The Indian state of Odisha has approved a new expansion of its semiconductor policy to attract not only fabs and encapsulation projects but also equipment, chemicals, gases, advanced materials, and other supply chain components. The third amendment to the Odisha Semiconductor Manufacturing and Fabless Policy will also enable additional fiscal support equal to 25% of eligible capital expenditure for certain projects backed by the India Semiconductor Mission (ISM).
The key points of Odisha’s new semiconductor policy in 30 seconds
- Odisha has approved the third revision of its semiconductor policy, effective since 2023.
- The incentives now include equipment, chemicals, gases, advanced materials, and supply chain components.
- Projects approved by the India Semiconductor Mission may receive additional state support of up to 25% of eligible CAPEX.
- The state has already attracted proposals from five companies, two of which are supported by the ISM.
- This move aligns with India’s national strategy to shift from solely design and encapsulation to a more comprehensive manufacturing ecosystem.
The decision, approved by the state cabinet on August 12, forms part of a broader package of ten measures related to digitization, energy, irrigation, and social policies. However, the semiconductor chapter is particularly notable as it demonstrates how India’s race to attract tech investments is cascading from the central government down to individual states.
Odisha introduced its specific policy in September 2023, and it was already amended in March 2024 and July 2025. The third revision aims to align it with evolving national priorities and particularly with the next phase of the India Semiconductor Mission.
The strategy no longer focuses solely on securing a large manufacturing plant.
The new version seeks to cover more links around that factory.
From chip fabrication to creating what is needed to make chips
The amendment explicitly expands the policy to segments such as:
- Semiconductor manufacturing equipment;
- Semiconductor-grade chemicals and gases;
- Advanced materials;
- Supply chain components;
- Research and development;
- Advanced manufacturing technologies.
Until now, the policy already contemplated semiconductor fabrication, assembly and testing via OSAT/ATMP facilities, display manufacturing, and fabless design.
This change makes industrial sense.
A chip plant requires far more than silicon wafers and lithography machines. It utilizes ultra-pure gases, chemicals, encapsulation materials, substrates, metrology tools, handling systems, and a substantial network of specialized suppliers.
Building a plant without developing part of this environment leaves a significant external dependency.
India is trying precisely to reduce this vulnerability.
Its initial national strategy was heavily focused on securing manufacturing, encapsulation, and design projects. The next phase aims to deepen the ecosystem of materials, equipment, and suppliers.
Odisha aims to position itself within this phase.
Up to an extra 25% of capital expenditure
The most concrete incentive approved by the cabinet is to provide additional fiscal support equivalent to 25% of eligible capital expenditure for projects approved under the India Semiconductor Mission.
This state aid will be disbursed pari passu with the central government assistance and will be linked to the milestones and disbursements approved within the ISM framework.
This means funds won’t be simply handed out upon project approval.
Disbursements will be tied to actual investment progress.
This structure is important because semiconductor factories are capital-intensive projects with multi-year timelines. Linking aid to milestone achievement allows the state to share some risks as the project advances.
Additionally, the new policy allows for negotiation of custom incentive packages for large-scale projects related to equipment, raw materials, or supply chains.
These proposals must be evaluated by a high-level committee led by the chief secretary and subsequently approved by the state cabinet.
It’s a tool designed for investments that don’t necessarily fit within standard subsidy schemes.
Odisha has already attracted five proposals
According to information released after the cabinet meeting, the policy has enabled proposals from five companies, of which two have received support from the India Semiconductor Mission.
This is an important data point, though it needs correct interpretation.
A proposal does not equal an operational factory.
Between obtaining approval and producing chips at commercial scale, years can pass. Land, energy, water, financing, equipment, personnel, and suppliers must all be secured and process quality validated.
India is already seeing this gap at the national level.
The country has approved around a dozen semiconductor projects with cumulative investments of approximately 1.64 trillion rupees, but many are still in construction or development phases.
Odisha’s strategy seeks to leverage this new cycle of investment rather than compete only when large factories are already allocated.
Indian states competing for the chip supply chain
The policy also reveals an often-overlooked aspect outside India: competition isn’t only between countries like the U.S., China, Korea, Japan, or Europe.
There’s also internal competition among Indian states.
Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, and Odisha, among others, are offering land, incentives, infrastructure, or training programs to attract semiconductor and electronics investments.
While the central government can subsidize a significant part of the investment, the specific location also depends on local factors.
Electricity supply.
Water availability.
Land.
Ports and logistics.
Universities.
Suppliers.
Labor costs.
Regulatory efficiency.
And additional support measures.
Odisha aims to stand out by layering a state-specific component onto the national policy.
Its official investment website maintains the Odisha Semiconductor Manufacturing and Fabless Policy 2023 within its industrial promotion framework.
The real challenge will be developing local suppliers
The policy shift also addresses a structural issue.
India has a substantial base of chip design engineers. Many leading international companies have been developing R&D activities there for decades.
But manufacturing semiconductors requires a distinctly different industrial ecosystem.
A supplier of ultra-pure gases needs specific facilities, certifications, and processes.
A materials company must demonstrate extremely low contamination levels.
An equipment manufacturer must integrate into lines where even a brief halt could cost millions.
Transitioning from technology services and design to this industrial tier takes years.
Therefore, expanding into equipment, chemicals, and materials could be more impactful in the long run than merely securing a single large factory.
A resilient semiconductor industry depends on a comprehensive network of local providers.
It’s not necessary to manufacture everything domestically—no major sector player is self-sufficient.
But increasing local availability reduces vulnerability to international disruptions.
Supporting small companies around large projects
Odisha’s government expects that the expanded policy will attract investment and generate both direct and indirect employment, but it also aims to develop micro, small, and medium-sized enterprises (MSMEs) that can become suppliers.
This is an important aspect.
A chip fab creates direct jobs, but much of the industrial impact is felt through auxiliary companies.
Maintenance services.
Logistics.
Materials supply.
Engineering services.
Specialized construction.
Automation.
Industrial software.
Quality control.
Auxiliary equipment.
The policy aims to foster conditions so that some of this activity remains within the state.
The challenge will be moving local companies from general suppliers to capable actors meeting industry standards.
Chips and energy strategies converge
Odisha’s cabinet also approved changes to its renewable energy policy simultaneously.
This coincidence is significant.
Semiconductor factories consume large amounts of electricity, and many companies face increasing pressure to reduce their carbon footprint.
Odisha will introduce, among other measures, a 0.50 rupee per unit electricity exemption for certain renewable energy users for ten years, along with incentives for standalone battery storage systems.
These aren’t exclusive to the chip industry, but energy, storage, and advanced manufacturing are increasingly interconnected in terms of competitiveness.
A state can offer generous subsidies yet still lose a factory if it lacks sufficient power, water, or logistics infrastructure.
The next phase of the semiconductor race will likely depend on these factors as much as on the nominal percentage of support offered.
India aims to move beyond assembly
Odisha’s chosen approach aligns with a growing national concern.
India has been successful in attracting OSAT and ATMP projects—assembly, encapsulation, and testing.
These are important, technically complex activities.
However, capturing more value also requires in-house design, raw materials, equipment, manufacturing, and intellectual property.
Odisha’s third revision seeks to enhance the industry’s depth.
This doesn’t mean the state will immediately develop a supply chain comparable to Taiwan, South Korea, or Japan.
The global industry took decades to mature.
What matters is the direction.
Rather than limiting policies to “bring a factory and get support,” Odisha is attempting to encompass manufacturing, design, encapsulation, materials, equipment, supplies, and R&D.
On paper, this looks like a more comprehensive strategy.
The true test will be how many of the announced projects reach commercial production and how many local suppliers actually integrate into those supply chains.
Odisha joins a race India wants to turn into an industry
India Semiconductor Mission is shifting from an announcement phase to one focused on coordination between the central government, states, and industry.
Odisha’s third reform fits well into this transition.
No longer just about offering money to a manufacturer.
The state aims to attract companies that sell products to fabs, develop talent, support research, and provide incentives for large projects.
The approach is reasonable.
But many announced projects took years longer than expected or never reached anticipated volumes.
Hence, outcomes shouldn’t be judged solely by committed investments.
Other important indicators include completed fabs, qualified production lines, commercial output, certified local suppliers, exports, and domestic intellectual property.
Odisha has already decided to participate in this race.
Now it must prove that a broader policy can lead to a real ecosystem.
Frequently Asked Questions
What has Odisha changed in its semiconductor policy?
The state approved its third policy revision to include new segments such as equipment, chemicals, gases, advanced materials, and supply chain components, alongside manufacturing, OSAT/ATMP, displays, and fabless design.
What incentives can a semiconductor project in Odisha receive?
Projects approved by the India Semiconductor Mission may qualify for additional state support of up to 25% of eligible capital expenditure, subject to policy conditions and milestone achievements.
How many semiconductor projects has Odisha attracted?
According to the state cabinet, the policy has generated proposals from five companies, two of which have received support from the India Semiconductor Mission.
Why does India want to attract materials and equipment suppliers as well?
Because semiconductor industry requires more than just wafer fabs. Equipment, chemicals, gases, materials, encapsulation, and specialized services form part of the supply chain, and over-reliance on external sources can create bottlenecks.
via: organiser.org
