India enters the story as China begins to rewrite the chips playbook

Any comparison between India's and China's semiconductor capabilities today is fundamentally misleading. China already possesses a vast chip manufacturing ecosystem spanning design, fabrication, packaging, testing, materials and increasingly equipment. India is only beginning to build its first meaningful semiconductor manufacturing base. One country is trying to push the frontiers of technological self-sufficiency while the other is still laying the foundations of an industry it has long lacked.

Yet two developments over the past week offer a glimpse into how the two Asian giants are approaching the semiconductor race from very different directions.

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The first came from China, where reports suggested a state-backed effort has begun mass-producing domestic immersion DUV lithography machines, a capability long dominated by Dutch giant ASML. A few days later, ET reported on Saturday based on sources that Tata Electronics is in early discussions with ASML to explore manufacturing components and subassemblies for the world's most advanced lithography systems.

While China is trying to build alternatives to critical pieces of the global semiconductor ecosystem, India is trying to become part of that ecosystem itself.

Two countries, two chip philosophies

The semiconductor industry is often described as a supply chain. In reality, it is more like a highly interconnected technological ecosystem. No company illustrates this better than ASML.

The Dutch firm produces the lithography systems used to manufacture the world's most advanced chips. Its EUV machines remain one of the most complex industrial products ever created. A single machine contains hundreds of components sourced from suppliers spread across dozens of countries. ASML itself functions largely as a systems integrator. According to analysts, roughly 80% of machine content comes from an extensive supplier ecosystem that includes specialist optics firms, precision engineering companies, software developers and advanced manufacturing partners.

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This is where the Chinese and Indian approaches begin to diverge. China's effort is focused on reducing dependence on foreign technology. Decades of investment, combined with increasingly severe US-led export controls on ASML machines for China, have pushed Beijing toward building indigenous alternatives across the semiconductor stack. The reported emergence of domestic immersion DUV machines is the latest manifestation of that strategy.

India's semiconductor push is evolving differently. Rather than trying to replace existing global leaders, India's strategy has focused on embedding itself within the existing semiconductor ecosystem. The country's first major fabrication projects involve partnerships with foreign technology providers. Equipment comes from established global suppliers. Incentives are designed to attract international participants rather than displace them. And now there is talk of Tata-ASML discussions.

Why the Tata-ASML talks matter

At first glance, manufacturing subassemblies for lithography machines may sound like a modest ambition. The components being discussed may include precision mechanical structures, cabling systems, connectors, power distribution modules, vibration-control assemblies and mechatronic systems. None of these are as technologically glamorous as EUV optics or advanced light sources. But they are used for some of the most sophisticated industrial equipment on earth.

The significance lies less in the components themselves and more in what participation demands. Supplying ASML requires manufacturing tolerances measured in microns. It requires world-class quality systems, process discipline, traceability and reliability. Suppliers are not simply vendors. They become part of a tightly integrated engineering ecosystem.

Industry analysts have pointed out that once companies qualify to manufacture components for ASML, they become credible suppliers for other global equipment leaders such as Applied Materials and Lam Research as well. That is why the discussions are potentially significant for India. The country is not merely trying to build fabs. It is attempting to move upstream into the machinery and manufacturing infrastructure that make fabs possible in the first place.

The China factor lurking in the background

The timing of these discussions is difficult to ignore. Only days before ET reported Tata's talks with ASML, reports emerged that China had begun mass production of domestic immersion DUV lithography systems.

The significance of that development should not be exaggerated. Analysts have stressed that producing a small number of machines is very different from creating commercially viable systems capable of supporting high-volume semiconductor manufacturing. Reliability, yield, throughput and long-term performance remain enormous challenges. Even optimistic assessments suggest Chinese output may be measured in dozens of machines annually, while ASML plans to manufacture more than a hundred immersion DUV systems this year.

Still, something important has changed. For years, export controls were designed around a simple assumption that denying China access to advanced lithography tools would slow its semiconductor progress. Those restrictions have not stopped China from pursuing domestic alternatives. In some respects, they appear to have accelerated the effort.

Whether China's DUV machines eventually match ASML's performance is almost secondary. The broader story is that China is steadily building capabilities in an area once considered completely out of reach. That matters not only for China but also for ASML.

Why India could become important for ASML

China remains one of ASML's most important markets despite years of export restrictions. Chinese customers accounted for roughly 14% to 16% of ASML's sales in recent quarters. That contribution has already declined from earlier peaks due to US-led tightening restrictions on equipment exports to China. If China's domestic lithography efforts continue advancing over the next decade, another possibility emerges. The Chinese market may gradually become less dependent on imported lithography systems, particularly in the DUV segment.

Nobody expects ASML's dominance to disappear. The company remains years ahead in technology, manufacturing scale and service infrastructure. But investors have already begun asking whether China's progress could eventually reduce one of ASML's major revenue streams.

This is where India enters the picture. India's semiconductor ambitions are enormous by any measure. The Tata-PSMC fab in Dholera alone represents an investment of roughly $11 billion. Multiple packaging, assembly and semiconductor manufacturing projects are being developed simultaneously. The government is preparing the next phase of the India Semiconductor Mission with stronger emphasis on machinery, materials and supply chain localization.

As India's manufacturing base expands, demand for lithography systems, support services, engineering talent and equipment suppliers will inevitably grow alongside it. For ASML, India offers something increasingly valuable -- a large market that is still at the beginning of its semiconductor journey.

China's rise created one of the biggest growth opportunities in ASML's history. If China's dependence eventually declines, India could become the next major source of long-term demand, possibly in next five-to-ten years.

The deeper opportunity for India

The most important aspect of the Tata-ASML discussions may have little to do with ASML itself. India's semiconductor debate often revolves around fabs because fabs are visible. They generate headlines, attract political attention and involve billions of dollars in investment. But the industry's most durable advantages often reside elsewhere.

The companies that manufacture precision equipment, industrial software, specialty chemicals, advanced materials and highly engineered components frequently occupy the most defensible positions within the semiconductor ecosystem. ASML itself is proof of that. The company does not manufacture chips. Yet its influence over the industry exceeds that of many chipmakers.

For India, participation in equipment supply chains could create capabilities that extend far beyond a single customer relationship. Precision manufacturing standards developed for one global equipment maker can spread across multiple sectors. Engineering expertise acquired through one supplier network can generate entirely new industries.

That is why discussions around subassemblies deserve attention. They hint at a future where India is not merely a destination for semiconductor investment but a contributor to the machinery, components and technologies that underpin the global industry.