Whalesbook
India Expands Chip Ambitions with Rs 1.2 Lakh Crore Mission Amid Execution Concerns
India's government is preparing to launch an expanded India Semiconductor Mission (ISM) 2.0, with an estimated investment of Rs 1 lakh crore to Rs 1.2 lakh crore. This significant funding aims to strengthen domestic capabilities in critical technology sectors, reduce import reliance, and integrate India more deeply into global supply chains. The mission broadens its focus beyond chip fabrication and design to include essential areas like capital equipment, raw materials, and supporting industries, adopting a comprehensive ecosystem approach.
Expanding the Chip Ecosystem and Design Incentives
ISM 2.0's strategy includes supporting capital equipment and raw material sourcing to build a more robust domestic manufacturing base, making it less vulnerable to global supply chain disruptions. A key component will be the revamped Design-Linked Incentive (DLI) 2.0 program. This initiative is designed to encourage foreign companies to collaborate with Indian firms on research and development within India, with a target of developing about 50 deeptech semiconductor design companies.
Global Spending and Competition
While the planned Rs 1-1.2 lakh crore outlay is substantial, it enters a competitive global market where many nations are heavily investing in their own chip industries. The United States, for example, has committed around $53 billion through its CHIPS Act. China has allocated $48 billion for its third phase of chip funding, and the European Union has secured tens of billions for its own initiatives. These global efforts highlight fierce competition, with countries using significant financial packages to attract or retain semiconductor manufacturing. Historically, dominant players like Taiwan and South Korea achieved their leading positions with less direct reliance on cash subsidies.
Past Challenges and Project Delays
The first India Semiconductor Mission (ISM) 1.0, launched with Rs 76,000 crore, has reportedly used most of its funds, and the focus is now shifting from planning to execution. This transition is critical given India's known difficulties with implementing large-scale projects. Many major projects across various sectors have experienced long delays and significant implementation problems. Past semiconductor efforts in India have also faced setbacks, including the failure of the Vedanta-Foxconn joint venture and delays in other planned facilities.
Significant Hurdles: Execution, Talent, and Geopolitics
The ambitious ISM 2.0 faces considerable risks. Building semiconductor fabrication plants requires an estimated $5-7 billion per facility and takes many years. India's track record with large infrastructure projects, often marked by slow progress and delays, raises doubts about the rapid development of a cutting-edge semiconductor ecosystem.
A key problem is the shortage of skilled manufacturing talent. While India has many engineers for chip design, there is a notable lack of process, equipment, and yield engineers needed to operate complex, round-the-clock fabrication lines. This shortage is worsened by talent moving to established hubs in the US, Taiwan, and South Korea. Reliance on imported equipment, specialty gases, and wafers also makes projects vulnerable to geopolitical events and supply chain disruptions, especially with US-China tensions and manufacturing concentrated in sensitive regions. The proposed funding must compete with heavy subsidies offered by other nations. Meeting the goal of supplying 75% of India's domestic demand by 2030, compared to the current nearly 90-95% import reliance, will require perfect execution and rapid technological adoption.
Outlook for India's Chip Ambitions
Despite the significant challenges, the Indian government remains committed to developing a strong semiconductor industry and securing a large part of the global market, which is projected to exceed $1 trillion by 2030. The success of ISM 2.0 will depend on overcoming deep execution problems, solving the specialized talent shortage, and navigating complex global politics. Without strong project management and steady policy support, the ambitious targets may not be met.