Home / Semiconductor
Phased manufacturing and duties
Phased manufacturing is the policy idea that a country should build up an industry in stages, starting with simpler assembly and gradually adding deeper, more valuable steps at home, rather than trying to make everything at once. In electronics and semiconductors, this often pairs with a schedule of import duties that rises over time on parts a country wants made domestically, nudging companies to localise. The approach shaped how India grew its mobile phone assembly, and the same logic sits behind the semiconductor push. Dholera's fabrication plant and the newer packaging-oriented units together represent different phases of this staged build-out of the domestic chip supply chain.
Last checked 2026-08-11 · every figure below carries its source
The idea behind phased manufacturing
Phased manufacturing is a way to grow an industry without pretending a country can leap straight to the hardest, most capital-heavy steps. The principle is to start where the barriers are lowest, usually final assembly, and then progressively pull deeper stages of the supply chain onshore as skills, suppliers, and confidence build. A phased manufacturing programme typically comes with a timetable. In its best-known Indian form, applied to mobile phones over the past decade, it combined incentives for assembly with a gradually rising schedule of import duties on components, so that importing finished parts became less attractive over time and making them locally became more so. The aim is to move value into the country in a controlled sequence rather than all at once, which spreads risk and lets an ecosystem mature. Applied to semiconductors, the same thinking explains why India has pursued both back-end packaging and testing units and full fabrication plants, because these sit at different depths of the chain. A phased view treats the current period as an early stage, with the expectation that more of the supply chain, including materials, equipment, and components, could be localised over subsequent phases. The approach is realistic about time. It assumes years, not months, and accepts that the first phase looks modest compared with the eventual goal.
How duties fit in
Import duties are one of the levers a phased approach uses, and they need careful handling in the semiconductor context. The general mechanism is that a government sets low or zero duties on items it cannot yet make domestically, so manufacturers can import them cheaply, then raises those duties over time as local production becomes available, shifting the incentive toward buying Indian-made parts. This tariff sequencing worked visibly in phone assembly, where duty changes over several years encouraged component makers to set up in India. In semiconductors the picture is more delicate, because a fab depends on a long list of imported inputs, from specialised chemicals to precision equipment, that India does not produce and will not produce for some time. Raising duties on those inputs too early would raise the cost of the very plants the country is trying to attract. For that reason, the duty side of phased manufacturing in chips has to be applied selectively, protecting or encouraging only those stages where domestic capability actually exists or is close. Readers should treat specific duty rates and schedules as matters set in the budget and notified rules rather than fixed numbers, since these are adjusted periodically and vary by product category.
How Dholera reflects the phases
Dholera is a useful lens for seeing phased manufacturing in the chip sector. The flagship Tata and PSMC fabrication plant, approved on 29 February 2024 with an investment of about Rs 91,000 crore, represents an ambitious jump into front-end manufacturing, the deep and difficult stage that phased thinking would normally reach only after building up shallower ones. India has chosen to pursue this anchor investment early precisely because a fab acts as a magnet for the rest of the ecosystem. Around and alongside it, the smaller units, including the two Gujarat units approved on 5 May 2026 in Dholera and Surat with a combined investment of over Rs 3,900 crore, sit in the back-end and components space that a phased build-out would populate over time. Together they show a supply chain being assembled at different depths at once rather than in a strict single-file sequence. The phased framing also sets honest expectations. The fab plans to start production at mature nodes such as 55 and 90 nm before moving toward 28 nm, itself a staged approach within a single plant. And the deeper phases, localising the materials and equipment a fab consumes, remain largely ahead. Dholera is an early and important phase of the story, not its conclusion.
The limits and the honest timeline
Two cautions keep the phased view realistic. First, phasing is a strategy, not a guarantee. Setting a timetable and a duty schedule improves the odds that deeper stages come onshore, but it cannot ensure that suppliers actually arrive or that a plant succeeds, as the collapsed Vedanta and Foxconn plan of 2022 to 2023 showed. Second, the deepest phases in semiconductors, localising the specialised materials and equipment a fab consumes, are genuinely hard and lie largely ahead. India does not yet make the lithography systems and ultra-pure chemicals a fab depends on, and building that capability is a long project measured in years. Phased manufacturing also says nothing about land prices or investment returns in a region. It is an industrial sequencing idea aimed at firms and the supply chain, not a promise to anyone watching from outside. For Dholera, the honest reading is that the current period is an early and important phase, with a flagship fab and some smaller units in place, while the localisation of inputs and the movement to more advanced nodes remain future stages. Treating today's visible activity as the finished picture would misread how a staged build-out is meant to work.