Prime Minister Narendra Modi receives a Daruma doll to wish his success during his August 2025 visit to Tokyo. (©Office of the Prime Minister of India)
Recently, India and Japan have made significant progress in strengthening their Special Strategic and Global Partnership. A renewed focus on economic security is emerging, with an emphasis on critical sectors such as semiconductors, clean energy, critical minerals, information technology, and pharmaceuticals.
Japan has expanded its soft power diplomacy with India in advanced technology sectors, especially semiconductors. It plans to invest ¥10 trillion JPY ($68 billion USD) to enhance bilateral business ties with India over the next decade.
This initiative aims to target eight priority areas, including mobility, artificial intelligence, semiconductors, the environment, and healthcare. Additionally, these investments will enable Japanese companies to hire Indian specialists as part of their efforts to boost India's economy through closer business relationships.
What Is the New Proposition?
Japan is leading in manufacturing semiconductor machinery, including related materials, highlighting the country's commitment to manufacturing in India. The two governments established the India-Japan Dialogue on Economic Security, which has expanded into a comprehensive framework for cooperation in strategic trade and technology. It aims to address economic connections that have security implications and to strengthen resilience in key sectors. These include semiconductors, clean energy, pharmaceuticals, and information and communication technology.
In 2023, the Ministry of Electronics and Information Technology of India and Japan's Ministry of Economy, Trade and Industry signed an agreement to cooperate in the field of semiconductors. These efforts led to specific projects. One is the Japanese semiconductor giant Renesas Electronics partnering with CG Power to establish an outsourced semiconductor assembly and test (OSAT) facility in Gujarat. Another is the IIT Hyderabad and the Centre for Development of Advanced Computing through the Chips to Startup program collaboration. Finally, there is a strategic partnership between Tokyo Electron and Tata Electronics to bolster India's semiconductor ecosystem.
The Indian government has already allocated nearly INR 629 billion (approximately $7.17 billion). This is about 97% of the INR 650 billion (approximately US $7.41 billion) designated as incentives for semiconductor manufacturing under the India Semiconductor Mission. Additionally, Japan has extended yen loan support for Tamil Nadu's investment promotion program, which will fund startups in emerging technologies, including semiconductors.
Warming Ties
In August, Prime Minister Narendra Modi visited Japan for the 15th India–Japan Annual Summit. The two-day visit resulted in several agreements and memoranda of understanding. One highlight was a visit to a semiconductor plant in Sendai, Miyagi Prefecture, which emphasized India's growing interest in strengthening technological ties with Japan.
The tour of Tokyo Electron Miyagi Ltd (TEL Miyagi), a key player in the semiconductor industry, showcased TEL's advanced manufacturing capabilities, its role in the global semiconductor supply chain, and its plans to expand collaborations with India. This reaffirmed both countries' commitment to strengthening their ties in the semiconductor sector. It further demonstrated the potential for collaboration in semiconductor fabrication, testing, and supply chain development.
The two leaders also emphasized their dedication to the India-Japan Semiconductor Supply Chain Partnership, aiming to strengthen both countries' roles in the global tech ecosystem. India, with its quickly growing tech industry, and Japan, a leader in semiconductor technology, are well-positioned to build resilient and secure supply chains.
Leveraging Japan's Technological Expertise and India's Talent Pool
Another significant milestone was the boost to India's semiconductor ambitions with the establishment of the Dholera Special Investment Region (SIR). A delegation of 20 Japanese semiconductor ecosystem support companies visited the site after SEMICON India 2025. Dholera has emphasized not only India's policy framework but also its on-ground execution and readiness to host advanced semiconductor infrastructure.
By leveraging Japan's technological expertise alongside India's scale and talent pool, and supported by Dholera's world-class smart city infrastructure, India is strengthening its emergence as a semiconductor hub. India's largest semiconductor fabrication facility, a joint venture of the Tata Group and Taiwan's PSMC, is already taking shape at this location. There is strong policy support in India, along with fiscal incentives aimed at attracting global players in chip manufacturing.
A Win-Win Situation
Japan holds a crucial role in the global semiconductor supply chain. It leads in chip-making equipment, specialty gases and materials, and advanced components. Japan supplies 50% of semiconductor materials and one-third of the global machinery. For India, partnering with Japan is essential to building a resilient and competitive semiconductor hub.
Japan offers unmatched precision and reliability, while India can provide scale and a vast market. Additionally, Tokyo plans to support hiring top talent in India, especially specialists in chips and technology. India has the world's largest population and a large pool of talented engineers.
According to one report, over the last five years, as many as 25,000 Indians with specialized skills have moved to Japan to join the workforce, pursue studies, or participate in training programs. Japan also aims to educate talent who can act as a bridge to help Japanese companies establish themselves in Indian markets. It anticipates a shortage of up to 790,000 workers trained in advanced technologies by 2030. In contrast, India produces about 1.5 million engineering graduates annually.
India has been heavily dependent on foreign countries for electronic manufacturing. For example, China accounts for one-third of India's semiconductor imports. The deal with Japan presents a vital opportunity to diversify the supply chain, with India implementing new policies to create a more resilient and self-reliant manufacturing sector, including advanced manufacturing.
Evolving Dimensions
Between 2017 and 2020, there were 22 Japanese investments in India's semiconductor industry. Then, from 2021 to 2024, this number increased to 58. The sector includes semiconductors, artificial intelligence, the space industry, and academic collaboration in quantum technology. This growth reflects a rising market potential in India and the alignment of both countries' foreign policies toward mutual goals, interests, and sensitivities.
India and Japan are progressing toward a mature partnership, marked by increased high-tech and academic collaboration. This reflects a global trend to build strong supply chains in advanced technology sectors, which should serve as a key driver of further economic growth for both nations, especially for India.
The evolving dimensions of Japanese soft power diplomacy are elevating this partnership, particularly in technology and innovation. And India must seize the opportunity amidst global instability.
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Author: Varuna Shankar
Associate Fellow, India's World Magazine
