Semiconductor Manufacturing and Supply Chain Entry in India
India's semiconductor opportunity is not only fabs. For foreign entrants it's the supply chain — ATMP/OSAT, materials, design — and how to structure entry.
India is moving from semiconductor design strength to manufacturing capacity, backed by fiscal support of up to half of project cost. For most foreign companies the realistic entry is not a fab — it is the supply chain around them: packaging, testing, compound semiconductors, equipment, materials, design and technology licensing.
Semiconductors are India's most ambitious industrial manufacturing bet, and the support on offer — fiscal assistance of up to half of eligible project cost, with state incentives layered on top — is among the larger fiscal-support packages on offer for the sector. But the headline fabs are only part of the story, and for most foreign companies the relevant part lies elsewhere. The country is building the whole ecosystem around the fabrication plants: packaging and testing, compound semiconductors, design and IP, equipment, gases, chemicals, materials and clean-room infrastructure. For most foreign entrants the realistic India opportunity is a partnership-led — or, in some roles, wholly-owned — entry into that supply chain. That makes the legal structure the thing that decides the outcome.
At a glance
- India's opportunity extends well beyond fabs. Most commercially realistic foreign entries are in packaging and testing (ATMP/OSAT), compound semiconductors, materials, gases, equipment, clean-room services and design.
- The India Semiconductor Mission offers fiscal support of up to about half of eligible project cost on a pari-passu basis, with state incentives on top.
- As of 2026, twelve projects across six states have been approved at around ₹1.64 lakh crore; Micron's Sanand packaging plant was inaugurated in February 2026, and India's first commercial fab — Tata-PSMC at Dholera — targets first silicon in late 2026.
- ISM 2.0 (the 2026-27 Modified Programme) turns to the supplier ecosystem — equipment, materials, design and supply chains — which is where much of the next foreign opportunity sits.
- Entry mode drives structure: fab and technology-led entries are usually partnership-led; equipment, materials, design and some OSAT entries may be wholly owned, JV-based or customer-led.
- The Design-Linked Incentive is framed around Indian-owned design structures, so foreign design firms usually access it through an Indian structure or partner rather than automatically.
India's semiconductor opportunity beyond fabs
For most of its history India designed chips but made none. A large share of the world's chip-design talent already works in Indian engineering centres, yet every chip in every Indian-made device was fabricated and packaged abroad. The India Semiconductor Mission, launched with a ₹76,000 crore incentive corpus, is the move from that design strength to manufacturing capacity. As of 2026 the bet is becoming real: twelve projects have been approved across six states at a cumulative investment of around ₹1.64 lakh crore, with Gujarat the early hub; the first packaging and assembly facilities — Micron's Sanand plant, inaugurated in February 2026, and Kaynes Semicon's OSAT unit — are ramping; and India's first commercial fab, the Tata-PSMC plant at Dholera, is under construction as a 300mm facility, with first silicon targeted in late 2026 at 28nm. These positions are current to 2026 and move with each approval and milestone; confirm the latest at the time of decision. The headline remains the fabs, but the commercial reality, for almost every foreign company, is the wider supply chain.
Where foreign companies can enter
India's semiconductor opportunity is best read as a set of distinct entry points, each with its own capital, partner and structure. Choosing the right one is the first decision, and it is more often made wrongly by anchoring on the fab than by anything else.
Wafer fabrication is the capital-intensive heart — multi-billion-dollar, multi-year, and almost always built through a partnership with an international foundry that brings the process technology; few foreign companies enter here directly. Assembly, testing, marking and packaging — ATMP or OSAT — turns fabricated wafers into finished, tested chips at a far lower capital threshold, which is why most of India's approved units, and the first to reach commercial production, sit here; it is the realistic manufacturing entry for many. Compound semiconductors, silicon photonics and sensors form a specialised category at a lower entry point again. Materials, chemicals and gases — the specialty gases, wafers, photomasks, packaging substrates and process chemicals a fab consumes — are a supplier opportunity that India is building almost from scratch, and one a foreign specialist can often pursue through a wholly-owned or customer-led entity rather than a joint venture. Equipment and tooling — process tools, metrology and automation — is similar; the lithography and tooling relationships behind the approved fabs show the model. Clean-room and infrastructure services — clean-room construction, ultra-pure water, specialised engineering — are a further services-led route. And chip design and IP suit the many design-led firms, subject to the eligibility point below. The structure follows the role: a fab or a technology-transfer project is partnership-led, while an equipment, materials, clean-room or design entry may be wholly owned, joint-ventured or customer-led depending on what the company actually does.
How India's incentive framework works
The headline support is fiscal assistance of up to around half of a project's cost for eligible fabrication, packaging and assembly, compound-semiconductor and display projects, granted on a pari-passu basis and matched by state incentives — capital subsidies, land on concessional terms, power and water support and training assistance — so the effective package depends heavily on the state as well as the centre. Chip design is supported separately through the Design-Linked Incentive, which reimburses a share of eligible design cost and adds a deployment-linked reward on sales. One point matters for foreign companies: the Design-Linked Incentive's eligibility is framed around Indian startups, micro, small and medium enterprises and domestic companies owned by resident Indians, so a foreign group does not automatically qualify — it typically accesses the incentive, where relevant, through an Indian domestic-design structure or an Indian partner whose ownership and IP location meet the conditions. The exact rates, caps and eligibility are set in the scheme and should be confirmed; the structural feature to plan around is that the manufacturing support is capital-linked and milestone-based, realised against execution rather than granted on announcement.
The design side is already executing, well beyond being funded: by 2026 the Design-Linked Incentive had sanctioned twenty-three chip-design projects and given seventy-two companies access to industry-grade design (EDA) tools, with the first prototype tape-outs and fabricated chips now coming through. The incentive reimburses a share of eligible design cost and adds a deployment-linked reward on sales, subject to the scheme caps — concrete proof for a foreign design entrant weighing how to access it through an Indian structure. A reported redesign toward equity-linked support, carrying a majority-Indian-ownership condition, is under consideration and not yet in force, but the durable point is the same: the design incentive is built around Indian-owned design.
Where India's semiconductor clusters are, and who is already there
Semiconductor activity in India is concentrating in a handful of states, and location has become part of the entry decision rather than an afterthought. Gujarat is the early hub: Dholera hosts the Tata-PSMC fab, while Sanand has drawn Micron's packaging plant, the CG Power-Renesas unit and Kaynes Semicon. Assam (Jagiroad) anchors Tata's OSAT investment; Uttar Pradesh, the Jewar-YEIDA belt near the new airport, the HCL-Foxconn project; Punjab (Mohali) the long-standing SCL facility; with further approved projects in Odisha and Andhra Pradesh. The cluster matters because the state package — land, power, water and capital subsidy — and the surrounding supplier base differ sharply by location, and because a fab's appetite for ultra-pure water and uninterrupted power makes site selection a technical decision as much as a fiscal one.
Who is already on the ground also defines the realistic partner and customer set. Tata Electronics with PSMC, Micron, CG Power with Renesas, Kaynes Semicon and HCL with Foxconn are the anchor manufacturers; an equipment, materials, gases, clean-room or design entrant is, in practice, selling into or partnering with that group rather than building in isolation. The other operating-environment reality is talent: India already supplies a large share of the world's chip-design engineers, but trained fab and packaging operators are scarcer, so workforce and skilling plans, several backed by ISM funding, belong in a credible project rather than being left to settle later.
ISM 2.0 and the supplier ecosystem
The mission's second phase — the 2026-27 Modified Programme, with a ₹8,000 crore outlay for the year and a much larger expanded programme (reported at ₹1 lakh crore to ₹1.2 lakh crore) under government consideration — marks a deliberate change of emphasis toward what sits behind the fab. The pull is real demand: India's own semiconductor consumption — on industry estimates around US$50 to 60 billion in 2025 and projected to exceed US$100 billion by 2030 — is met today almost entirely by imports, the gap the supplier ecosystem is being built to close. A fab needs far more than subsidy and silicon: it consumes specialty gases and chemicals, wafers, photomasks, advanced process tools, packaging materials, ultra-pure water and reliable power, clean-room systems and precision logistics, and it depends on a deep bench of trained engineers. India is building each of those layers, and that is where much of the next wave of foreign opportunity sits — for an equipment maker, a materials or specialty-chemicals supplier, a clean-room contractor or a design house, the supplier ecosystem is the part of the mission addressed specifically to them. For many foreign companies the realistic entry into India's semiconductor story is a defensible position in the ecosystem around the fabs.
Why most entries are partnership-led — and when they are not
Fabrication and technology-led entries into India are, in practice, partnership businesses, and the approved projects show the pattern: a domestic industrial group paired with an international foundry or technology partner that brings the process IP, with the equipment and lithography relationships layered around it. The reasons are structural — the capital is enormous, the process and design IP is sensitive and central to the deal, and execution depends on local infrastructure and approvals a partner navigates better. But the rule is not universal. A foreign equipment supplier, a specialty-gas or chemicals company, a clean-room contractor or a design firm may not need a joint venture at all, and can enter through a wholly-owned subsidiary, a customer or supply contract, a licensing arrangement or a distribution structure, depending on its role. The structure should follow the activity rather than a blanket assumption that semiconductors always mean a joint venture.
How a foreign company enters
The investment is made through an Indian entity — a wholly-owned company or a joint venture — on the foreign-investment route applicable to the activity, with the entity, the route and the exchange-control reporting the same backbone covered on our India structuring and company-setup guidance. The early flag is Press Note 3: investment or technology from an entity in a country sharing a land border with India is restricted. Since Press Note 2 of 2026 (issued 15 March 2026) a land-border beneficial owner of 10% or less with no control uses the automatic route with DPIIT reporting, while a larger or controlling holding still needs prior government approval; the position should be resolved before the structure is set. For fab and technology-led entries the joint-venture and technology-licensing terms are the core of the deal — the royalty and pricing on licensed process technology, the ownership of process and design IP, and the treatment of high-value imported capital equipment all have to be set at arm's length and documented. For supplier, equipment and design entries the structure is lighter but the same disciplines apply to any technology, royalty or intra-group flow. Because the stakes and the build are large, these terms are settled at the outset rather than renegotiated once capital is committed.
Legal workstreams for a semiconductor entry into India
A semiconductor entry into India is more than an incorporation or an incentive application. The legal structure usually has to be built across several linked workstreams:
The right structure is therefore decided before the first capital equipment is ordered. Once the investment, IP and milestone commitments are locked in, fixing the structure later is difficult and expensive.
- choosing the Indian vehicle and completing FDI, FEMA and beneficial-ownership analysis;
- resolving any Press Note 3 issue where ownership, capital, technology or beneficial control has a land-border connection;
- structuring the joint venture — shareholder rights, reserved matters, deadlock, exit and funding obligations;
- documenting technology transfer, process IP, design IP, royalty, know-how and confidentiality;
- aligning the ISM or DLI application with the committed capex, milestones, employment and production plan;
- negotiating the state incentive package — land, utilities, power, water and infrastructure commitments;
- structuring import of capital equipment — customs treatment, warranties, installation and commissioning;
- putting in place transfer-pricing support for royalties, equipment, intra-group services and supply-chain flows;
- preparing customer, supplier, clean-room, construction, EPC and operations contracts;
- structuring for the eventual exit and repatriation — trade or strategic sale, buy-back or dividend route — so returns can leave India cleanly when the time comes; and
- maintaining the milestone and verification file needed to claim fiscal support after approval.
Industry-specific compliance: export controls and SCOMET
One sector-specific compliance layer now sits at the centre of a semiconductor entry: export controls. From 23 October 2025 India added a new Category 7 to its SCOMET list — the dual-use control list administered by the DGFT under the Foreign Trade Policy — bringing advanced semiconductors, quantum and cryogenic technologies and their related software and know-how, together with inputs such as isotopically-pure silicon and germanium and ultra-pure process gases, under export-control licensing aligned with the Wassenaar, MTCR, Australia Group and NSG regimes. For a fab or technology-led entrant the effect is direct: licensed process technology, design IP and technical know-how crossing borders — and certain materials and equipment — can require classification and a licence, a workstream to map at the structuring stage rather than after the technology-transfer agreement is signed. The licensing mechanics are a cross-border-risk discipline in their own right, covered on our cross-border trade and export-control risk guidance.
Two related points round out the picture. A fab carries a heavy environmental and water footprint — environmental clearance, hazardous-chemical handling and assured ultra-pure water are part of site approval — so they sit on the critical path rather than at the margin. And the general FDI, FEMA, transfer-pricing and tax positions are not industry-specific: they are covered on the linked service pages above and are not repeated here.
India-UAE corridor: capital, design, AI compute and manufacturing
For groups operating across the India-UAE corridor, the two markets play different and complementary roles. India currently has the clearer government-backed semiconductor manufacturing programme. The UAE does not at present have an India-style approved semiconductor manufacturing mission; its more immediate role is in AI compute, capital, design-led technology platforms, data-centre demand and strategic technology partnerships — made concrete by US approval in November 2025 for advanced AI-chip exports to the UAE and the Stargate UAE compute build — while any larger UAE fabrication ambitions remain speculative unless and until they are formally announced. The practical implication for a foreign group is a structure that can pair UAE capital, design or AI-infrastructure demand with Indian manufacturing or supply-chain capacity, with the licensing, IP and intra-group flows between the two designed deliberately. It is a real but specific corridor play, suited to groups with a genuine footprint on both sides.
Timeline and milestone-linked subsidy
A semiconductor project is a long game, and both the build and the support follow milestones. The Indian entity and any joint venture are formed first, with the technology-licensing and shareholder terms, the FEMA reporting and any Press Note 3 approval settled at the outset; the mission or DLI application and the state package run next, secured before major capital is committed; then the site, the long-lead capital equipment, the clean-room build and the talent ramp, much of it in parallel. Fabrication plants run years from approval to first silicon and longer to a revenue-generating ramp, while packaging, assembly, equipment and supplier entries move faster. Crucially, the fiscal support is released against project milestones over that build rather than paid up front, so the capital plan must carry the project through construction and ramp before the support and the revenue catch up. These are indicative stages only: real timelines vary widely by segment, partner, state and approval path, and nothing here is a commitment or guarantee of any particular timeframe — each project must be planned on its own facts.
Where semiconductor entries go wrong
- Anchoring on a fab when the company's capital, technology and role actually fit packaging, compound, equipment, materials or design.
- Assuming a joint venture is always required, when an equipment, materials, clean-room or design entry may be wholly owned or customer-led.
- Treating the Design-Linked Incentive as automatically available to a foreign-owned design subsidiary, when its eligibility is framed around Indian-owned structures.
- Underweighting the state package, when the choice of state is a large part of the total incentive and the operating conditions.
- Modelling the fiscal support as up-front, when it is released against milestones over a long build.
- Leaving the Press Note 3 position, the IP ownership and the transfer-pricing on technology until after the structure is fixed.
How ATB Corporate helps
ATB advises foreign semiconductor companies on entering India across the whole chain — fabrication, packaging and assembly, compound semiconductors, materials, gases, equipment, clean-room services and design — and matches the structure to the role rather than to the headline. We work the segment and state decision, the Indian vehicle or joint venture, the technology-licensing and IP terms, the Press Note 3 and export-control position, the central and state incentive package, and the transfer-pricing, capex and milestone-compliance file, built for the milestone-linked reality of the sector. The conversion point is simple: the value lies in structuring the project so the subsidy, the joint venture, the IP, the state incentive, the capex schedule and the compliance file all work together. For groups operating across the India-UAE corridor, the structure is designed across both markets.
Semiconductors — Answered
No. Fabs are the headline opportunity, but many commercially realistic entries are in assembly and testing (ATMP/OSAT), compound semiconductors, specialty gases, chemicals, equipment, clean-room systems, packaging materials, design and IP, and supplier services. For most foreign companies the supply chain around the fabs, rather than a fab itself, is the realistic entry.
Yes, depending on the activity. A full fab or a technology-transfer project is usually partnership-led, but equipment suppliers, materials and chemicals companies, clean-room contractors, design firms and specialist service providers can often enter through a wholly-owned subsidiary, a customer or supply contract, a licence or a distribution structure. The structure should follow the role.
Under the India Semiconductor Mission, eligible fabrication, packaging and assembly, compound-semiconductor and display projects can receive fiscal support of up to around half of project cost on a pari-passu basis, with states adding capital, land, power, water and training incentives. Chip design is supported separately through the Design-Linked Incentive. The rates, caps and conditions are set in the scheme and should be confirmed.
Not automatically. The DLI's eligibility is framed around Indian startups, MSMEs and domestic companies owned by resident Indians, so a foreign group needs to examine whether the design structure, ownership and IP location qualify — in practice it usually accesses the incentive, where relevant, through an Indian domestic-design structure or an Indian partner.
A fab fabricates silicon wafers from chip designs and is extremely capital-intensive and slow to build. ATMP or OSAT — assembly, testing, marking and packaging — turns fabricated wafers into finished, tested chips at a far lower capital threshold, which is why most of India's approved units, and the first to reach commercial production, are in this layer.
Technology contribution and IP ownership, process know-how, royalty and exclusivity, reserved matters and governance, capex funding and milestone failure, exit and non-compete, export controls, confidentiality, and the government-incentive obligations attached to the project. These are the heart of the deal rather than its paperwork.
No. The fiscal support is sanctioned on approval but released against project milestones over a long build, and first production for a fab can be years away. The capital plan must carry the project through construction and ramp before the support and the revenue catch up.
India currently has the clearer government-backed manufacturing programme; the UAE's more immediate role is in AI compute, capital, design-led platforms, data-centre demand and strategic partnerships, with any larger UAE fab ambitions speculative unless formally announced. For a group across the corridor, that allows UAE capital, design or AI-infrastructure demand to be paired with Indian manufacturing or supply-chain capacity.
Since 23 October 2025 India's SCOMET dual-use control list has included a Category 7 covering advanced semiconductors, quantum and cryogenic technologies and the related software, know-how and specialist materials. In practice this means licensed process technology, design IP and technical know-how crossing borders, and certain materials and equipment, can require classification and an export-control licence administered by the DGFT — a point to map when the technology-transfer and supply arrangements are structured, alongside the FDI and FEMA position.
Through an Indian entity — a wholly-owned company or a joint venture — chosen to fit the activity. A full fab or a technology-led project is usually partnership-led with an international foundry, while equipment, materials, clean-room and many design entries can be wholly owned or customer-led. The early flag is Press Note 3, which restricts ownership, capital or technology with a land-border connection, and the structure, technology-licensing and IP terms are best settled before major capital is committed.
Yes, and often without a joint venture. Specialty gases, process chemicals, wafers, photomasks, packaging materials, process tools and clean-room services are a supplier opportunity India is building from a low base, and a foreign specialist can typically enter through a wholly-owned subsidiary, a supply or customer contract or a distribution structure, selling into the approved fabs and packaging units rather than building one.
Across the Indian semiconductor chain, the subsidy follows the structure: the segment and state, the IP and licensing terms, and the milestone-linked capex schedule decide its worth.
Licensing, approvals and any tax treatment are decided by the authorities on the facts. Talk to our team when you are ready.
Get in touch