India's Semiconductor Ambitions and Global Competition: How to Address the China Challenge?

Introduction

Semiconductors have become a core fulcrum of national economic security and technological competition. As the United States imposes export controls on advanced chips, China has accelerated its independent innovation in semiconductors and localized deployment, while rapidly expanding its global market share in legacy-process chips, directly challenging the market positions of traditional leaders such as Taiwan and South Korea. Against this backdrop, India is now building its semiconductor industry, but it must directly confront structural competitive pressure from China.

This article will draw on the latest report by the Observer Research Foundation (ORF), *India’s Semiconductor Ambitions and Global Competitiveness: Confronting the China Challenge*, to analyze the challenges and opportunities facing India’s semiconductor strategy from the perspectives of the industrial chain, technology roadmap, competitive landscape, and geopolitics, and to assess its potential impact on the global semiconductor supply chain.

Background: From National Security to Supply Chain Resilience

Semiconductors not only underpin consumer products such as smartphones and automobiles, but also serve as the foundation for frontier fields including artificial intelligence, high-performance computing, and defense electronics. Over the past few years, trade frictions, export controls, and tariff barriers have laid bare the fragility of the semiconductor supply chain, prompting countries to elevate the chip industry to the level of national strategy.

U.S. export restrictions on high-end chips and manufacturing equipment have instead stimulated aggressive investment by China in its semiconductor innovation ecosystem and accelerated the process of domestic substitution. Although China still faces equipment and process bottlenecks in advanced process nodes, it has accumulated considerable production capacity in mature process chips (legacy chips) and is challenging the traditional advantages of Taiwan and South Korea in this area.

For India’s nascent semiconductor industry, China’s rise is both a warning and a reference point. India must soberly assess its dependence on China in equipment, materials, IP, talent, and other dimensions, and seek a differentiated competitive path.

In-Depth Analysis

Technology Impact: Mature Process Nodes Become a Contested Battleground

The current global semiconductor competition is characterized by “polarization at both ends”: ultra-advanced process nodes (such as 3nm and 2nm) are dominated by a few players like TSMC and Samsung, while mature process nodes (28nm and above) continue to expand due to demand from new energy vehicles, the Internet of Things, and industrial control. Leveraging its vast domestic market and government subsidies, China has rapidly built large-scale production capacity in mature process nodes and is squeezing competitors through price advantages.

For India, the financial and technological conditions to sprint toward advanced process nodes are lacking in the short term. However, it can enter through mature process nodes, specialty processes (such as analog, power, and sensors), and packaging and testing. These areas have relatively lower technical barriers and are more aligned with India’s existing electronics manufacturing base.

Supply Chain Impact: Role Positioning in the Restructuring of the Industrial Chain### Supply Chain Impact: Role Positioning in Supply Chain Restructuring

The semiconductor industry chain is highly globalized: upstream includes EDA, IP, equipment, and materials; midstream covers design, manufacturing, and packaging & testing; downstream connects to various terminal applications. India currently has some accumulation in design services (especially embedded software and verification), but is almost blank in manufacturing, equipment, and materials.

China's expansion in traditional chips is reshaping global capacity distribution. For India, this is both a threat—if China dominates the global mature process market with low prices, India's domestic manufacturing will struggle to compete—and an opportunity: global customers are pursuing a "China+1" supply chain diversification strategy, and India has the chance to become a candidate to replace Chinese capacity.

Competitive Landscape: Can India Break the East Asian Duopoly?

Currently, the global wafer foundry market is highly concentrated. TSMC and Samsung lead far ahead in advanced processes, while UMC, GlobalFoundries, and others hold significant shares in mature processes. China's SMIC, Hua Hong Semiconductor, and others are also catching up quickly. If India wants a share of the mature process market, it needs to differentiate itself from existing giants.

India's core advantages lie in its large pool of engineers, English-speaking environment, and growing domestic semiconductor consumer market. In addition, India's strategic relationship with the United States enables it to obtain advanced technology transfers and investment, which China does not possess. However, India still needs to resolve deep-seated issues such as infrastructure, supply chain supporting, and policy consistency.

Regional Implications: The South Asian Variable in Geopolitical Games

The United States is actively supporting India as a reliable partner in the semiconductor supply chain to reduce dependence on East Asia. Japan, South Korea, and the EU have also launched semiconductor cooperation with India. India holds an advantageous geopolitical position, but must avoid taking sides between China and the US, while ensuring that its own industrial chain is not weakened in autonomy due to technological dependence on the US.

For China, the rise of India's semiconductor industry may have limited short-term impact, but in the long run it could divert some global orders and weaken China's bargaining power in the mature process market. Taiwan and South Korea need to be wary of India's potential competition in packaging & testing and mature processes.

Investment Perspective: Long-term Value That Capital Focuses On

Although India's semiconductor industry is still in its infancy, international investors have begun to pay attention to its long-term potential. The Indian government's multi-billion-dollar semiconductor incentive plan, as well as the layouts of local conglomerates such as Tata Group and Adani Group, all point to a positive industry trend. However, semiconductor fabs involve huge investment amounts and long return cycles, so investors place greater value on policy stability and the completeness of the ecosystem.

India's value proposition should not be limited to low-end assembly, but should gradually extend to high-value-added segments such as packaging & testing, specialty process manufacturing, and chip design. If it can form a complete industrial ecosystem, India is expected to become the next hotspot for global semiconductor investment.

Long-Term Outlook: Path Choices for the Next Three to Ten Years

In the next three years, India is expected to see its first batch of wafer fabs come to fruition, with a focus on mature process nodes and packaging capacity. Whether they can commence production on schedule and meet yield targets will be the key test of the effectiveness of its industrial policies.

In the next five years, India may form an industrial cluster centered on design services, packaging and testing, and specialty manufacturing, and may attempt to enter the field of advanced packaging, competing in niche markets such as AI chips and automotive chips through differentiation.

In the next ten years, if India can continue to invest in talent cultivation and ecosystem building, and effectively leverage the geopolitical window of opportunity, it is expected to secure a place in the global semiconductor supply chain. However, this requires overcoming multiple barriers in technology, capital, and infrastructure, and forming true differentiated competition with China.

Industry Chain Analysis: A Complete View of India's Semiconductor Industry Chain

Upstream: India has almost no production capacity in EDA, IP, high-end equipment, and materials, and is highly dependent on imports. China also has shortcomings in these areas, but China possesses stronger domestic demand support and impetus for domestic substitution. India needs to introduce upstream segments through international cooperation and gradually cultivate its own intellectual property.

Midstream: In design, India hosts numerous R&D centers of global chip companies, but its independent design capability is weak. In manufacturing, India does not yet have a mass-production wafer fab, while China already has multiple mature process production lines. In packaging and testing, India already has some assembly and testing facilities, but on a small scale. In the future, India can achieve breakthroughs in the packaging and testing segment first, and then extend toward manufacturing.

Downstream: India is the world's second-largest mobile phone market, and its rapidly growing demand for automotive electronics and industrial electronics provides a huge domestic market for chips. Relying on its domestic market, India can, like China did back then, exchange market access for technology and attract international semiconductor companies to set up local factories.

Conclusion

India's semiconductor ambition is not a fantasy, but the road ahead is bumpy. Facing China's rapid rise in traditional chips, India must assess its supply-chain dependence on China realistically, while leveraging its cost, talent, and geographical advantages to find entry points in segments such as mature process nodes and packaging and testing.

Most importantly, India cannot simply replicate China's development model. Instead, against the backdrop of global supply chain restructuring, it should build an open, trustworthy, and sustainable industrial ecosystem. This requires both firm policy determination and long-term investment in capital and talent. Only by finding an irreplaceable position in the global semiconductor industry chain can India truly make the transition from "follower" to "participant."