The Aakhya Weekly #162 | From SEMICON to GST: A September of Reform and Resolution
In Focus I: A Glimpse into India’s SEMICON Ambitions
by Aakhya India Policy Team
India’s transformation as a semiconductor hub and its self-reliance are powered by the India Semiconductor Mission (ISM), which is currently undergoing its second phase. The momentum gathered at SEMICON India 2025, held in New Delhi, reflects India's ambition to dominate the semiconductor market, which is projected to reach a value of $1 trillion by 2030.
The journey towards semiconductor self-sufficiency took a giant leap forward during SEMICON India 2025 when Prime Minister Narendra Modi received India’s first indigenous semiconductor chip—the Vikram 32-bit processor. Developed by ISRO, this chip symbolises the nation's growing capabilities in high-end chip design and fabrication. The Vikram chip, designed for use in space missions, marks a turning point in India’s semiconductor ecosystem, which had previously depended on imports for critical components.
Prime Minister Modi's vision for India as a semiconductor powerhouse was echoed in his address at the event. He emphasised that India would capture a significant share of the global semiconductor market in the coming years. With over 12 Memorandums of Understanding (MoUs) signed during the event, the momentum is undeniable. These partnerships, spanning across areas like chip design, product development, and talent incubation, are shaping India into a global leader in semiconductor innovation.
Strengthening India’s Semiconductor Ecosystem
The India Semiconductor Mission (ISM) has already achieved notable milestones. The first phase, launched in 2020, secured investments of Rs 1.5 lakh crore, enabling the development of 10 semiconductor projects. India’s semiconductor production is now becoming more cost-competitive globally, with some reports suggesting that India’s production is already 15-30% cheaper than global benchmarks. The second phase, ISM 2.0, will focus on building a more robust semiconductor ecosystem. Minister of Electronics and Information Technology, Ashwini Vaishnaw, outlined the importance of fostering a comprehensive ecosystem that includes everything from chip design to packaging and testing. This shift in focus comes in response to the growing need for strategic self-reliance, especially considering the increasing geopolitical uncertainties surrounding semiconductor supply chains.
Vaishnaw emphasised that India has all the ingredients needed for success in the semiconductor industry: a large talent pool, an established IT infrastructure, and supportive government policies. Additionally, the government’s emphasis on fostering an innovation ecosystem is encouraging startups to move from project to product.
India's Progress in Chip Manufacturing
In a significant announcement, RIR Power Electronics, a leading player in high-power semiconductors, revealed plans to invest Rs 618 crore to set up a silicon carbide (SiC) manufacturing facility in Bhubaneswar, Odisha. Silicon carbide is a game-changer in power electronics, offering faster switching speeds and higher energy efficiency than traditional silicon chips. The facility will produce high-voltage SiC wafers and devices, contributing to India's growing semiconductor ecosystem.
The project is being supported by the Odisha government, which has provided fiscal incentives to ensure its success. Silicon carbide technology is expected to play a key role in improving energy efficiency and driving advancements in industries like electric vehicles, renewable energy, and defence.
India’s semiconductor push is not limited to power electronics. ISM 2.0 is also focusing on expanding manufacturing capacity for consumer electronics, automotive chips, and defence technologies. Tata Electronics and L&T Semiconductor are already in the process of establishing facilities that will not only cater to domestic demand but also focus on exports, reinforcing India’s position as a global semiconductor hub. For instance, 12 key MoUs were signed to strengthen the ecosystem.
Tata Electronics tied up with Merck for semiconductor manufacturing & packaging and with C-DAC to build a domestic design and IP base.
Kaynes Semicon announced India’s first localised automotive camera module and MEMs microphone in collaboration with global partners.
L&T Semiconductor joined hands with IIT Gandhinagar, IISc Bangalore, and C-DAC to develop secure chips, a National Innovation Hub, and quantum research leadership.
C-DAC and Indiesemic unveiled India’s 1st IoT Evolution Board integrating the VEGA processor, and NIELIT partnered with Singapore’s SSIA for semiconductor skilling.
Other MoUs include Arizona State University with ISM for research & education, and collaborations with Synopsys, IIT Madras, ITC Korea, Cadence, Secure IC, Analog Bits, Sim Yog Technologies, and Emerson Global to provide IP cores, EDA tools, and validation services under the DLI scheme.
The Role of Academia and Startups
India's academic institutions are also contributing to the semiconductor revolution. IIT Dhanbad’s contribution, the APEEC1 chip, showcased the country’s ability to develop low-power, energy-efficient chips that mimic biological synapses. This innovation, which was highlighted at SEMICON India 2025, demonstrates India’s growing prowess in chip design. The APEEC1 chip will be used for real-time adaptive learning systems, a critical area of research in artificial intelligence.
The partnership between academia, government, and industry is crucial to India's semiconductor ambitions. The government is actively working to bring back global talent, with experts from India’s diaspora being encouraged to contribute to the country’s semiconductor and tech ecosystem. The formation of a $1 billion Deep Tech Alliance, with an initial focus on semiconductors, further underscores India’s commitment to fostering innovation.
Challenges and the Road Ahead
Despite the progress, challenges remain. India must still build a complete semiconductor value chain, from raw materials to chip packaging. The government has recognised that attracting world-class talent and providing strategic support to startups are key to overcoming these hurdles. The initial demand for semiconductors from the government and large enterprises will be crucial to scaling up India’s semiconductor capabilities.
Moreover, India must accelerate its policy implementation and ensure that projects are cleared at a faster pace. While India’s semiconductor progress is impressive, it needs to keep up with international competitors like Taiwan, which can clear multi-billion-dollar projects within months. This will require streamlining approvals and boosting private sector participation.
India’s Semiconductor Future
India's semiconductor revolution is well underway, driven by a vision of self-reliance and global competitiveness. With initiatives like ISM 2.0, support for innovation, and robust partnerships with global players, India is poised to become a semiconductor hub in the next decade. India’s semiconductor journey is just beginning, and the world is watching closely. With continued investment in talent, technology, and infrastructure, India is on track to become a global leader in the semiconductor space, powering everything from smartphones to space missions.
In Focus II: India’s Tax Revolution- Two Slabs and a 40% Punch
by Aakhya India Policy Team
The 56th meeting of the Goods and Services Tax (GST) Council on September 3, 2025, has brought about the most sweeping reforms since the tax was introduced in 2017. By reducing the complex multi-slab structure to two broad slabs, 5% and 18% and introducing a special 40% slab for luxury, sin, and demerit goods, the Council has initiated what many are describing as a “next-generation GST reform.” This major reset is aimed at consolidating tax slabs, providing relief to households, correcting structural anomalies, and enhancing ease of doing business.
Structural Shift in GST Slabs
Since its inception, GST has operated under a four-rate structure: 5%, 12%, 18%, and 28%, with an additional compensation cess on select goods. The rationalisation eliminates the 12% and 28% slabs, redistributing items into 5% and 18%. The highest rate 40% is reserved for tobacco, pan masala, aerated beverages, large cars, motorcycles above 350 cc, yachts, and private aircraft.
This rationalisation not only reduces the tax burden on essentials but also makes the system predictable, improving policy clarity for industry stakeholders. Over 400 commonly used items, including cement, air-conditioners, TVs, small cars, consumer durables, spectacles, and cancer medicines, now face lower rates. More importantly, essential goods such as food items, edible oils, toiletries, and Indian breads have either moved into the 5% bracket or been exempted, significantly reducing household expenditure. Aerated beverages remain taxed at an effective 40% as demerit goods, even as other packaged products with similar consumption patterns have shifted to lower slabs.
The fiscal cost of these rate cuts is estimated at ₹48,000 crore annually. However, the Finance Ministry is expecting improved compliance and buoyancy in tax collections to offset revenue loss. It is also projected that, apart from aiding consumption, this reform could lift GDP growth by 20–30 basis points in FY26, a timely cushion against global headwinds and elevated US tariffs.
Correcting Inverted Duty Structures and Improving ITC
One of the long-standing issues in the GST framework has been the inverted duty structure, especially in export-intensive sectors like textiles, chemicals, and pharmaceuticals. Input taxes were often higher than output taxes, resulting in working capital blockages and uncertainty regarding refunds. GST 2.0 addresses this anomaly by lowering output tax rates and committing to clear pending refunds within seven days.
The Input Tax Credit (ITC) mechanism remains intact. Businesses can continue to claim ITC on earlier purchases even if tax rates have since changed, provided conditions under the CGST Act are adhered to. Importantly, ITC lying in the electronic ledger will remain valid for future use. However, if a supply becomes exempt after September 22, input credit of such supplies must be reversed, thereby protecting revenue neutrality.
Compliance Simplification and EoDB
Beyond rate rationalisation, the Council introduced bold compliance measures. GST registration for non-risky ventures must now be granted within three days, while refunds linked to inverted duty will be processed within seven days. For small taxpayers with a monthly liability below ₹2.5 lakh, registration approvals will be automated, significantly reducing entry barriers for micro and small businesses.
Additionally, global capability centres, IT firms, and data centres will benefit from the redefined “place of supply” rules, which enable them to claim input credits seamlessly. This is a crucial structural step that prevents tax incidence on services provided to foreign affiliates and enhances India’s positioning as a global back-office hub.
Impact on Consumers and the Economy
The headline consumer benefit comes from the scrapping of 18% GST on health and life insurance premiums, now fully exempt. This is a substantial relief, especially for the middle class, and is expected to drive adoption of health insurance, a long-standing policy goal. Prices of daily essentials, cement, small cars, two-wheelers, consumer appliances, and housing inputs will decline, boosting demand in consumption-driven sectors.
Conversely, luxury items and high-end goods will become sharply more expensive under the 40% slab. This reflects a deliberate policy choice: alleviating the tax burden on low- and middle-income households while ensuring revenue neutrality through higher taxation of discretionary and sin items. This redistributive tilt is consistent with the government’s stated aim of “a common man’s GST.”
Transitional Rules and Business Readiness
Businesses will have to carefully navigate transitional rules. For supplies made before September 22 but invoiced afterwards, the applicable rate depends on the time of supply provisions. If payment is made after the change, the revised rate applies. Similarly, advances received before the rate change will be taxed under the old rate, ensuring fairness in treatment. Imports of goods will also attract the revised integrated GST, unless specifically exempted.
Stock lying in warehouses on the eve of the rate change will be taxed as per the rate applicable at the actual time of supply, not the purchase. Importantly, businesses holding existing ITC from old rates retain the right to offset future liabilities, providing continuity and reducing transitional friction.
To ease logistics, e-way bills generated before Sept 22 will remain valid until expiry and need not be regenerated, offering clarity and reducing compliance anxiety.
Policy Perspective and Outlook
The GST Council’s reform rests on three pillars: rate rationalisation, structural correction, and compliance simplification. By reducing slabs, fixing anomalies, and lowering compliance burden, GST 2.0 is designed to balance fiscal health with equity and efficiency. While the short-term fiscal implications are significant, the government is betting on the multiplier effects of higher consumption, smoother tax credit flows, and improved investment sentiment.
Over time, simpler GST will reduce classification disputes, litigation, and compliance bottlenecks, a major relief to small businesses and exporters. For households, lower prices on essentials and insurance exemptions directly increase disposable income. For policymakers, this reform underscores a shift towards progressive taxation, light on essentials, heavy on luxury and demerit consumption.
In economic terms, GST 2.0 comes at a critical juncture when India needs domestic demand to remain buoyant amidst uncertain global growth. By promoting compliance, easing cash flows, and boosting consumer sentiment, the rationalised GST structure is well-positioned to support India’s ambition of sustaining high growth while ensuring social fairness.
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Aditi Bhaduri notes that Azerbaijan’s steadfast support for Pakistan has cost it India’s goodwill, given how New Delhi blocked Baku’s SCO bid, showing that a “Pakistan first” policy comes at a price.