Virmani said achieving sufficient domestic semiconductor capacity cannot be done overnight, and the Central and state governments have to work together to build the ecosystem with carefully planned policy instruments—subsidies being the easiest—and improve ease of doing business, while ensuring essential infrastructure, such as land and electricity, for investors.
Virmani, also a former chief economic advisor in the Union finance ministry, said today’s investments in R&D will, a decade or so later, help India to accelerate to the frontier of technology and manufacturing prowess.
Virmani’s suggestions carry weight as India emerges as a favoured destination for data centres, boosting demand for semiconductors, which also underpin the AI race as well as the industrial and military advantages enjoyed by advanced economies. The Donald Trump-led US administration regulates the supply of the most sophisticated chips to some countries, including China.
In his last Independence Day speech, Prime Minister Narendra Modi highlighted the need for self-reliance and said 10 new semiconductor units are being built in the country on a mission mode.
India-EU FTA
Virmani said India’s proposed free trade agreement (FTA) with the European Union (EU) will help bring anchor investors to the country into multiple sectors, including semiconductors, with established global supply chains and markets for their products, boosting domestic manufacturing capability and adding jobs.
India’s proposed FTA with the EU will help bring anchor investors to the country into multiple sectors.
—NITI Aayog member Arvind Virmani
These anchor investors will also eliminate the need for Indian businesses to explore market access by integrating them with the global value chain. FTAs build trust and assure investors that both parties are committed to long-term cooperation, which is essential for investments, Virmani said.
“I see huge potential in the India-EU FTA,” Virmani said, adding that an anchor investor will bring a whole supply chain with it. That is important because the investor already has the market, Virmani said, citing the example of Apple’s iPhones, which are contract-manufactured and exported from India.
Virmani said large anchor investors are mostly in countries like the US, EU, Japan, and the UK. “We have done it with Australia and the UK. The FTA with Japan needs to be energized,” Virmani said.
India and the EU are working to conclude a long-pending FTA, with officials on both sides indicating that negotiations are now in the final stretch and that a deal could be wrapped up in 2026. The announcement of the finalization of trade talks between both sides is expected on 27 January.
The proposed deal aims to significantly lower tariffs and non-tariff barriers across goods and services. For India, the agreement is expected to improve access to a large, high-income market at a time of global trade uncertainty, help diversify export destinations beyond the US and China, and attract greater European investment into manufacturing, clean energy, and advanced technologies.
The India-EU FTA can be a defining moment for our industrial landscape, said Saurabh Agarwal, partner, consulting major EY India. “By integrating European R&D in electrolyzers and offshore wind with India’s engineering scale, we can position our country as the global nerve centre for green hydrogen and circular EV ecosystems. This partnership, if concluded in a time-bound manner, may act as a catalyst for our semiconductor ambitions,” said Agarwal.
Beyond talent exchange, the FTA is likely to facilitate the seamless transfer of high-end manufacturing technology, Agarwal said.
By harmonizing standards and securing duty-free access to critical capital goods, India can help in building a resilient, ‘trusted’ supply chain for Europe, acting as a world-class manufacturing hub, Agarwal said.
Semiconductor ecosystem
“You have to create the semiconductor ecosystem step-by-step. No single nation can produce every ingredient or sub-component. That underscores the importance of trusted partners, because in network products, every small component works together as a whole. One part going wrong can lead to the failure of the whole system,” he said.
Conventionally, countries start with basic assembly and testing, then develop parts of the value chain, leading to companies connecting with others with specific expertise in other sectors that may be useful in the semiconductor sector, helping develop the domestic ecosystem, he explained.
“It is harder for semiconductors because the core technologies are more specialized. So, we have to go step by step. We cannot follow other small countries. China is certainly an example. But they have advantages in terms of planning. We have a market system,” he said.
Vimani said subsidies are the most efficient way to develop an industrial policy, purely from an economic standpoint.
The Indian government is backing the sector through the India Semiconductor Mission, launched in December 2021 with a ₹76,000-crore outlay, which offers fiscal support of up to 50% of project cost for semiconductor fabs, display units, packaging and chip design, alongside PLI incentives for electronics manufacturing.
India currently depends almost entirely on imports for semiconductors, with domestic consumption estimated at over $50 billion annually, while no large commercial chip fabrication plant is yet operational. However, several projects approved under the mission, including wafer fabs and assembly and testing units, are under implementation and are expected to create initial domestic production capacity over the next few years.
“We have to make the necessary conditions and ensure there are no hurdles, that is why the prime minister is speaking about ease of doing business. It is a collaborative effort between the Central and state governments,” Virmani said.
“State governments are very important given the need for land, water, power, etc., which have to be made available. Semiconductor facilities require high-quality water and reliable electricity. All that has to be provided at the state level. Otherwise, it will not work. In the information age, semiconductors go into everything, and they are an important part of being a major global economy. But it’s a step-by-step process,” he added.