GS Paper: GS3-01. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Semiconductors are the “oil of the 21st century.” With global chip shortages and geopolitical realignments, India aims to position itself as a semiconductor manufacturing hub through India Semiconductor Mission (ISM).

Challenges Faced by India’s Semiconductor Industry

High Capital Intensity – A state-of-the-art fab requires $8-12 billion.

Complex Supply Chains – Semiconductors involve 300+ inputs, ultra-pure chemicals, specialised gases, and precision tools.

Skill Gap – Eg-shortage of semiconductor engineers, chip designers, and clean-room technicians

Insufficient Ecosystem – Lack of component suppliers, semiconductor-grade wafers, lithography equipment, etc.

Infrastructure Deficits – Fabs require uninterrupted power, and nearly 10 million litres/day of ultra-pure water.

Global Competition – Taiwan, South Korea, USA, EU offer 40-70% capital subsidies

Long Gestation Periods (7-10 years) – deter private investment

Dependence on Imports – India imports 90-95% of its semiconductor needs.

Salient Features of the India Semiconductor Mission (ISM)

to build a complete semiconductor and display ecosystem.

Key Schemes under ISM:

Display Fabs Scheme: Up to 50% financial assistance

Compound Semiconductors & ATMP/OSAT Scheme: Up to 50% support

Design Linked Incentive (DLI) Scheme – Incentives up to .

Creation of Semiconductor Research Centres – including advanced R&D, talent development, and industry-academia collaboration.

Development of semiconductor clusters in Gujarat (Dholera), Karnataka, Tamil Nadu, and Uttar Pradesh.

Single-window facilitation mechanism for all approvals, policy support, and coordination with global leaders.

Support for compound semiconductors (GaN, SiC), ATMP/OSAT units to build packaging capabilities.

Focus on trusted supply chains and strategic national security applications.

Way Forward

Establish specialised training programs to address projected 350,000 talent shortfall by 2027.

Boost R&D and Indigenous IP Creation – increase spending to 2.5% of GDP

Ensure timely incentive disbursal, ease of land acquisition, and high-quality utility infrastructure (power, water, logistics).

“chip diplomacy”—with partners like the US, Japan, Taiwan, EU, and South Korea.

Leverage global supply-chain realignments and US-China strategic tensions to attract firms seeking “China+1” diversification.

India’s ambition to become a semiconductor manufacturing hub is strategically significant for economic resilience, technology sovereignty and future readiness.

Infrastructure

The PLI scheme, launched in 2020, covers 14 key sectors and provides direct incentives on incremental sales of goods manufactured in India. It aims to raise manufacturing’s contribution to 25% of GDP.

Rationale of the PLI Scheme

Boost domestic manufacturing by overcoming the historic 16-17% manufacturing share in GDP.

Reduce import dependence, especially in critical sectors like electronics, APIs, and solar modules.

Integrate India into global value chains (GVCs) by attracting global manufacturers.

Encourage scale, competitiveness, and technology transfer through incentive-based production expansion.

Generate employment in labour-intensive and high-potential sectors.

Promote sunrise industries (EVs, semiconductors, telecom, batteries) to position India in future technologies.

Enhance Exports – Position India as a competitive player in global value chains.

Achievements So Far

achieved by PLI beneficiaries (mid-2025).

Over 12 lakh direct and indirect jobs created.

India became the 2nd-largest mobile producer, with 97% domestically made.

Third-largest pharmaceutical producer globally. 50% of total pharma production is exported.

Automotive Sector – Boosted EV components, hydrogen technologies, and high-tech auto manufacturing.

Achieved 60% import substitution in telecom equipment.

Issues

Falling Manufacturing Share in GDP (from 15.4% to 14.3%) since PLI launch.

>10% of allocated funds disbursed.

Delays in Incentive Disbursement

94% of incentives to pharmaceuticals and mobile-phone manufacturing

Limited Achievement of Targets only 37% of scheme’s goal.

Exclusion of MSMEs due to high eligibility thresholds

Way Forward

Faster disbursal of incentives to reduce uncertainty and improve industry cash flows.

Move from scale-based incentives to design, R&D, and innovation incentives (chips, batteries).

Enhance MSME participation through cluster-based PLI, separate PLI window for MSMEs

Rationalise value-addition norms – realistic localisation targets.

Improve coordination between Centre and States to reduce procedural delays.

Strengthen monitoring, transparency, and impact evaluation through real-time dashboards

Couple PLI with ease-of-doing-business reforms and plug-and-play infrastructure

As PM Modi stated, “Aatmanirbharta is the cornerstone of building a Viksit Bharat.” Strengthening PLI can help realise this objective.