Silicon dreams, red-tape reality: India’s chip push hits policy hurdles

India’s semiconductor industry is in a flux.

On the one hand, the nation is providing generous fiscal support to foreign companies for setting up assembling and manufacturing units under the India Semiconductor Mission 1.0 (ISM 1.0), which was launched in 2021 with an outlay of Rs 76,000 crore. On the other, it has imposed import curbs on a large number of critical specialised raw materials for the industry, thereby hurting the development of a domestic support system.

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Import restrictions

Two key domestic industry bodies, the Cellular and Electronics Association (ICEA) and the Electronic Industries Association of India (ELCINA), have written to the Centre, asking it to lift several curbs that the Directorate General of Foreign Trade (DGFT) has imposed since March 2025.

These notifications restrict the import of gold compounds (platinum, palladium, rhodium and iridium alloys, colloidal metals and compounds) containing more than 1 per cent of gold by weight, to “regulate import of gold in the garb of chemical compounds” (in short, gold smuggling). These alloys can be imported only against an import authorisation by the RBI for banks and DGFT for others.

The import of alloys containing less than 1 per cent gold is, however, freely allowed. But an ELCINA official says, on the condition of anonymity, that the raw materials the industry needs generally contain 3-70 per cent gold by weight.

In all, the ELCINA official says, about two dozen of critical specialised raw materials are facing import restrictions and include items like solder paste, epoxy compounds and lead frames, which are required to make wafers, and for assembling and packaging chips. Many of these items attract higher import duties.

Quality control orders

There are also several Quality Control Orders (QCOs) since 2023. Last month, the Directorate General of Trade Remedies (DGTR) recommended anti-dumping duty on imports of acrylic fibre and liquid epoxy resins — other raw materials for the industry — from China, Thailand and South Korea for a period of five years to prevent dumping and damage to domestic industries.

China’s restrictions on the supply of rare earth magnets in recent months have worsened the situation.

Taken together, these restrictions hamper efforts to build the backbone of the semiconductor industry.

Ironically, even as the electronics industry’s demand for lifting import curbs is pending, the Ministry of Electronics and Information Technology (MeitY) is reported to be planning to launch ISM 2.0 to incentivise MSMEs to supply raw materials to chip makers in India and abroad with a proposed outlay of Rs 1.3 lakh crore.

Gurmeet Singh, Executive Director & CEO at Electronics and Computer Software Export Promotion Council (ECSEPC), told The Federal that the Centre is expected to remove import restrictions when ISM 2.0 is launched.

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Chip maker or assembler?

Meanwhile, an interesting perception war is on.

On August 28, MeitY Minister Ashwini Vaishnaw said that by the end of 2025, India will be rolling out “our first made-in-India chip” — after inaugurating a semiconductor pilot facility of CG Power at Sanand in Gujarat. This facility is being set up in collaboration with Thailand-based Renesas Electronics Corporation (a global semiconductor player), and Stars Microelectronics, for which the MeitY will bear 50 per cent of the project cost.

But a statement issued by the ministry described the event as “one of India’s first end-to-end Semiconductor OSAT Pilot Line Facility of CG Power at Sanand, Gujarat”. When the agreement for this project was signed on January 17, the ministry said it was an “OSAT” project, without explaining what this term stands for.

Elsewhere in its statements, the ministry clubs “OSAT” with another acronym “ATMP” (“ATMP/OSAT”) and at one place it explains that this combination of terms stands for “chip packaging and testing”.

While “OSAT” is short for Outsourced Semiconductor Assembly and Test, “ATMP” is for Assembly, Testing, Marking and Packaging. Separately or together, these terms qualify a project as an assembling and packaging facility, not a manufacturing facility.

Deliberate misrepresentation

Vaishnaw had similarly misidentified the US-based Micron Technology’s ATMP project in Gujarat’s Sanand, after his ministry signed an MoU on June 28, 2023, along with the Gujarat government.

The minister tweeted that this was “India's first manufacturing plant” , while the Gujarat Chief Minister’s office tweeted this was for “setting up ATMP facility at Sanand”. The total project cost is $2.75 billion, 50 per cent of which is being subsidized by the Centre and another 20 per cent by the Gujarat government. Micron’s investment will be just 30 per cent or $825 million.

Such misrepresentations are not happenstance but deliberate.

Details not public

India has signed 10 semiconductor projects since Micron, but none of the MoUs are in the public domain to give a clear picture. These projects are spread over six states — four in Gujarat, two in Odisha and one each in Assam, Uttar Pradesh, Andhra Pradesh and Punjab.

Scouting through countless MeitY statements and cross-verification with the electronics industry reveals that six of these are assembling and packaging units — Micron’s Gujarat (Sanand), Advanced System in Package Technologies’ Andhra Pradesh, Tata Semiconductor Assembly and Test Pvt Ltd.’s Assam (Morigaon), HCL-Foxconn’s Uttar Pradesh (Jewar), Kaynes Semicon’s Gujarat (Sanand) and CG Power’s Gujarat (Sanand) projects.

The other four are manufacturing and assembling/packaging facilities — Tata Electronics’ Gujarat (Dholera), SicSem Private Ltd. and 3D Glass Solutions’ Bhubaneswar (two separate ones) and Continental Device India Private Limited (CDIL)’s Punjab (Mohali) projects.

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Need for holistic approach

The CDIL has been making transistors and diodes for decades and will now add “high-power discrete semiconductor devices such as MOSFETs, IGBTs, Schottky Bypass Diodes, and transistors, both in silicon and silicon carbide”.

Besides, on May 13, 2025, Vaishnaw opened two new state-of-the-art design facilities of Renesas Electronics India Private Limited, in Noida and Bengaluru, and said this would be India’s first design center to work on cutting-edge 3-nanometer chip design.

While India’s semiconductor mission is a welcome development and will go a long way in ensuring that India doesn’t face shortages that the pandemic disruptions earlier and China’s recent controls have caused, it also needs to have a coherent and holistic approach so that a healthy ecosystem is built from the ground up — to reduce dependency on foreign suppliers.