Smuggling Is Not an Industrial Policy: Why India’s Semiconductor Push Is About More Than Making Chips
The phrase “Smuggling Is Not an Industrial Policy” has become a sharp response to the debate triggered by former RBI Governor Raghuram Rajan’s comments on India’s semiconductor ambitions.
The argument at the centre of the controversy is straightforward. If advanced chips are small, portable and available through global markets, should India spend enormous amounts of public and private capital trying to build a domestic semiconductor industry?
The counterargument is equally straightforward: being able to obtain a product is not the same as having reliable access to it when geopolitical tensions, export controls or supply-chain disruptions arise.
That distinction matters because semiconductors are no longer just another imported component. They sit at the foundation of smartphones, automobiles, telecom networks, data centres, artificial intelligence systems, industrial equipment and defence technologies.
India's semiconductor strategy is therefore not simply about producing chips that could otherwise be bought abroad. It is about building technological capability, supply-chain resilience and a larger domestic electronics ecosystem.
And that is why the criticism of the “just import—or smuggle—the chips” logic has gained traction: smuggling may bypass a shortage temporarily, but it cannot build factories, engineering capability, intellectual property, jobs or an industrial ecosystem.
India Has Already Moved Beyond a Simple “Chip Factory” Strategy
India's semiconductor programme initially focused heavily on attracting fabrication and packaging investments. But the government's strategy has increasingly broadened to cover the wider semiconductor value chain.
The Union Cabinet approved Semicon 2.0 with an outlay of ₹1,27,500 crore, expanding the policy focus across six pillars: chip design, equipment and materials, fabrication, advanced packaging, research and development, and talent development.
That is an important evolution.
A semiconductor industry cannot be created simply by constructing one large factory. The ecosystem requires specialised engineers, equipment, chemicals and materials, design tools, testing facilities, logistics, reliable infrastructure, customers and technology partnerships.
The government's own progress report shows how the first phase has already moved beyond announcements. Under the India Semiconductor Mission, 12 manufacturing projects had been approved with cumulative investment exceeding ₹1.64 lakh crore, according to the Prime Minister's Office. The government said commercial production had already begun at facilities associated with Micron, Kaynes and CG Semi, while additional projects were progressing.
Importing Chips Is Normal. Total Dependence Is the Bigger Risk
No major economy manufactures every semiconductor it consumes.
Even the United States, China, Japan, South Korea and European countries remain interconnected through a highly specialised global semiconductor supply chain. Complete self-sufficiency is neither simple nor necessarily economically efficient.
That means India does not need to manufacture every chip used in the country.
The more realistic objective is to develop capabilities in strategically and commercially important segments while remaining integrated with global supply chains.
This is where the distinction between imports and dependence becomes critical.
Importing a component because another country produces it more efficiently is part of global trade. But having no domestic capability in critical technologies can become a vulnerability when access to those technologies is restricted.
Export controls, geopolitical tensions and supply disruptions have repeatedly demonstrated that semiconductors can become strategic assets. A company or country cannot build a reliable long-term technology strategy around the assumption that restricted products will always remain accessible through unofficial channels.
Smuggling, by definition, operates outside a transparent and reliable supply system. It cannot provide predictable volumes, quality assurance, legal protection, technology transfers or long-term investment.
More importantly, it creates no domestic productive capacity.
Why Building Chips Is About More Than the Chips
Consider the difference between importing a finished product and developing the ability to participate in its production.
A country that imports everything may still consume advanced technology. But consumption alone does not automatically create domestic engineering expertise, manufacturing capabilities or intellectual property.
India's semiconductor programme aims to address that gap.
The official India Semiconductor Mission describes its objective as building a strong semiconductor and display ecosystem and positioning India as a global hub for electronics manufacturing and design.
Projects already approved illustrate the range of activities involved.
Micron's Gujarat facility is focused on assembly and test manufacturing for DRAM and NAND products. Tata Electronics is developing a major semiconductor fab at Dholera through a technology partnership with Taiwan's PSMC, while other projects cover packaging, compound semiconductors and related technologies.
These investments matter because semiconductor manufacturing can support a wider network of suppliers, engineers, equipment providers and electronics companies.
The economic value is not limited to the final chip coming out of a factory.
Raghuram Rajan’s Broader Criticism Still Raises an Important Question
Rejecting the idea that smuggling is an alternative to industrial policy does not automatically mean every semiconductor subsidy is justified.
This is where the debate becomes more useful.
Semiconductor manufacturing is capital-intensive and technologically difficult. Governments around the world are spending heavily to attract chip investments, creating an increasingly competitive subsidy environment.
India therefore faces a genuine policy challenge: how much public support is appropriate, and how can policymakers ensure that subsidies create sustainable capabilities rather than permanently dependent businesses?
Rajan's broader criticism of industrial policy raises legitimate concerns about opportunity cost.
Public money used to support semiconductor projects cannot simultaneously be spent elsewhere. India also needs investment in education, healthcare, infrastructure, scientific research and skill development.
But this does not necessarily create an either-or choice.
In fact, those investments may be essential for semiconductor success.
A chip factory needs reliable power and water, advanced engineering talent, research institutions, efficient logistics and a predictable regulatory environment. Industrial policy without strong economic fundamentals can become expensive. Strong fundamentals without strategic technology investment may leave a country dependent on technologies developed elsewhere.
The stronger strategy may therefore be to combine both.
Semicon 2.0 Suggests India Is Trying to Build an Ecosystem
The latest phase of India's semiconductor programme is notable because it moves beyond a narrow focus on fabrication.
Semicon 2.0 includes support for design, equipment and materials, fabs, advanced packaging, research and talent development. The government has also highlighted the growth of the domestic design ecosystem, with startups and MSMEs gaining access to industry-standard design tools and receiving support for semiconductor projects.
This broader approach may be economically more realistic than attempting to immediately compete with established semiconductor powers across every category of chip.
India already has significant engineering and chip-design talent. The challenge is converting that strength into a deeper ecosystem that includes manufacturing, packaging, intellectual property, equipment and materials.
Success should therefore not be measured only by the number of fabs announced.
More meaningful indicators will include:
Commercial production and capacity utilisation
Technology partnerships and knowledge transfer
Growth in domestic chip design and intellectual property
Development of local equipment and material suppliers
Skilled employment generation
Export competitiveness
The ability of projects to become commercially sustainable
What Does This Mean for Indian Businesses and Investors?
India's semiconductor expansion could create opportunities across a much broader range of businesses than just chip manufacturers.
The ecosystem includes electronics manufacturing, engineering services, industrial infrastructure, specialised chemicals and materials, automation, packaging and testing.
Government-backed semiconductor projects also involve major companies and partnerships. Tata Electronics is developing a major fab project, while Micron Technology has established an assembly and test presence in Gujarat. Official government documents also identify semiconductor projects involving companies such as CG Power and Kaynes Semicon.
For stock-market investors, however, the theme comes with risks.
Semiconductor projects often require large capital expenditure and long execution timelines. Government approval or an investment announcement does not guarantee commercial success.
Investors should avoid assuming that every company associated with India's chip ecosystem will automatically benefit financially.
The key factors to monitor are project execution, customer demand, technology partnerships, production ramp-up, capital requirements and eventual profitability.
The Real Test Will Be Execution, Not the Argument
India's semiconductor strategy will not succeed merely because policymakers declare chips strategic.
Nor will the strategy fail simply because semiconductor manufacturing is difficult.
The next few years will provide clearer evidence.
The government has already approved multiple semiconductor projects, while the first phase of commercial production has begun at some facilities. At the same time, India's first dedicated chip-fabrication SEZ at Dholera has been notified around Tata Semiconductor Manufacturing's project.
The real question now is whether these projects can scale.
Can they attract suppliers? Can India develop deeper domestic expertise? Can projects move from government-supported construction to sustainable commercial operations? Can Indian companies capture a meaningful share of high-value segments of the global electronics supply chain?
Those are the questions that matter more than a viral argument over whether chips are physically easy to transport.
The Bottom Line
Smuggling is not an industrial policy because it solves none of the problems that industrial policy is supposed to address.
It cannot create skilled jobs, develop technology, attract long-term investment or build resilient supply chains. It may provide temporary access to a restricted product, but it cannot replace a functioning ecosystem.
At the same time, India’s semiconductor push should not become an unquestioned exercise in subsidy spending. Projects must be evaluated on execution, commercial viability, technological progress and the wider economic benefits they create.
India does not need to manufacture every chip used within its borders. But building meaningful domestic capability in a strategically important industry is very different from simply trying to replace imports.
The debate should therefore move beyond “make everything” versus “import everything.” The real challenge is deciding where India can build durable capabilities—and then ensuring that public money helps create an industry that can eventually stand on its own.
Follow our blog for more updates and analysis on India's semiconductor industry, technology policy, business and stock-market developments.
This article is for informational and educational purposes only and should not be considered investment advice.