India Semicon 2.0 (PART I)

BLUF

New Delhi’s Semicon 2.0 and electronics buildout seeks to benefit from companies’ China+1 strategies, offering incentives while also seeking to build up its own domestic industry. This is not merely an economic strategy. It fits within New Delhi’s broader shift from a non-aligned country to a multi-aligned country, an increasingly common pattern for middle powers. The dual goals - balancing international partnerships while building out domestic self-sufficiency - shape Indian policy and lead to their own challenges. 

Key Points

• Semicon 2.0 extends India’s electronics buildout from fabrication into equipment and materials, shifting the focus towards upstream inputs that service front-end fabrication.

• Twelve India Semiconductor Mission (ISM) projects sit across six states, most outside India’s established design and supplier base in southern states.

• Employment pressures influence the location of new technology clusters, geared in part to addressing the 29.1% graduate unemployment rate.

• The shift to targeting inputs is a recognition that India remains dependent upon China for inputs to much of its industrial sector, including semiconductors and technology.

• Geopolitical dynamics continue to disrupt India’s goals - although the country has signed forty-five bilateral strategic partnerships and joined the U.S. Pax Silica initiative, it has seen four different U.S. tariff rates in six months, and faces energy constraints from both the war in Ukraine and in Iran.

India’s flagship semiconductor initiative Semicon 2.0, signed in July 2026, extends the country’s electronics buildout scope from fabrication to equipment and materials. Approved projects include a silicon fab, a silicon carbide fab, an integrated gallium nitride Micro LED display fab, and nine packaging units. The Electronics Component Manufacturing Scheme now carries ~$12 billion in commitments. 

In pursuing this initiative, New Delhi is seeking to address three core issues: self-strengthening, international hedging, and seizing opportunity. By shifting focus from assembly to earlier steps in the manufacturing process, the program seeks to allow India to capture more value and greater self-sufficiency from its manufacturing industry. By drawing in support from the United States, Japan, South Korea, the Gulf Arab states, and Europe, India is diversifying from Russia and China, adapting to a shifting world. Finally, by seizing on continued concern with China, New Delhi sees an opportunity to grab a greater share of the +1 strategies of companies diversifying their own manufacturing and supply chains. 

ISM's twelve identified projects sit across six states

• Gujarat holds Semicon 2.0’s anchor cluster at Sanand and the flagship Tata fab at Dholera.
• Assam holds Tata's assembly and test plant at Jagiroad.
• Uttar Pradesh has the HCL-Foxconn display-driver unit at Jewar.
• Odisha has SiCSem's silicon carbide fab and 3D Glass Solutions at Info Valley.
• Punjab has the legacy government line and CDIL's discretes at Mohali.
• Andhra Pradesh broke ground on ASIP's packaging plant at Tarluvada, Visakhapatnam, on 1 August.  

Largely bypassed in this initiative are India's traditional design bases: Karnataka, Telangana and Tamil Nadu. These areas already serve as India’s deepest supplier clustering and host most of its electronics workforce. Thus the current initiative is about expansion geographically, not just economically. In a followup piece, we will look at some of the key clusters of the India Semiconductor Mission, and consider their strengths and challenges. 

There are pressing reasons for New Delhi to rapidly expand its manufacturing economy. Youth unemployment for the 15-29 cohort reached 16.2% in June 2026, the highest reading since the monthly Periodic Labour Force Survey began in April 2025 at 13.8%. (By comparison, the U.S. youth unemployment rate for the 16-24 year old cohort in July sat at 8.5%, while China’s urban youth unemployment rate for ages 16-24 fell to 14.9 percent in June). However, India’s youth labour-force participation fell from 42.7% to 40.3%. A participation decline usually deflates the unemployment rate. Both worsening together points to withdrawal rather than normal turnover. The Survey is only fifteen months old, though, which means the next four installments are what will establish whether this is a significant trend or just noise. The informal economy, which has historically absorbed the overflow, is thinning and wage growth in this segment has collapsed from 13% to 3.9%.

Semicon 2.0 will just scratch the surface of the employment issue, though it may target the educated unemployed, potentially softening current social disruptions characterized by the Cockroach movement. In May 2026 the Chief Justice of India compared unemployed young people to cockroaches and parasites of society. The Cockroach Janta Party was founded the next day. Ten weeks later, on the 25th of July, Education Minister Dharmendra Pradhan resigned. The proximate grievance was examination integrity – a NEET-UG paper leak and a botched re-examination – but the underlying demands focus on unemployment. 

India needs roughly 7.85 million non-farm jobs a year; overall graduate unemployment runs at 29.1%; but the entire semiconductor mission pipeline generates employment only in the tens of thousands. Semiconductor fabrication is capital-intensive by design, so the more successful the program is on its own terms, the less it may resemble an answer to the questions being asked at street-level. Nonetheless, by targeting high-population zones for some of the new initiatives, New Delhi may be hoping to blunt some of the social grievances of the educated young.

Regionally, in FY26 India’s trade deficit with China reached $112 billion, up from $99.2 billion in FY25, and China overtook the United States to become India’s largest trading partner - though the bulk of that trade is one way. Ironically, the electronics buildout is a key driver of this. Assembly plants buy components, and the components are Chinese. New Delhi is attempting to ease some of this precursor pressure, where possible. Its experience with solar panel production still serves as a cautionary tale. In 2010, India pushed scaled module assembly, but  wafers and polysilicon stayed import-dependent. In the semiconductor industry, India can domestically source eight of the roughly fifty ultra-pure gases its fabs need. As we noted on other critical inputs, those dependencies can leave a country critically vulnerable to outside influence and politics. 

As a middle power facing a return to a global multi-polar system, India pursues a multi-aligned foreign policy. New Delhi has 45 bilateral strategic partnerships across multiple “tiers,” with higher level relationships concentrated in Australia, France, Russia, the UAE, the United Kingdom, and the United States. In February 2026, India signed the Pax Silica declaration, joining the US-led bloc founded in December 2025 and committing to reducing dependency on single-country chokepoints for critical supplies, but China remains India’s largest trading partner. This shows both a balancing between Russia, China, and the United States, and an expansion of key ties with other middle powers as a way to hedge overdependence on big powers. 

Even these strategic partnerships have their vagaries. New Delhi sought clarification from Washington after two Anthropic models were briefly suspended under an export directive in June. U.S. tariffs have widely fluctuated under the current U.S. administration, beginning at a 50% peak, down to 18% in February, then to a 10% Section 122 surcharge after the Supreme Court struck down the IEEPA tariffs, then into Section 301 duties of 10–12.5% when Section 122 lapsed on 24 July. Four rates in six months, often without India being able to drive the direction. 

New Delhi hopes that Semicon 2.0 buys India leverage, enhanced opportunities, and alignment, but New Delhi is also in a race against time. Social instability is rising, the BJP cannot be overly confident of its popularity, even if the main opposition Congress Party is struggling to take advantage of Cockroach protests. For New Delhi, the new technology initiatives seek to address several internal concerns simultaneously, but they are embarking on this initiative amid global uncertainty. By spreading out the location of new priority areas, New Delhi is in part hoping to manage internal structural challenges that have long plagued a country that appears more like a loose confederation than a unitary state. In the second half of this assessment, we will look at each of these core clusters, and identify what opportunities and challenges each may bring. 

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India’s advancing semiconductor projects concentrate in Gujarat, with frontier development in Assam. Notably, the established design and supply base is in the south – Karnataka, Telangana, and Tamil Nadu. India is diversifying in geographic distribution, rather than concentrating in ecosystem depth.

Indian imports from China have doubled since FY21 while exports have stayed relatively steady, pushing the deficit to $112 billion in FY26. The electronics buildout is a partial catalyst – assembly and packaging capacity buys components, and the components are primarily Chinese.