Can India build a semiconductor industry? Why it starts with packaging, not fabs

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Summary: India is already a global heavyweight in chip design, but it still depends on overseas manufacturing for most semiconductors. After Covid-era shortages exposed how fragile supply chains can be, India is trying to build a domestic semiconductor ecosystem—starting not with the most advanced chip “fabs,” but with packaging, assembly, and testing.

The story is a good example of industrial strategy: India isn’t trying to leap straight to cutting-edge manufacturing. It’s trying to choose the part of the value chain where it can realistically compete first.

The semiconductor value chain (simple map)

A modern chip doesn’t appear out of nowhere. The pipeline roughly looks like:

  1. Design (architecture, logic, verification)
  2. Wafer fabrication (fabs: etching circuits onto silicon wafers)
  3. Assembly, test, packaging (often called OSAT)

India is strong at (1), weak at (2), and is deliberately pushing into (3).

What India already has: a design superpower

The BBC report highlights that India has a large base of semiconductor design talent:

  • many global chip companies have major design centres in India
  • India is estimated to have a significant share of the world’s semiconductor engineers

That matters because design is upstream: it’s where product differentiation happens.

But design alone doesn’t guarantee supply. If your manufacturing is elsewhere, shocks elsewhere still break your business.

What India lacks: fabs at scale

Leading-edge fabs are among the most expensive industrial assets on Earth. They require:

  • extremely costly lithography tools
  • deep process control
  • pristine cleanrooms
  • huge power and water inputs

The report notes this stage is dominated by Taiwan for the most sophisticated chips, with China trying to catch up.

India’s strategy is not “build a world-leading fab tomorrow.” It’s “build the ecosystem that makes that path feasible over time.”

Why Covid changed the conversation

Covid-era chip shortages made a simple point:

  • the global system is efficient, but brittle

When chips became scarce, production slowed across industries:

  • cars
  • telecom hardware
  • consumer electronics

That experience pushed many governments to treat chips as strategic infrastructure.

For India, the argument is resilience:

  • if one region shuts down, electronics manufacturing everywhere is disrupted

India’s near-term target: OSAT (assembly, packaging, testing)

The report notes India is moving first into OSAT because:

  • it’s easier to start than fabs
  • it builds local know-how and supply chain capability

Packaging is not “putting a chip in a box.” It’s a multi-step process that turns a wafer into a usable industrial component:

  • slicing wafers into dies
  • attaching and connecting
  • encapsulating
  • testing and qualification

If you can’t package and test, even a perfect wafer is economically useless.

A real example: Kaynes Semicon

The report describes Kaynes Semicon as the first company to get a semiconductor plant up and running with government support:

  • a reported ~$260m investment
  • a facility in Gujarat
  • production beginning recently

The focus is not on the most advanced AI chips. It’s on economically important chips used in:

  • telecoms
  • automotive
  • defence

That is a crucial insight: industrial policy often starts with “unglamorous” chips because they represent large domestic demand and strategic importance.

The hardest bottleneck: people and process culture

One of the strongest lines in the report is that semiconductors require:

  • discipline
  • documentation
  • process control

This is not just technical—it’s cultural.

Factories succeed when thousands of small decisions are consistent and controlled.

The report describes training as a major bottleneck:

  • you can’t compress years of experience into months

This is why chip ecosystems develop slowly. Skills compound.

Why telecom chips are special

The report uses Tejas Networks as an example of a company that designs chips in India but manufactures overseas.

Telecom chips emphasise:

  • reliability
  • redundancy
  • fail-safe operation

Telecom networks can’t go down. So chips are judged not only on performance, but on operational stability.

That’s a reminder that “chips” is not one industry—it’s many sub-industries with different requirements.

What success looks like for India (a realistic path)

India’s best path isn’t to “beat Taiwan” in leading-edge nodes quickly.

A realistic success trajectory:

  1. scale OSAT and packaging
  2. build supplier networks (chemicals, tooling, services)
  3. develop mid-level manufacturing capability
  4. expand into more advanced nodes over time

The report suggests India is at the start of a long journey that will require:

  • patient capital
  • sustained policy support
  • stable demand signals

The strategic angle: resilience + leverage

Domestic capability gives India:

  • resilience against supply shocks
  • bargaining power in trade and geopolitics
  • a platform to capture more of the electronics value chain

Even partial success can change a country’s position in global supply chains.

What to watch next

  1. Whether OSAT plants reach mass production reliably.
  2. Talent pipelines: training programmes, retention, industry-university links.
  3. Domestic demand pull: whether local companies buy locally made packaged/tested chips.
  4. Policy stability: industrial policy needs multi-year consistency.
  5. Expansion beyond OSAT: steps toward wafer fabrication capacity.

Bottom line

India is trying to turn design strength into a broader semiconductor ecosystem—starting with packaging and testing because that’s where it can build capability fastest.

The timeline will be measured in years, not quarters. But if India can execute OSAT at scale and build process discipline, it creates a foundation for deeper manufacturing ambitions later.

Sources

n English