Though India has made noticeable progress in setting up outsourced semiconductor assembly and test (OSAT) facilities over the past few years, industry executives and experts say the country needs to develop a robust ancillary ecosystem to support the sector.
Under the India Semiconductor Mission (ISM) 1.0, 12 projects worth approximately Rs 1.64 lakh crore have been approved, comprising one silicon fab, two compound semiconductor fabs and nine packaging units. Experts say ISM 2.0 is a step towards building the ancillary ecosystem, but caution that it will take time for such an ecosystem to mature in India.
Pushan Sharma, Director, Crisil Intelligence, said the gaps remain in the supporting ecosystem. “India continues to depend on imports for semiconductor-grade materials, specialty chemicals and gases, substrates, equipment and spares, and critical minerals such as gallium and germanium.” According to Crisil estimates, imports meet 90-95% of India's domestic chip demand.
The challenge is not just sourcing these materials but also ensuring consistent quality and supply at scale. “India also needs strong R&D, reliable infrastructure and specialised talent. An AI-first engineering approach can help accelerate chip design, simulation, verification and manufacturing optimisation,” said Richard Bergman, president and global business head – Semiconductors, Quest Global.
Harshavardhan S, Head, Electronics & Semiconductors Automation Business, Titan Engineering & Automation Ltd (TEAL), said the equipment and materials segment represents the most critical gap. “Every fab and OSAT needs 50 to 100 supporting companies around it, and that domestic ecosystem barely exists yet.”
Syrma SGS Technology Ltd said India needs to be patient, as it is a compelling alternative in the sector, though not the only one. Jasbir Singh Gujral, MD of Syrma, said: “It takes 5, 10 or 15 years to develop a semiconductor ecosystem, unlike the electronics manufacturing services (EMS) sector. The OSATs in India need to provide volumes in billions. Only then will other support, tax benefits and investments, including FDI, flow into the sector.”
Policy changes
TEAL has sought three major policy changes to strengthen the ecosystem. First, it wants a dedicated production-linked incentive scheme for semiconductor capital equipment manufacturing.
“ISM 2.0's Pillar 2 offers a five-year PLI (10/8/6/4/2% of locally sourced BoM), which is welcome, but it should be extended to cover a broader range of automation and precision engineering companies that supply to fabs and OSATs. Second, demand aggregation — if the government can give domestic equipment and materials suppliers visibility into the combined procurement pipeline of India's 12-plus semiconductor projects, it would unlock private investment in the supply chain,” Harshavardhan said.
He also called for rationalising customs duties on components and raw materials used by domestic equipment manufacturers, saying they should receive the same exemptions as imported finished equipment.
Tax holidays over incentives
Another concern raised by the industry is the need for tax incentives to support R&D activities.
Shashwath T R, co-founder and CEO of Mindgrove Technologies, said: “Chip R&D has long timelines and requires expensive tools, which are difficult for startups to bear alone. R&D tax credits and co-funded programmes would encourage deeper investment in core technology. Shared infrastructure, such as prototyping and testing facilities, would also help. On a broader level, as a society, we need to be more comfortable investing in R&D as well as general science. This is what will help us move up the value chain.”
Suresh Babu Katta, Founder and CEO of Nanopowered Technologies, said the future would belong to semiconductor companies that can bring together specialised talent and design ownership while enabling speed for companies developing chips that will define AI, mobility and secure electronics.
