Evaluating Critical Value Chains of Chips

July 25, 2026
Blogs Updates

By Adarsh Gaikwad, Researcher at NITISARA

This piece looks at global semiconductor supply chains and the growing geopolitical struggle over chip manufacturing. The structure of chip production has become one of the most important strategic issues in today’s global economy. It covers supply chain resilience, the critical points that define the industry, and the policies nations are using to build their own manufacturing capacity, and asks why a few firms and countries dominate the production of the world’s most vital industrial input, and what it takes to change that.

Introduction

The global semiconductor market was valued at over $681 billion in 2024 and is expected to surpass $2 trillion by 2032, growing at a 15.4% compound annual growth rate (CAGR). Despite this growth, production of the most advanced chips is concentrated in a region smaller than many districts in India. One company in the Netherlands produces the only machines capable of printing cutting-edge semiconductors. One foundry in Taiwan makes between 67% and 72% of the world’s leading-edge chips. Calling this a supply chain undersells it — it’s a single thread that supports the infrastructure of the modern economy.

The Structure of Extreme Concentration

To grasp why semiconductor supply chains are so fragile, it’s essential to understand how a chip is made. A modern advanced chip involves hundreds of process steps, unique materials from a few countries, and equipment that operates at wavelengths shorter than the diameter of a human chromosome. No single nation, company, or region controls every aspect. Instead, there is a globally interdependent value chain where each part is highly specialized, extremely hard to replicate, and largely irreplaceable in the short term.

The best example of this is lithography. Extreme Ultraviolet lithography machines, exclusively built by the Dutch firm ASML, are the only technology capable of printing transistors at the advanced nodes necessary for AI processors, smartphones, and modern defense systems. Each machine has over 100,000 components, takes years to manufacture, and costs about $200 million. ASML sends out around 40 to 50 of these systems each year. There is no alternative source. The global semiconductor equipment market is expected to reach $127.5 billion in 2025, yet the most crucial part of that market is funneled through a single company in Veldhoven.

Why Chokepoints Become Geopolitical Tools

Economists have long recognized the idea of a strategic good: a product whose control provides significant leverage beyond its commercial worth. Semiconductors have become the defining strategic good of this century. Whoever controls the tools to make chips and the foundries that use them holds power over the entire technological framework of any nation that relies on those chips for its economy, military, and infrastructure.

This power is now being wielded openly. The United States has tightened export controls on advanced semiconductor equipment and chips aimed at China. It has prevented ASML from shipping its EUV machines and restricted firms from selling high-performance AI chips in the Chinese market. In response, China has accelerated its domestic development and imposed limits on rare-earth exports, which are vital for chip manufacturing. The number of trade restrictions on semiconductor-related goods has significantly increased in recent years. Every major economy is now reevaluating its vulnerability to a supply chain it cannot control. The COVID-19 pandemic made this clear: semiconductor shortages impacted 169 industries worldwide, with the automotive and electronics sectors hit hardest.

The Reshoring Race and Its Challenges

Western governments have reacted strongly. The U.S. CHIPS and Science Act allocated $52.7 billion to encourage domestic semiconductor manufacturing. TSMC is building three fabrication plants in Arizona, which, at full capacity, could produce tens of millions of leading-edge chips for AI servers, 5G infrastructure, and defense systems. Intel has pledged to expand its operations in Ohio and Europe, but the timelines for its Ohio plants have been pushed back from the original 2025 target to 2030-31. TrendForce expects the U.S. share of global advanced manufacturing capacity to rise to over 20% by 2030, up from about 12% today.

However, the limitations of this effort are also notable. Samsung’s Texas facility has repeatedly delayed its production timeline, as customers hesitate to pay higher U.S. manufacturing costs when TSMC’s services are an option. Intel has postponed its €30 billion investment in Magdeburg, Germany. Money helps, but developing semiconductor manufacturing capability requires decades of accumulated knowledge, a specialized workforce, supplier ecosystems, and institutional wisdom that no funding boost can substitute for.

India’s Role in the Semiconductor Value Chain

India imported over 18 billion chips in 2024, making it one of the largest consumers of semiconductors and highly exposed to supply disruptions beyond its control. The India Semiconductor Mission, launched in 2021 with an incentive framework of ₹76,000 crore, shows the country’s most serious attempt to change that. By December 2025, 10 projects totaling ₹1.60 lakh crore have been approved across six states, covering silicon fabrication units, silicon carbide fabs, advanced packaging facilities, and assembly and testing infrastructure.

The investments are substantial, and the direction is promising. Tata Electronics, in partnership with Taiwan’s Powerchip, is constructing a fabrication plant in Dholera, Gujarat, capable of producing 50,000 wafers per month with an investment of around $10.96 billion. Micron Technology has committed $2.71 billion for an assembly, testing, marking, and packaging facility in Sanand. The HCL-Foxconn joint venture, approved in May 2025, will manufacture up to 36 million display driver chips annually at its site near Jewar, Uttar Pradesh. India and the United States have formalized a semiconductor partnership through the CHIPS Act’s ITSI Fund, positioning India as a trusted player in the allied supply chain. India’s semiconductor market, valued at about $45-$50 billion in 2024-25, is expected to grow at an approximate 19% CAGR over the decade.

The Gap Between Design and Fabrication

India’s real strength in this field lies in chip design. The country produces over 300,000 engineers each year, and a significant portion of the global fabless semiconductor workforce relies on Indian talent. Companies designing chips for AI, automotive, and consumer electronics have relied on Indian engineering centers for crucial research and development. This is a genuine competitive edge, and it has not emerged from a single policy announcement.

The challenge is that chip design and chip fabrication are fundamentally different skills. Design requires skilled engineers and computational tools. Fabrication demands ultra-clean manufacturing environments, process chemistry expertise, specialized equipment supply chains, and years of refinement that cannot be rushed. India’s first commercial fab at the 28nm node is not expected to be operational until 2027-28. Advanced nodes necessary for AI chips are many years away. The government launched the Integrated Circuit Training Initiative in 2024, aiming to train 50,000 graduates in fabrication-related skills over five years. IIT Madras and IISc Bangalore now offer dedicated semiconductor manufacturing programs. These are wise investments, but they will take time to show results.

Conclusion

Semiconductor supply chains are the most significant value chains in today’s global economy. They are also among the most concentrated, technically demanding, and politically contested. The pandemic-induced shortages, the U.S.-China chip conflict, and the rush to create domestic fabrication capacity in the United States, Europe, Japan, and India all reflect the same fundamental understanding: dependence on a few firms and regions for a vital technology is a strategic risk no government can afford to ignore.

For India, the semiconductor mission represents a major industrial ambition. The investments are real, the policy framework is solid, and the design talent is authentic. What is now necessary is patience, consistent public investment, and the institutional knowledge that develops over time. In semiconductors, there are no easy paths. The nations that grasp this early will be the ones that succeed in the coming decade.

The views expressed do not represent the company’s position on the matter. This is not AI-generated content. Stay informed through the Nitisara Platform and Blogs, and adapt to emerging trends to thrive in the competitive global marketplace. – https://nitisara.org/category/blogs-updates/