10 August 2026, NIICE Commentary 12656
Shristi
During the mid-nineteenth century Gold Rush, the individuals who amassed the most resilient fortunes were rarely the miners panning in the rivers, instead they were the merchants who controlled the means of extraction. Today, the global economy is in the throes of a “Silicon Rush”. Across Washington, Brussels, and Beijing, governments are pouring hundreds of billions of dollars into semiconductor fabrication plants. When analysing the second phase of India’s Semiconductor Mission (Semicon 2.0) that got the cabinet approval on July 15. backed by a massive Rs. 1.27 lakh crore ($13.25 billion) outlay, it might appear that New Delhi is simply buying its way into this global manufacturing race, but such a view misses the policy’s deeper strategic logic- building an indigenous intellectual property (IP) base to reduce long-term technological dependence.
In a world powered by microchips, technological dependence directly touches daily life—from sudden supply shocks that inflate the price of smartphones and automobiles to foreign trade restrictions that can halt critical infrastructure and medical equipment overnight. When a nation lacks control over core technologies, its consumers, domestic industries, and broader economic stability remain at the mercy of geopolitical decisions made thousands of miles away. In the modern tech war, hosting a factory offers economic gains, but owning the underlying patents is the path to true geopolitical leverage.
Why Manufacturing isn’t Enough?
To understand why it matters, it’s necessary to examine where value and power actually lie within the semiconductor industry. Economists often describe the semiconductor value chain through the “smile curve”, where the vast majority of financial value and strategic control is captured at the two extreme ends of the supply chain: upstream intellectual property (chip and design software) and manufacturing specialised equipment. The bottom of the curve which is the actual assembly, testing, marking and packaging (ATMP) of the chips yields the thinnest margins and the least geopolitical leverage.
Under the initial Semicon 1.0 framework, India successfully attracted foreign investments for OSAT (Outsourced Semiconductor Assembly and Test) and ATMP facilities, such as the Micron plant in Gujarat. While crucial for job creation and basic ecosystem building, assembling chips designed by foreign powers using foreign tools leaves a nation vulnerable, leaving the country confined to the lowest value segment of the semiconductor value chain and remains exposed to the same unilateral export controls and IP licensing blockades that the United States currently utilises to constrain China’s technological investments.
This vulnerability stems from the fact that patents in the tech sector have the potential to operate not merely as legal protections for inventors, but as chokepoints. When firms headquartered within a country control the patent portfolio for a foundational technology, they gain the power to dictate the terms of global commerce.
The Missing Piece
Monopolies over critical bottlenecks, such as ASML’s near-total control over extreme ultraviolet (EUV) lithography machines, or Synopsys and Cadence dominating Electronic Design Automation (EDA) software demonstrate how a handful of legally protected tools can shape the entire global supply chain. Combined with export-control frameworks, ownership of foundational technologies can extend a country’s regulatory reach beyond its borders.
Frameworks like the US Foreign Direct Product Rule allow governments to assert extra- territorial regulatory jurisdiction over foreign factories not simply because of patent ownership, but because those facilities utilise US-origin software, technology, or equipment subject to export control laws. While patent ownership allows corporations to extract technological rents and restrict commercial access, export controls allow foreign states to block trade for national security reasons. Without indigenous patents, a country not only pays continuous technological rent to foreign entities, but also effectively imports their legal and regulatory oversight.
Moreover, the 2026-27 framework allocates dedicated provisions—such as the ₹1,000 crore budget push for this fiscal year—specifically toward funding domestic R&D, specialized materials, and indigenous layout-designs. By incentivising domestic startups to patent their own chip architectures and chemical refining processes, India aims to secure vital nodes in the global supply chain. If Indian firms hold the patents to a niche but critical manufacturing tool or a specific micro-architecture, it gains greater bargaining power with its Western partners, positioning itself as an indispensable technology partner rather than merely a low-cost manufacturing destination.
Institutional Bottlenecks
However, creating a sovereign tech ecosystem requires more than just venture capital; it requires an efficient and predictable domestic intellectual property ecosystem. Subsidising a chip design startup is ineffective if the domestic patent ecosystem is too bogged down by bureaucratic friction to legally protect that design from global patent thickets. Currently, India’s patent ecosystem suffers from exactly this friction. While the government has digitised services, the average time to grant a patent in India historically spans 3 to 5 years, severely lagging behind global benchmarks.
The legal safeguarding of intricate IC layout-designs requires highly specialized, rapid regulatory review mechanisms. If the institutional capacity to process, grant, and rigorously defend these complex tech patents lags behind the pace of innovation, India’s heavily subsidised IP will simply be outmanoeuvred by better-equipped legal teams abroad.
Furthermore, true IP sovereignty cannot exist in a vacuum. Developing foundational patents requires decades of trial and error in basic sciences—an area where India’s overall R&D spending (0.65% of GDP) still trails significantly behind global leaders.Throwing capital at the very end of the research funnel (commercial chip design) without structurally overhauling early-stage scientific research funding creates a fragile ecosystem.
However, the reality of these tech partnerships is that cooperation rarely means technology transfer. The Indian industries consistently face friction when dealing with Western IP regimes, frequently citing prohibitive patent filing costs and complex enforcement issues that lock developing countries out of next-generation tech ecosystems. For example, domestic fabless startups like InCore Semiconductors and Mangrove Technologies face enormous hurdles when international PCT (Patent Cooperation Treaty) filings can easily exceed $10,000 to $15,000 per patent in legal and procedural fees across multiple jurisdictions.
The global race for semiconductor dominance has proven that the real currency of power is not silicon, but intellectual property. By pivoting toward domestic IP generation, India’s Semicon 2.0 acknowledges a harsh geopolitical truth: true strategic autonomy cannot be imported, and technology alliances are only as strong as the leverage you bring to the table.
As Washington and Beijing continue to optimise patent regimes and export controls, India’s attempt to build this is sound. But its success will not be determined by the billions of rupees allocated to factory subsidies. It will depend largely on whether the nation can overcome its own bureaucratic friction to protect, sustain, and enforce the very innovations it is trying to create.
Srishti is currently pursuing her M.A International Relations at the South Asian University, New Delhi, India.
