To cash in on next tech boom, India needs the right chips

India stands at the cusp of a technological revolution, with its semiconductor and AI sectors poised to drive economic growth. The nation's semiconductor and AI choices over the next three years will determine its role in the global economy. Taiwan's mastery of semiconductor fabrication and South Korea's booming AI chip market underscore the importance of this strategic sector.

China's $150 billion investment in semiconductor self-sufficiency and the US's CHIPS Act, a $53 billion subsidy, demonstrate a global push towards self-reliance. India possesses the demographic scale and intellectual capital necessary for technological greatness, with engineers and scientists leading in AI and semiconductor development.

However, India has historically underinvested in technological sovereignty, risking being marginalized in the global tech divide. The US government's restrictions on certain AI models and India's India Semiconductor Mission, Design Linked Incentive (DLI), and IndiaAI Mission are crucial first steps. Yet, the question remains whether India will capitalize on these foundations to achieve genuine technological momentum.

While impressive progress has been made with 12 manufacturing units approved and Rs 1.64 lakh crore in committed investment, the majority of projects are conventional wire-bond assembly facilities, which offer low margins and are easily replaceable. The electronics Production Linked Incentive (PLI) worked on China+1 logic, but semiconductors require a different approach.

Nvidia's data center revenue grew from $3 billion in 2020 to $47 billion in 2024, showcasing the potential of AI-driven chip design, which commands higher margins. India lacks a dedicated semiconductor research institution and fabless companies to develop advanced chips. Expanding the India Semiconductor Mission and creating a Chip Design Commercialisation Fund focused on design IP, research institutions, and fab capability could propel India into the lead.

The AI revolution has divided the semiconductor market, with training AI consolidating around specific ecosystems and inference requiring purpose-built chips with high margins. With a qualified chip design workforce and a domestic market of 1.25 crore users, India is well-positioned to capitalize on this trend. However, the path forward requires a direct national strategy toward design and architecture, beyond merely approving projects for quick investment.

India has the talent, domestic demand, and visionary leadership to seize this opportunity and become a key player in the AI era.