Semicon 2.0 & KLA: India’s Shift to Chip Equipment

India remains heavily reliant on imported semiconductor manufacturing tools despite approving over ₹1.64 lakh crore for 12 chip manufacturing units under the initial India Semiconductor Mission. The launch of the Semicon 2.0 policy aims to bridge this critical gap by offering flat 30% incentives to attract global semiconductor equipment and materials makers like KLA to assemble and build tools locally.

What Happened with KLA and India’s Semicon 2.0?

Reports indicate that US-based chip equipment giant KLA Corporation is evaluating manufacturing operations in India. The metrology and inspection equipment leader is considering applying for incentives under the newly structured Semicon 2.0 scheme. While KLA has not issued an official public response, industry analysts note that full-scale tool assembly inside India is improbable in the immediate near term. Instead, KLA is expected to adopt a phased entry, starting with sub-assemblies, spare parts, and localized component manufacturing before transitioning to full machine fabrication.

Why Is India Still Dependent on Imported Chip Machines?

While India made massive strides under Semicon 1.0 by greenlighting 12 semiconductor facilities—ranging from assembly, testing, and packaging (ATMP) to full wafer fabrication—the country lacks a domestic equipment ecosystem.

Building semiconductor chips requires highly specialized, ultra-precise machinery for lithography, deposition, etching, and inspection. Historically, domestic suppliers focused on software design, leaving India dependent on multinational equipment giants like KLA, Lam Research, and ASML for physical hardware. Fabs can be built, but without locally sourced machinery and process chemicals, operations remain anchored to international supply chains.

How Does Semicon 2.0 Target the Equipment Gap?

Recognizing that semiconductor self-reliance is impossible without machine manufacturing, the Indian government introduced Semicon 2.0. This upgraded policy specifically expands fiscal support beyond chip manufacturing to equipment and materials:

• 30% Flat Capex Incentive: Offers direct financial support for companies establishing manufacturing units for chip equipment, sub-assemblies, and specialized raw materials.

• Ecosystem Expansion: Targets the localized production of high-grade silicon components, gases, cleanroom equipment, and process tools.

• Supply Chain Resilience: Aims to lower import duties, cut lead times for chipmakers in India, and build a localized vendor network.

What Does a Phased Equipment Entry Look Like for India?

Setting up a complete semiconductor machinery plant requires ultra-clean environments, precise supply chain links, and specialized engineering talent. Analysts project that equipment makers will execute a step-by-step strategy:

1. R&D and Software Integration: Expanding existing Indian engineering and software design centers.

2. Component & Sub-Assembly Sourcing: Partnering with local precision engineering firms to manufacture non-critical sub-components.

3. Refurbishment and Testing Facilities: Creating regional hubs to service, repair, and test tools deployed across domestic fabs.
   India Semiconductor Mission

4. Full Tool Assembly: Establishing full-scale assembly lines once domestic demand from operating wafer fabs reaches critical volume.

The interest of global leaders like KLA signals a structural pivot in India's technology ambitions: moving from simply hosting semiconductor plants to building the very machines that make the chips.