US and India partner to strengthen semiconductor supply chain

In a significant step towards reshaping the global semiconductor ecosystem, the US Department of State has partnered with the India Semiconductor Mission (ISM), under the Ministry of Electronics and IT, to explore collaborative opportunities.

This partnership is part of the US’s broader strategic initiative under the International Technology Security and Innovation (ITSI) Fund, created by the CHIPS Act of 2022, and aims to secure a more resilient, diversified, and sustainable global semiconductor supply chain.

The ITSI fund has a coffer of $500 million to be used or invested for a period of five years with $100 million a year to improve the semiconductor ecosystem across the US government’s partner states.

“This partnership will help create a more resilient, secure, and sustainable global semiconductor value chain,” the US State Department said in a statement.

The initial phase of this partnership includes a comprehensive assessment of India’s existing semiconductor ecosystem and regulatory framework, as well as workforce and infrastructure needs. 

“State anticipates that key Indian stakeholders, such as state governments, educational institutions, research centers, and private companies, will participate in this analysis steered by the India Semiconductor Mission,” the statement added. “The insights gained from the assessment will serve as the basis for potential future joint initiatives to strengthen and grow this critical sector.”

“This agreement is an important step in developing the semiconductor ecosystem in India,” said Pareekh Jain, CEO of Pareekh Consulting. “The US is the largest end market of semiconductors and many large semiconductor companies are based in the US. Almost all US semiconductor companies have R&D and design centers in India. Some companies including Micron have also started manufacturing in India.”

The partnership between the US and India is a step towards diversification of the global semiconductor supply chain over the long term, said Akshat Vaid, partner at Everest Group. “Currently, the industry is highly concentrated in a few dominant regions including Taiwan, and South Korea; China, even though faced with multiple regulatory hurdles, has also started to rise in prominence.”

A critical global supply chain at stake

With the ongoing global digital transformation, semiconductors have emerged as the backbone of industries spanning from automotive to healthcare. The pandemic laid bare the fragility of the semiconductor supply chain, triggering global shortages that disrupted industries across the board.

This new collaboration between the US and India is seen as a critical move to address such vulnerabilities by enhancing production capabilities, ensuring diversification, and reducing dependence on a few key markets.

The CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act, enacted in 2022, allocated $500 million through the ITSI Fund over five years to bolster semiconductor security and innovation. By joining forces with India — a nation making strides in semiconductor manufacturing — this partnership reflects the US’s commitment to building a secure, global tech infrastructure.

In this context this US India partnership will further accelerate semiconductor investment in India by US companies both in design and manufacturing, added Jain. “These companies could even be eligible for funding later from the CHIPS Act which could further boost to investment.”

India’s semiconductor ambitions

For India, this collaboration presents an opportunity to accelerate its ambitions of becoming a global semiconductor hub. With the ISM taking the lead, the partnership will initially focus on assessing India’s semiconductor ecosystem — evaluating existing capabilities, regulatory frameworks, and the infrastructure required for future growth.

India, which is already a significant player in the IT and services sector, has been working to expand its presence in high-tech manufacturing, including semiconductor production.

The partnership offers a much-needed boost as India works to develop a semiconductor value chain capable of competing with global leaders such as Taiwan, South Korea, and China. Additionally, India’s growing talent pool in STEM fields offers a solid foundation to build upon, particularly as the partnership looks to address workforce needs.

“India is also growing semiconductor end market and US companies will like to have more share of the piece and local investments in India with favorable tax incentives will help them achieve this,” Jain noted.

A strategic win for both nations

This move is not just about securing the supply chain — but also about geopolitics. Both the US and India stand to benefit economically and strategically from a strengthened semiconductor alliance.

For the US, diversifying its semiconductor sourcing is critical as it seeks to mitigate the risks posed by supply chain bottlenecks, particularly those stemming from geopolitical tensions in Taiwan and China. By bringing India into the fold, the US can create new avenues for semiconductor production and innovation, reducing the over-reliance on traditional hubs like Taiwan.

“By strengthening its relationship with India — a global leader in technology services — the US can reduce risks associated with dependency on a limited number of countries,” Vaid pointed out.

“This diversification,” Vaid added, “is essential for improving the resilience and stability of the global supply chain. Although India still has considerable progress to make to become a major player in the semiconductor industry, the US-India partnership could provide the necessary technology transfer, investment, and expertise to help India develop its domestic semiconductor capabilities.”

For India, partnering with a tech leader like the US aligns with its “Make in India” initiative, which is designed to encourage domestic manufacturing and innovation. If successful, the country could not only establish itself as a global semiconductor player but also strengthen its position in the broader tech and electronics ecosystem.

“Semiconductor is a strategic focus for both the US and India and government-level agreements and cooperation will make investments by US semiconductor companies risk-free unlike what happened in China,” Jain said.

Future possibilities and challenges

While the partnership holds significant promise, it’s not without challenges. India’s semiconductor ecosystem, while growing, lacks the scale and advanced fabrication capabilities of its counterparts in East Asia.

Closing this gap will require heavy investment in infrastructure, regulatory reform, and a skilled workforce. The partnership’s initial phase — a comprehensive assessment of India’s semiconductor landscape—will be crucial in identifying these gaps and building the roadmap for future growth.

“The challenges India faces in becoming a global semiconductor hub are investment, willingness of global companies to invest in India and competition from other global locations in Asia and Europe etc,” Jain said. “This US-India cooperation can help in both investment and willingness and the increasing attractiveness of India for US companies compared to other locations.”

India lacks high-volume advanced fabs and associated specialized infrastructure (clean rooms for instance), and this partnership can potentially lead to technology transfer and investments to help establish state-of-the-art fabs, said Nishant Udupa, practice director at Everest Group.

“Besides,” Udupa said, “India faces a shortage of specialized skills in semiconductor manufacturing and this collaboration can drive training and knowledge-sharing initiatives to build a skilled talent pool.” Additionally, given collaboration at a policy level, India should be able to learn from US best practices to streamline processes and comply with global standards, Udupa said.