On April 2024, the Union Cabinet approved the establishment of two new semiconductor fabrication plants in India, marking a decisive step to reduce the country’s dependence on imported chips. The approval was granted under the aegis of the Ministry of Electronics and Information Technology (MeitY) and aligns with the Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing. These plants are projected to attract investments worth approximately INR 76,000 crore (~USD 9.3 billion) over the next five years, aiming to position India as a competitive player in the global semiconductor supply chain.

The move is significant as India currently imports over 90% of its semiconductor requirements, with an import bill of USD 24 billion in FY 2023. The new plants will contribute to domestic manufacturing capacities, generate employment, and strengthen India’s electronics manufacturing ecosystem, which has grown at a CAGR of 15% over the last three years but lacked substantial chip fabrication capabilities.

Legal and Policy Framework Governing Semiconductor Plant Approvals

The Cabinet approval is grounded in the Industrial Policy Resolution 2020 and the Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing notified by MeitY. The PLI scheme, with an outlay of INR 76,000 crore for 2022-27, incentivizes large-scale domestic manufacturing of semiconductors and display fabs.

Compliance with the Consolidated Foreign Direct Investment (FDI) Policy 2020 under the Ministry of Commerce and Industry is mandatory, allowing up to 100% FDI under the automatic route in semiconductor manufacturing. The approval also aligns with the Semiconductor Policy 2022, which outlines measures to develop a comprehensive semiconductor ecosystem.

Constitutionally, the initiative falls under the Union List entries: Entry 54 (Industries) and Entry 42 (Trade and Commerce), Schedule VII of the Constitution of India, empowering the central government to legislate and implement such industrial policies.

Economic Impact and Strategic Significance

The two new chip plants are expected to attract investments of INR 76,000 crore (~USD 9.3 billion) over five years, significantly boosting capital formation in the semiconductor sector. India’s semiconductor import bill stood at USD 24 billion in FY 2023, with over 90% of demand met through imports, indicating a critical gap in domestic production capacity.

The PLI scheme’s financial incentives aim to catalyse the creation of a semiconductor ecosystem, addressing this gap. The global semiconductor market is projected to reach USD 1 trillion by 2030, growing at a CAGR of 8.6%, presenting India with a lucrative opportunity to capture market share.

Besides investment, the plants are expected to generate approximately 10,000 direct jobs and 50,000 indirect jobs, fostering an ecosystem that includes upstream suppliers, equipment manufacturers, and downstream electronics firms.

Key Institutional Roles in Semiconductor Ecosystem Development

• Ministry of Electronics and Information Technology (MeitY): Formulates policies and implements the PLI scheme.
• Department for Promotion of Industry and Internal Trade (DPIIT): Facilitates industrial approvals and oversees FDI policy compliance.
• Securities and Exchange Board of India (SEBI): Regulates capital markets to enable funding for semiconductor firms.
• NITI Aayog: Provides strategic advisory for ecosystem development and innovation.
• Indian Cellular and Electronics Semiconductor Industry Association (ICSI): Represents industry stakeholders and facilitates industry-government dialogue.

Critical Gaps in India’s Semiconductor Ecosystem

Despite policy support, India’s semiconductor ecosystem suffers from a lack of a robust upstream manufacturing base for raw materials and equipment. Critical inputs such as silicon wafers and photolithography machines remain largely imported, increasing dependency and supply chain vulnerability.

In contrast, competitors like Taiwan and South Korea have indigenized these upstream segments, enabling greater control over the value chain and reducing supply risks. This gap limits India’s ability to achieve full-scale semiconductor self-reliance and constrains export potential.

Significance and Way Forward

• Expanding domestic chip fabrication capacity through these plants will reduce import dependence and improve supply chain resilience.
• Complementary development of upstream raw material and equipment manufacturing is essential to build a sustainable ecosystem.
• Enhanced collaboration between government, industry, and research institutions can accelerate technology transfer and innovation.
• Streamlining regulatory approvals and incentivizing capital investment will attract global semiconductor players.
• Learning from South Korea’s integrated policy-industry model can guide India’s semiconductor ecosystem development.

Jharkhand & JPSC Relevance

• JPSC Paper: Paper 3 – Economic Development and Industrial Policy
• Jharkhand Angle: Jharkhand’s emerging electronics manufacturing clusters can benefit from semiconductor ecosystem development through potential supply chain linkages and employment generation.
• Mains Pointer: Frame answers highlighting Jharkhand’s industrial potential, challenges in attracting semiconductor investments, and the role of state policies aligned with central schemes like PLI.