India has been dreaming for years of becoming a global power in semiconductors. The country, which heavily relies on imports to supply its tech industries, launched the India Semiconductor Mission (ISM) in 2021 with the goal of attracting investments, building factories, and reducing that strategic dependence. The flagship project is the Tata Electronics chip manufacturing plant in Dholera, Gujarat, in partnership with the Taiwanese Powerchip Semiconductor Manufacturing Corporation (PSMC).
The initial target was clear: to produce the first wafers by late 2026. However, the schedule has now shifted to mid-2027, and experts warn it could be delayed even further. The reason is significant: the global crisis of rare earths and critical minerals, essential for semiconductor production.
An $11 billion project under pressure
The Tata Electronics project is valued at $11 billion (approximately €10.2 billion). It includes the construction of a
Since its announcement in February 2024, work has been progressing rapidly. Company sources confirm that they expect to have the infrastructure ready by early 2027, with pilot production tests in the first half of that year. But the threat doesn’t come from the construction itself, but from the supply of critical materials like neodymium, disprosium, terbium, molybdenum, or hafnium, used in magnets, lasers, wafer polishing, and lithography processes.
The issue is that the rare earth supply chain is dominated by China, responsible for more than 60% of global production and refining. In a context of geopolitical tensions and trade restrictions, the risk of supply cuts or price hikes multiplies.
A key piece for India’s self-sufficiency
For New Delhi, this project is not just an industrial move but a strategic bet on technological sovereignty. India aims to reduce its dependence on imported chips from Taiwan, South Korea, and the United States, which amount to billions of dollars annually and are essential for sectors such as:
- Electric vehicle automation, where chips manage batteries and power systems.
- Defense and aerospace, requiring advanced, high-reliability semiconductors.
- 5G and 6G telecommunications, where hardware forms the backbone of connectivity.
- Consumer electronics, from smartphones to smart TVs.
The government itself has framed it within the “Make in India” policy, aiming to turn the country into a global manufacturing hub. But without guaranteed access to rare earths and critical minerals, Tata’s plans could turn into a giant with clay feet.
Why are rare earths so important in chips?
Although their name might suggest scarcity, rare earths are not so rare in the Earth’s crust. What is rare is finding economically viable deposits and having the refining technology to convert them into high-tech usable materials.
In the semiconductor industry, these elements play critical roles:
- Neodymium and disprosium: permanent magnets used in precision motors and lithography equipment.
- Terbium: used in high-efficiency lasers for engraving processes.
- Hafnium and molybdenum: essential in wafer coatings and high-density transistor manufacturing.
- Rare earth powders: used in polishing compounds that achieve wafer surfaces with minimal defects.
Each silicon wafer requires dozens of chemical and physical processes dependent on these materials. Without them, production slows, becomes more expensive, or stalls.
Delays accumulated: from 2026 to the horizon of 2030
Initially, Tata and PSMC had planned to start production by the end of 2026. But with the pressure on the supply chain, Gartner analysts estimate that the plant won’t reach full capacity until 2030.
In the optimistic scenario, by mid-2027, the factory could generate around $500 million in annual revenue, with chips focused on energy management, microcontrollers, and industry. In a more consolidated scenario, by 2030, revenues could reach $1.1 billion.
The challenge is enormous, given that the total global foundry revenue was $933 billion in 2024, according to Gartner. India, with Tata leading the way, seeks a position in that landscape dominated by TSMC, Samsung, Intel, and GlobalFoundries.
India’s government response
Aware of the risks, the government has launched a Critical Minerals Mission, funded with ₹1,500 crore (around €165 million), to diversify suppliers and develop local reserves. The aim is to avoid reliance solely on China, exploring agreements with countries in Africa, Australia, and Latin America.
Additionally, India is promoting parallel projects for assembly, testing, and packaging of chips (ATMP/OSAT). Micron has already opened a plant in Sanand, Gujarat, while companies like CG Power (with Renesas) and Kaynes are advancing similar initiatives. However, Tata Electronics remains the only silicon chip foundry approved under the first phase of the ISM, increasing the symbolic importance of its success or failure.
The role of international partners
Tata isn’t alone in this effort. The partnership with PSMC of Taiwan provides the know-how and experience India still lacks in mass chip production. The company has also recruited talent from Japan, South Korea, and Taiwan, hiring engineers experienced in lithography, deposition, and packaging.
Nevertheless, reliance on critical materials and specialized equipment suppliers such as ASML (lithography), Tokyo Electron (deposition equipment), and Applied Materials remains substantial. Any disruption in this global supply chain — due to trade tensions or geopolitical issues — could jeopardize the project.
The challenge of competing in a saturated market
Even if Tata manages to overcome supply hurdles, it must face the reality of a highly competitive market. TSMC and Samsung control over 70% of the advanced chip market, with decades of technological advantage.
Tata’s strategy seems focused on first meeting domestic demand in industrial, defense, and automotive sectors. Later, and only if production stabilizes, might the company consider exporting.
This means chips made in Dholera will not immediately compete with Apple or Nvidia’s 3-nanometer processors but with microcontrollers, power management chips, and niche solutions. However, in a world where technological sovereignty is key, this foundation could serve as a springboard for the next big leap.
A race against time
The clock is ticking, and the challenge is twofold: build an extremely complex factory and simultaneously ensure a steady supply of critical materials. The scarcity of rare earth elements not only increases production costs but also threatens to delay India’s debut of its first major chip foundry.
The paradox is clear: India can have the infrastructure ready, but without materials, the factory won’t produce. In an industry where each month of delay could mean losing multi-billion-dollar contracts, the risk is immense.
Conclusion: India’s silicon future depends on geopolitics
Tata’s foundry in Gujarat symbolizes India’s ambition to get on the semiconductor train. But the project also exposes the global vulnerabilities of the tech supply chain, where a handful of countries control critical inputs that shape the industry.
The success or failure of this plant will determine not just Tata Electronics’ future but also India’s credibility as an emerging chip powerhouse. If it successfully secures rare earths and scales up production, India will make a historic leap. If not, it may remain trapped in a maze of delays, rising costs, and external dependence.
Frequently Asked Questions (FAQ)
1. What is Tata Electronics’ plant in Dholera, Gujarat?
It is the first semiconductor foundry approved under the India Semiconductor Mission. Its estimated cost is $11 billion, with production scheduled for mid-2027.
2. Why are rare earth elements essential in chip manufacturing?
Elements like neodymium, disprosium, terbium, or hafnium are used in magnets, lasers, wafer polishing, and transistors. Without them, semiconductor fabrication processes either halt or become prohibitively expensive.
3. What risks does India face with this project?
The main risk is dependence on China for rare earths, which could delay production and increase costs. Global competition and lack of domestic experience in refining also pose challenges.
4. What role does the Indian government play in this?
The government has launched a Critical Minerals Mission with ₹1,500 crore, offering incentives and international agreements to diversify supply. It is also promoting ATMP/OSAT projects to strengthen the national value chain.
via: communicationstoday