineering capabilities must be available reliably.

3. Talent

India has a large engineering workforce, but semiconductor manufacturing requires specialised expertise in process engineering, equipment operations, materials science, yield management, packaging and semiconductor quality.

4. Power, water and infrastructure

Chip manufacturing and AI data centres both require highly reliable infrastructure. Data-centre expansion alone could create significant additional electricity and cooling requirements. citeturn0search41

5. Global competition

India is competing with established semiconductor manufacturing ecosystems in East Asia, as well as rapidly expanding electronics hubs elsewhere in Asia. Cost, yield, reliability and speed of execution will ultimately determine how competitive Indian facilities become.

What This Could Mean for India’s Technology Industry

If the ecosystem develops successfully, the impact could extend well beyond semiconductor companies.

Electronics manufacturers could source more components domestically. Engineering companies could move into higher-value manufacturing. Universities and training institutions could expand semiconductor-focused programmes. Indian chip-design companies could gain access to a stronger domestic manufacturing ecosystem. Data-centre and AI infrastructure investment could create additional demand for power, cooling, networking and hardware services.

The larger strategic goal is therefore not simply to manufacture chips in India. It is to create a connected technology manufacturing ecosystem in which design, components, fabrication, packaging, electronics assembly and end-user products reinforce one another.

What Happens Next

The next phase will be judged less by announcements and more by execution.

India will need to demonstrate that approved projects can move from investment commitments to operational capacity, while simultaneously developing suppliers, specialised talent and reliable infrastructure. The expansion of ISM 2.0 and the higher electronics-component outlay indicate that policymakers are trying to address precisely these gaps. citeturn0search36

For the technology sector, the semiconductor story could therefore become one of India’s most important industrial transformations of the decade. AI is increasing the urgency, while government incentives are attempting to create the foundation. The difficult part now is turning that foundation into globally competitive production.

Sources

  • Government of India, Union Budget 2026-27
  • Ministry of Electronics and Information Technology, India Semiconductor Mission
  • Economic Survey 2025-26
  • MeitY semiconductor and electronics manufacturing updates

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