Semiconductors are no longer merely components of consumer electronics; they sit at the core of technological sovereignty and national power. From artificial intelligence systems and advanced military platforms to automobiles and data centres, modern economies run on microchips. The growth of artificial intelligence and digital infrastructure has made access to reliable chip supplies a strategic priority for several countries. The COVID-19 pandemic exposed how deeply dependent the world had become on a handful of manufacturing hubs, as shortages halted production across automobiles, telecommunications, and consumer electronics. What had once appeared to be an efficient global supply chain revealed itself as a strategic vulnerability. Since then, semiconductors have moved from being an industrial concern to a central pillar of economic security and geopolitical competition.
The Geopolitics of Semiconductors
The geopolitics of semiconductors is defined not by who manufactures the most chips, but by who controls the critical chokepoints of the supply chain. The turning point came in 2019, when the United States added Huawei to its Entity List, effectively restricting the Chinese company’s access to components from American and foreign firms that relied on U.S. design software and manufacturing equipment. The move demonstrated that control over upstream technologies such as electronic design automation tools and advanced lithography could now shape outcomes across the global industry.
Following this, the United States tightened restrictions on high-end chips and fabrication equipment and encouraged its allies in Europe and Asia to align their policies. The U.S. reinforced this through investment screening, limits on technology transfer, and tightening visa regimes, marking a gradual fragmentation of supply chains, increasingly organised around trust rather than pure market efficiency.
The semiconductor supply chain operates through highly specialised geographies, with leadership concentrated at a few strategically critical nodes. The United States dominates chip design and the electronic design automation software required to create advanced processors, with companies such as NVIDIA, Qualcomm, and AMD shaping global markets, supported by design software providers like Synopsys and Cadence. Manufacturing capacity at the most advanced nodes is centred in Taiwan and South Korea, led by foundries such as TSMC and Samsung Electronics. Production at this frontier relies on extremely sophisticated equipment, notably the extreme ultraviolet lithography machines supplied by the Dutch firm ASML, with critical subsystems and components sourced from companies in the United States and Japan. Further downstream, assembly, testing, and packaging operations are distributed across Taiwan, Malaysia, Vietnam, and China. Notably, no country controls all stages; the system is intensely interdependent. However, such concentration at specific points gives a small number of countries disproportionate influence over access to the most advanced technologies.
India has long been part of the global semiconductor ecosystem through chip design and engineering. Multinational companies have conducted research and development operations in the country since the 1990s, and Indian engineers represent a significant share of the global design workforce. Despite this, such strength at the design end has not found its footing in manufacturing. India has remained heavily dependent on imported semiconductors for electronics, telecommunications, automobiles, and defence equipment, with limited domestic capability in fabrication or advanced packaging.
India Semiconductor Mission 2021: Building a Foothold in Manufacturing
The government of India launched the India Semiconductor Mission in 2021 (ISM 1.0), committing ₹76,000 crore. The intention was straightforward—to build a domestic semiconductor and display manufacturing base to reduce reliance on chip imports. The Mission sought investment in three broad categories: semiconductor fabrication plants, display manufacturing, and packaging (ATMP) facilities, as they are more immediately achievable and facilitate India’s integration into the global semiconductor supply chains.
For this, the central government initiated fiscal support by offering to cover up to 50% of approved project costs for setting up fabrication units, along with additional contributions from state governments. Additionally, the Mission attempted to address barriers to land, utilities, and regulatory coordination that had previously disincentivised large-scale semiconductor investments. As a result, the ISM 1.0 led mainly to progress in downstream manufacturing. Micron Technology has advanced plans for an assembly and testing facility in Gujarat. The government also approved a series of major projects, including the Tata Electronics-PSMC semiconductor fabrication plant in Gujarat, a Tata semiconductor assembly and packaging facility in Assam, a joint venture project involving CG Power, Renesas, and STARS Microelectronics in Gujarat, and a packaging unit proposed by Kaynes Technology, also in Gujarat. However, proposals for advanced logic fabrication did not translate into action. India continues to depend on imported manufacturing equipment, critical minerals, and the intellectual property required for chip production.
ISM 1.0 Revealed Deeper Gaps
With the implementation of ISM 1.0, it became clear that fabrication and packaging facilities could not operate in isolation from the broader ecosystem that supports them. Despite the announcement of projects, the equipment necessary for manufacturing, speciality chemicals, wafers, gases, and design technologies continues to be sourced from abroad. India’s engineering talent lacks ownership of product-level intellectual property and remains concentrated in services. As a result, ISM 1.0 created entry points into manufacturing, but upstream supply chains and technological depth remain external. These structural gaps have shaped the Indian Semiconductor Mission 2.0 outlined in Budget 2026.
Indian Semiconductor Mission 2.0: From Factories to Ecosystems
In Budget 2026, the government indicated the next stage of the India Semiconductor Mission, or ISM 2.0, for which it set aside an allocation of ₹1,000 crore for 2026-27. While ISM 1.0 concentrated on attracting fabrication projects and assembly, testing, marking, and packaging units, the new approach broadens support to the industries that enable those facilities to operate. ISM 2.0 seeks to promote domestic production of semiconductor equipment and components, along with critical inputs such as speciality chemicals, industrial gases, and wafers that are currently imported. The framework also aims to connect manufacturing more closely with research and industry-led training, strengthen supply-chain firms, and expand India’s role in chip design and intellectual property.
Explaining the shift, Electronics and IT Minister Ashwini Vaishnaw said, “India Semiconductor Mission 2.0 will prioritise indigenous chip design, their productisation, attracting ecosystem partners and development of talent.” A related measure in the budget expanded the Electronics Components Manufacturing Scheme. Launched in April 2025 with an outlay of ₹22,919 crore, the scheme has already drawn investment commitments beyond its initial targets, prompting the government to raise the allocation to ₹40,000 crore to reinforce domestic component production linked to semiconductor and electronics supply chains. Taken together, these measures signal a strategic shift toward deeper participation in the semiconductor value chain beyond individual plant investments.
Internationally, the shift to ISM 2.0 strengthens India’s case as a credible participant in efforts to diversify semiconductor supply chains. India aims to position itself as a reliable partner by developing inputs, skills, and domestic design capabilities for countries seeking stability amid export controls and geopolitical risk. Additionally, ISM 2.0 acknowledges current limits: control over leading-edge technologies will remain concentrated elsewhere. India’s objective is therefore not dominance, but deeper integration into a system where economic security increasingly depends on trusted and stable production networks.