Speaking exclusively to CNBC-TV18 after Finance Minister Nirmala Sitharaman presented her ninth consecutive Union Budget on February 1, Krishnan said the first phase of India’s semiconductor push has laid a firm industrial foundation, while the next phase — Semicon 2 — will focus on expanding the ecosystem and advancing India’s strategic autonomy in critical technologies.
At the same time, the Budget’s surprise announcement of a 20-year tax holiday for AI data centres has opened up fresh expectations that India could be positioning itself as a global hub for data infrastructure — potentially echoing the role Software Technology Parks of India (STPI) played in driving software exports three decades ago.
Semicon 1 milestones: India’s first fabs close to production
Krishnan said Semicon 1 has already resulted in 10 semiconductor units being approved, with more projects likely before the scheme formally closes.
“The first of those projects should commence full commercial production in a matter of weeks or months,” he said, adding that within a few months, around four projects could be fully grounded and operational, with others coming online over the next year.
India’s semiconductor pipeline includes a mix of high-value manufacturing capabilities:
- A full-fledged CMOS silicon fab
- A compound semiconductor fab
- Eight packaging units across a range of technologies, including legacy and advanced nodes
The progress marks one of India’s most significant steps yet towards building a domestic semiconductor manufacturing base.
Semicon 2 to expand beyond fabs, focus on full ecosystem
While Semicon 1 focused on anchoring initial fabs and packaging facilities, Krishnan said Semicon 2 will place greater emphasis on building the entire semiconductor ecosystem — a critical missing link in India’s ambitions to become globally competitive.
Apart from attracting more fabs and packaging units, the next phase will focus on:
- Advanced semiconductor packaging
- Equipment manufacturing within India
- Materials supply chains, including gases and chemicals
- A revamped Development Linked Incentive (DLI) scheme for chip design
The goal, Krishnan said, is to enable India not only to manufacture chips but also to develop indigenous semiconductor products that enhance national capability and resilience.
“This will allow us to develop semiconductors in crucial areas important for India… and insulate us from a sovereign perspective by giving us the strategic autonomy that we need,” he noted.
Budget’s AI data centre tax holiday draws attention
One of the Budget’s most widely discussed announcements has been the proposal for a 20-plus-year tax holiday for AI data centres — a move that many in the industry have described as unexpectedly generous.
Krishnan, however, said the policy is rooted in a basic economic principle: export-oriented businesses should not be burdened with domestic taxation.
“The idea we always work on is that we don’t export taxes,” he explained.
For data centres that store and process information for overseas customers with no domestic linkage, the activity is effectively treated as an export service, justifying the tax relief.
STPI-style moment for AI infrastructure?
The scale of the incentive has prompted comparisons with the STPI framework of the 1990s, which helped India emerge as a global software export powerhouse.
Krishnan suggested that the government’s approach is aimed at creating a globally competitive environment for AI infrastructure, while maintaining fairness within the domestic tax framework.
He clarified that while export-oriented data centre operations may receive tax benefits, any business conducted within India would still need to operate through resident entities and be taxed normally.
“For a level playing field, everyone has to have the same level of taxation,” he said, underlining that the government does not intend to create permanent establishments that escape domestic tax obligations.
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India’s twin tech bets: chips and cloud
The Budget 2026 announcements underscore India’s broader strategy of securing its position in the global technology economy through two parallel tracks:
- Building domestic semiconductor manufacturing and design capacity
- Scaling AI-ready data infrastructure to serve global markets
With the first semiconductor fabs nearing production and a fresh push expected under Semicon 2, alongside major incentives for AI data centres, the government appears to be laying the groundwork for India’s next phase of technology-led growth — one that could shape both industrial competitiveness and strategic autonomy in the years ahead.
Watch accompanying video for entire conversation.
