Silicon With a Soul: How India’s Chip Dream Is Powered by People and SMEs

When India launched the ₹76,000-crore Semicon India Programme in 2021, the announcement drew mixed reactions. Could a country that had long been a chip importer leap into the elite club of semiconductor manufacturers? Today, the direction India has chosen, focusing on mature-node manufacturing rather than the ultra-advanced 3nm or 5nm chips, reveals a strategy that is both pragmatic and visionary. It positions India as a vital player in the global semiconductor supply chain, not by competing head-on with giants like TSMC or Samsung, but by occupying a space that is indispensable and underserved.

Why Mature Nodes Matter

The semiconductor industry may be obsessed with nanometer bragging rights, but mature nodes (28nm to 65nm) remain the backbone of critical sectors. These chips power automotive control systems, telecom equipment, industrial machinery and a growing range of medical devices. They are less glamorous than cutting-edge processors, but they are essential and their demand has only surged since the pandemic exposed the fragility of global chip supply chains.

By prioritizing these nodes, India is making a calculated move to capture a large, stable market segment where the barriers to entry are lower, yet the opportunities are enormous. Experts compare this approach to the strategies Taiwan and South Korea adopted in the 1970s and 1980s, where incremental progress in mature technologies laid the foundation for leadership in advanced nodes decades later. In other words, India’s bet on mature nodes is not a compromise; it is a stepping stone for long-term competitiveness.

The Hidden Engine

Behind every semiconductor fab lies an intricate network of suppliers, service providers and technology partners. This is where India’s SMEs will play a decisive role. Unlike mega fabs that demand billions in investment, the supporting ecosystem thrives on specialized capabilities: precision engineering, high-purity chemicals, packaging, testing and logistics.

India already has strong foundations in design services and system integration. Many small and mid-sized firms in Bengaluru, Pune and Hyderabad are quietly powering global semiconductor design and embedded solutions. These companies are now poised to move up the value chain, from back-end design to advanced packaging and even niche manufacturing for high-demand components.

Industry experts point out that the real multiplier effect will come from clustering where semiconductor fabs trigger the rise of local supplier hubs. A fabrication plant in Gujarat or Odisha will attract SMEs providing everything from cleanroom installation and testing tools to specialized chemicals and gas handling solutions. This is not theoretical. In Taiwan and Korea, every dollar spent on a fab created multiple dollars of economic value in ancillary ecosystems dominated by smaller enterprises. India is now on the brink of replicating that dynamic.

From Strength to Differentiator

India’s current strength in system integration, combining semiconductor components into functional electronic systems, is becoming a differentiator. With demand booming for connected cars, IoT devices, medical electronics and telecom infrastructure, the ability to integrate semiconductors into end-user applications is critical. Indian companies, many of them SME-driven, already provide world-class integration services for global OEMs.

Now, as domestic chipmaking gains traction, this integration expertise could evolve into system-level innovation. Instead of just assembling systems for others, Indian firms can start creating proprietary modules and IP-driven solutions blurring the line between integrator and innovator. That transition will not only boost exports but also deepen the local technology ecosystem.

Policy, Investment and the China +1 Advantage

The global China +1 diversification strategy is a tailwind India cannot ignore. As multinational firms seek alternative manufacturing bases, India’s combination of policy incentives, cost advantage and talent pool makes it an attractive destination. The government has sweetened the deal with capital subsidies, tax incentives and state-level policies that extend benefits beyond fabs to ancillary units.

The recent approval of four new semiconductor projects worth ₹4,600 crore in states like Odisha, Andhra Pradesh and Punjab reflects this momentum. With 10 projects across six states and a combined investment of ₹1.6 lakh crore, the India Semiconductor Mission is building a distributed ecosystem that can support both large fabs and smaller players. Prime Minister Narendra Modi’s announcement that Made-in-India chips will hit the market by year-end adds urgency and confidence to this mission.

Why This Changes the Game for India and SMEs

India’s semiconductor push is not just a manufacturing story; it is an economic transformation play. By focusing on mature nodes, India can secure a strategic position in global supply chains, one that insulates it from geopolitical shocks and currency volatility. For SMEs, this represents a generational opportunity:

• They will become indispensable partners in materials, tools, design and packaging.
• They will access global markets through supply-chain integration.
• They will evolve technologically, as semiconductor-linked businesses demand automation, precision, and high quality.

Industry veterans believe that this phase could do for Indian SMEs what the auto-component revolution did in the 1990s, create globally competitive firms from what were once local suppliers. The semiconductor sector, however, adds a critical twist: it is deep tech, meaning the SMEs that scale up here will move into knowledge-driven, high-margin niches with long-term defensibility.

The Road Ahead

Six fabs approved. Ten projects under implementation. ₹1.6 lakh crore committed. These numbers suggest intent, but the real test lies in execution especially in building a robust SME ecosystem that complements big-ticket investments with speed, agility, and innovation.

India may not yet compete for the most advanced chips, but it is building something far more sustainable: an ecosystem that blends manufacturing with design, integration with innovation, and policy support with entrepreneurial drive. And in that story, SMEs will not just support the dream they will help define it.