India Semiconductor Mission: Strategic Importance and Progress – Economic Survey 2025-26 Analysis
Semiconductors have become the lifeblood of modern economies, powering everything from smartphones to automobiles to critical infrastructure. The Economic Survey 2025-26 identifies the India Semiconductor Mission as a key example of mission-mode platforms that exemplify India's emergence as an entrepreneurial state. This article examines why semiconductors matter strategically, what India is doing to build domestic capabilities, and the challenges and opportunities ahead.
Why Semiconductors Matter: Strategic Importance
Semiconductors, or chips, are the fundamental building blocks of digital technology. Every electronic device contains chips that process information, control functions, and enable connectivity. The smartphone in your pocket contains dozens of chips; a modern automobile contains hundreds; a data center contains thousands.
The strategic importance of semiconductors became starkly apparent during the COVID-19 pandemic when supply disruptions caused widespread shortages. Automobile production was halted globally because of chip unavailability. This single component, often costing a few dollars, could stop the production of vehicles worth tens of thousands of dollars.
Beyond commercial implications, semiconductors have profound national security dimensions. Advanced chips power military systems, communications networks, and critical infrastructure. Countries dependent on imports for chips face vulnerability if supply is disrupted for geopolitical reasons.
The Economic Survey 2025-26 discusses the changing global environment where trade policy is shaped by security and political considerations rather than efficiency alone. In this context, semiconductor self-reliance becomes a strategic imperative rather than merely an industrial aspiration.
Currently, the global semiconductor industry is highly concentrated. Taiwan alone manufactures over 90 per cent of the world's most advanced chips through TSMC. South Korea, through Samsung, and the United States, through Intel, round out the oligopoly at the leading edge. India currently imports virtually all its semiconductor requirements.
The India Semiconductor Mission: Genesis and Objectives
The India Semiconductor Mission (ISM) was launched to develop a sustainable semiconductor and display ecosystem in India. The Economic Survey 2025-26 mentions this mission as an example of entrepreneurial policymaking that acts before certainty emerges and structures risk rather than avoiding it.
The mission operates on multiple fronts. First, it provides financial incentives for establishing semiconductor fabrication facilities in India. Fab construction is extremely capital-intensive, requiring investments of $10-20 billion for a state-of-the-art facility. Government support reduces the risk for investors and makes India competitive with other locations offering incentives.
Second, the mission supports downstream activities including Assembly, Testing, Marking and Packaging (ATMP) of chips. These activities are less capital-intensive than fabrication but still require significant investment and expertise. India has seen progress in establishing ATMP facilities.
Third, the mission addresses the semiconductor design ecosystem. India already has a strong presence in chip design, with major global companies operating design centers in Bangalore, Hyderabad, and other cities. The mission aims to leverage this capability by supporting domestic fabless design companies that create chip designs manufactured elsewhere.
Fourth, the mission focuses on developing the compound semiconductor ecosystem for specialized applications in defense, telecommunications, and electric vehicles.
Progress Under the Mission
Since the India Semiconductor Mission was announced, several significant developments have occurred. Major announcements include plans for semiconductor fabrication facilities by consortiums involving both domestic and international partners.
Tata Group has emerged as a key player in India's semiconductor ambitions, with announcements of both fabrication and ATMP facilities. These investments represent India's entry into semiconductor manufacturing, previously almost entirely absent from the country.
The Micron Technology announcement of an ATMP facility in Gujarat marked a significant milestone, bringing a leading global memory chip company to India. While this facility focuses on packaging rather than fabrication, it represents integration into global semiconductor supply chains.
Display manufacturing has also seen progress, with investments in facilities that produce displays for smartphones, televisions, and other devices. Displays share manufacturing similarities with semiconductors and are equally important for India's electronics self-reliance.
Design centers continue to expand, with global semiconductor companies increasing their India footprint. Indian design talent works on cutting-edge chip architectures, though the resulting designs are manufactured abroad.
The Technology and Scale Challenge
While India has made progress, the semiconductor industry presents formidable technology and scale challenges. The Economic Survey 2025-26's discussion of global manufacturing notes that China's scale and integrated industrial systems effectively determine the international cost frontier that no national tariff wall can override.
Semiconductor fabrication requires extreme precision at the nanometer scale. Leading-edge chips have features measuring just 3-5 nanometers, smaller than individual virus particles. Achieving this precision requires specialized equipment that only a few companies in the world can manufacture.
The Netherlands' ASML is the sole supplier of Extreme Ultraviolet Lithography machines required for leading-edge chip production. These machines cost hundreds of millions of dollars each and are subject to export controls. India's semiconductor facilities will need access to such equipment to produce advanced chips.
Scale presents another challenge. Semiconductor fabs must operate at high utilisation to be economically viable. A fab running below capacity faces the same fixed costs but spreads them over fewer chips, making each chip more expensive. Achieving scale requires sufficient demand, which India's large electronics market can provide but which takes time to develop.
The Ecosystem Approach
The Economic Survey 2025-26 emphasizes the importance of ecosystem development rather than isolated investments. Successful semiconductor manufacturing requires not just fabrication facilities but supporting industries, trained workforce, and enabling infrastructure.
Chemicals, gases, and ultrapure water used in semiconductor manufacturing must meet exacting purity standards. India must develop domestic capability in these materials or secure reliable import sources. The survey's discussion of supply chain resilience is relevant here.
Workforce development is critical. Semiconductor manufacturing requires engineers with specialized skills in areas like process engineering, equipment maintenance, and quality control. Design requires expertise in digital and analog circuit design, verification, and testing. Universities and training institutes must produce graduates with these skills.
Infrastructure including stable power supply, clean water, and logistics connectivity supports semiconductor operations. The Economic Survey 2025-26 discusses infrastructure development as enabling broader industrial competitiveness.
Global Value Chain Integration
The Economic Survey 2025-26 discusses India's integration into Global Value Chains (GVCs) as a strategic priority. In semiconductors, this integration can take multiple forms.
Design integration positions India as a location where global companies design chips that are manufactured elsewhere. India's engineering talent and cost competitiveness support this role. The challenge is capturing more value by moving up the design chain to more complex system-level design.
Manufacturing integration brings chip production to India, whether for the domestic market or for export. Even if India does not produce leading-edge chips initially, there is substantial demand for mature-node chips used in automobiles, industrial equipment, and consumer electronics.
Assembly and testing integration positions India in the final stages of chip production before products reach end customers. This is the area of fastest current progress given lower capital requirements.
Strategic Autonomy Considerations
The Economic Survey 2025-26's discussion of strategic resilience applies directly to semiconductors. In a world where supply chains can be weaponised for geopolitical purposes, having some domestic semiconductor capability provides strategic insurance.
Complete self-sufficiency in semiconductors is neither feasible nor necessary. Even the United States and China, despite massive investments, rely on global supply chains for complete chip production. The goal is strategic autonomy, not autarky.
Strategic autonomy in semiconductors means having sufficient domestic capability that critical needs can be met even if global supplies are disrupted. For India, this might mean domestic production of chips for defense, telecommunications infrastructure, and critical industrial applications, while continuing to import chips for consumer electronics.
The survey's discussion of tiered strategic indigenisation is relevant. Not all semiconductors are equally strategic. A tiered approach would prioritise domestic production of chips for defense and critical infrastructure while remaining open to imports for commodity chips where domestic production is not cost-competitive.
Policy Environment and Incentives
The India Semiconductor Mission provides substantial financial incentives to offset the cost disadvantages India faces compared to established semiconductor hubs. These incentives include capital subsidies, interest subventions, and infrastructure support.
Beyond financial incentives, the policy environment includes regulatory streamlining and single-window clearances for semiconductor projects. The Economic Survey 2025-26 discusses how state-level deregulation efforts have replaced inspection-based control with trust-based compliance.
Special economic zones and semiconductor parks provide dedicated infrastructure for chip manufacturing. These enclaves offer reliable power, treated water, and logistics connectivity that may not be available everywhere.
Demand-side measures complement supply-side incentives. Government procurement preferences for domestically manufactured electronics create assured demand. Production-linked incentives for electronics manufacturing create downstream demand for chips.
Employment and Skills Development
The semiconductor industry creates high-quality employment across skill levels. Fabrication facilities employ thousands of workers in roles ranging from process technicians to PhDs in materials science. Design centers employ engineers with advanced degrees in electrical engineering and computer science.
India produces large numbers of engineering graduates annually, providing a potential workforce for semiconductor expansion. However, specialized semiconductor skills require additional training. Industry-academia partnerships are developing curricula aligned with industry needs.
The Economic Survey 2025-26 discusses the importance of human capital development as part of the broader growth strategy. Semiconductor skills development fits within this framework.
UPSC Relevance: Semiconductors and Industrial Policy
Semiconductors connect multiple UPSC topics:
- GS-III: Industrial policy, technology, manufacturing
- Science & Technology: Electronics, materials science
- International Relations: Technology competition, supply chains
- Current Affairs: Government initiatives, industry developments
Practice MCQs on India Semiconductor Mission - Economic Survey 2025-26
Q1. The India Semiconductor Mission (ISM) is an example of what the Economic Survey 2025-26 calls:
(a) Regulatory control
(b) Entrepreneurial state
(c) Import substitution
(d) Privatization
Answer: (b) Entrepreneurial state - mission-mode platforms
Q2. ATMP in semiconductor context stands for:
(a) Advanced Technology Manufacturing Process
(b) Assembly, Testing, Marking and Packaging
(c) Automated Technology and Materials Platform
(d) Applied Technology for Microprocessors
Answer: (b) Assembly, Testing, Marking and Packaging
Q3. Which country manufactures over 90% of the world's most advanced semiconductors?
(a) United States
(b) China
(c) Taiwan
(d) South Korea
Answer: (c) Taiwan through TSMC
Q4. The Economic Survey 2025-26 emphasizes that semiconductor self-reliance is important primarily for:
(a) Cost reduction
(b) Strategic security and supply chain resilience
(c) Employment generation only
(d) Export promotion only
Answer: (b) Strategic security and supply chain resilience
Q5. India's current strength in the semiconductor industry lies in:
(a) Chip fabrication
(b) Equipment manufacturing
(c) Chip design
(d) Raw material production
Answer: (c) Chip design with major global companies operating design centers in India
Conclusion
The India Semiconductor Mission represents a bold strategic bet on building domestic capabilities in a technology critical to India's economic future and national security. The Economic Survey 2025-26 identifies this mission as exemplifying the entrepreneurial state that acts before certainty emerges. While challenges of technology, scale, and ecosystem development are formidable, progress has been made in attracting investments and building foundations. Success will require sustained policy commitment, workforce development, and ecosystem building over many years. For UPSC aspirants, understanding the strategic importance of semiconductors and India's approach to building this capability is essential given its relevance to industrial policy, technology, and international relations.