The imposition of tariffs, particularly those from the United States, is creating a complex and multifaceted impact on India’s semiconductor market. While some tariffs pose a threat to certain segments, they are also acting as a catalyst for India’s domestic semiconductor manufacturing ambitions.
The India semiconductor market size was valued at USD 38.58 billion in 2024 and is expected to record USD 115.68 billion by 2034 with a CAGR of 20.70% from 2025 to 2034.
Here’s a breakdown of the key impacts:
1. Potential Disruption and Losses for the Electronics Sector
- Tariff Hit: India’s electronics sector, which includes semiconductors, is facing a potential hit from new US tariffs. Some industry experts and executives project potential losses of $20-30 billion in future business opportunities.
- Smartphone Exemption: A significant portion of India’s electronics exports to the US, especially smartphones from major manufacturers like Apple and Samsung, may be exempt from the highest tariffs. This is largely because these companies have made or committed to US investments and have existing manufacturing operations in India.
- Impact on Non-Smartphone Electronics: The tariffs are more likely to affect non-smartphone electronics, such as electric inverters, battery chargers, and transformer parts, which are subject to significant tariff rates. This could negatively impact the broader electronics ecosystem and hurt export diversification.
- Supply Chain Uncertainty: The unpredictable nature of tariffs creates uncertainty for the entire supply chain. Companies may face challenges in planning, sourcing raw materials, and determining pricing, which can be particularly disruptive for an industry with thin margins.
2. A Strategic Window for India’s Domestic Manufacturing
- Acceleration of “Make in India”: The tariffs are accelerating the need for global firms to localize production, and India’s growing infrastructure and government policies offer a viable alternative. This shift is seen as a strategic window for India to become a central hub for future chip innovation.
- Government Incentives: India’s government has been proactive in attracting semiconductor investments. Key policies include:
- India Semiconductor Mission (ISM): A program with a substantial outlay of ₹76,000 crore (approximately $9.1 billion) to provide fiscal support for investments in semiconductor fabrication, display manufacturing, and design.
- Fiscal Support: The ISM offers up to 50% capital expenditure subsidy for new fabs and other facilities like Assembly, Testing, Marking, and Packaging (ATMP) units.
- Design-Linked Incentive (DLI) Scheme: This scheme provides financial and infrastructure support to semiconductor design startups and MSMEs to encourage indigenous chip design.
- Major Investments: These policies are bearing fruit with significant investments from both international and domestic players.
- Micron Technology: The company is setting up an ATMP facility in Gujarat.
- Tata Electronics and Powerchip: A joint venture is building India’s first semiconductor fab in Dholera, Gujarat.
- Intel and Lockheed Martin: These companies are investing in new semiconductor projects in India.
- Other Projects: Additional projects are underway in Assam, Punjab, and Andhra Pradesh, covering a range of semiconductor technologies.
- Diversification of Trade Partners: Faced with US tariffs, Indian electronics exporters are looking to diversify their markets beyond the US to regions like Europe, the Middle East, and Africa.
3. Impact on Specific Market Segments
- High-End Chips: The tariffs may disproportionately affect commodity silicon chips. However, India is also developing expertise in wide-bandgap semiconductors like silicon carbide (SiC) and gallium nitride (GaN), which are crucial for electric vehicles and power electronics. This could allow India to become a niche supplier of high-voltage chips.
- Semiconductor Design: India has a strong and expanding semiconductor design ecosystem, with a significant share of the global fabless market. The government’s DLI scheme is further supporting this segment, which is less directly impacted by tariffs on manufactured goods.
In conclusion, while tariffs from key trading partners like the US present immediate challenges and potential losses for certain parts of India’s electronics sector, they are simultaneously creating a powerful incentive for the country to accelerate its long-held ambitions in domestic semiconductor manufacturing and design. The government’s strong policy support and the influx of major investments position India to leverage this geopolitical shift and become a more resilient and self-reliant player in the global semiconductor value chain.
