Opinion | The Strategic Calculus Behind PM Modi’s Malaysia Gambit

Last Updated:February 07, 2026, 10:27 IST

Prime Minister Narendra Modi's visit to Malaysia on 7 February 2026 is poised to become a pivotal chapter in India's semiconductor story.

Prime Minister Narendra Modi’s visit to Malaysia on 7 February 2026 is poised to become a pivotal chapter in India’s semiconductor story. It will tie New Delhi’s scale and design strength with Kuala Lumpur’s hard-won manufacturing expertise. Malaysia today accounts for approximately 13 per cent of global back-end semiconductor production. It is anchored in decades of experience in outsourced assembly, testing and advanced packaging, with major global players using its Penang and Kulim clusters as critical hubs in their supply chains.

On the Indian side, the Semicon India Programme and the India Semiconductor Mission, backed by a Rs 76,000 crore outlay under ISM 1.0 and a further Rs 40,000 crore under ISM 2.0 announced in Budget 2026, have already cleared 10 projects worth about Rs 1.6 lakh crore. These include two fabrication plants and eight packaging units, signalling that India’s chip push has moved from intent to implementation.

Yet India still needs trusted partners to plug gaps in advanced packaging, testing expertise and fast-track integration into global value chains — precisely the niches where Malaysia has both capacity and credibility.

Delhi and Kuala Lumpur are now working on what is being described as a multi-layered semiconductor cooperation framework, which could become a new pillar in the bilateral economic relationship. Modi’s visit is expected to provide political sign-off to this architecture, potentially ratifying a broad arrangement that spans joint ventures in assembly and testing, talent pipelines, and supply-chain diversification for global corporations looking for a China-plus-one footprint across India and Southeast Asia.

If the agreement lands as anticipated, Malaysia could effectively become one of the keys that unlock India’s semiconductor ambitions, acting as India’s back-end and ecosystem partner even as domestic fabs and packaging plants come online. For PM Modi, it is an opportunity to frame India not just as a future chip manufacturer but as the anchor of a wider, Asia-centric semiconductor corridor in which Malaysia is an indispensable node.

Malaysia’s Five-Decade Semiconductor Journey

Malaysia’s semiconductor journey began in 1972, when Intel opened a five-acre assembly plant in Penang employing nearly a thousand people. By 1975, that single facility accounted for more than half of Intel’s global assembly capacity. The establishment of Malaysia’s first free trade zone that same year created the conditions for AMD, Hitachi and Hewlett-Packard to follow. By the early 1980s, 14 semiconductor firms were operating across the country.

Fifty years on, Malaysia has evolved from a low-cost assembly hub into a sophisticated ecosystem spanning outsourced semiconductor assembly and test operations, automated test equipment suppliers, and designers of high-performance test sockets. More than 50 semiconductor and chip manufacturers worldwide now have factories in Malaysia, with a significant concentration in Penang and the adjacent Kulim Hi-Tech Park in Kedah state.

The Kulim cluster has emerged as a particularly important node. Infineon Technologies, the German semiconductor giant renowned for automotive chips, has been in Kulim since 2006 and opened its most efficient silicon carbide fab there in August 2024 for €7 billion. AT&S, the Austrian IC substrate company whose customers include AMD and other leading chip makers, opened a €1.7 billion plant in Kulim in January 2024 after evaluating 200 locations worldwide. These facilities produce advanced packaging solutions increasingly in demand for high-end applications in artificial intelligence, data centres, server farms and consumer devices.

The country has invested heavily in high-end packaging solutions, including fan-out wafer-level packaging, system-in-package and 2.5D/3D integration, to meet future industry demands. According to industry projections, Malaysia’s OSAT market is expected to grow from $48.2 billion in 2025 to $77.6 billion by 2031, registering a compound annual growth rate of 8.2 per cent.

This depth is not simply a function of scale. Deputy Investment, Trade and Industry Minister Liew Chin Tong has noted that packaging and testing are Penang’s strengths, whilst design accounts for a smaller proportion. As the mid- to late stages of production mature, he has argued, the focus should shift towards the front end — a trajectory that could align neatly with India’s design capabilities and emerging fabrication capacity.

India’s Fabrication Push And The Gap Malaysia Can Fill

India’s semiconductor ambitions rest on a fundamentally different foundation. The country has long possessed traditional strength in chip design, accounting for roughly 20 per cent of the world’s design workforce. Yet, until recently, India had no operational commercial fabrication facilities beyond a state-owned laboratory in Mohali producing chips for strategic and defence purposes.

That is changing rapidly. Electronics and Information Technology Minister Ashwini Vaishnaw announced in January 2026 that four companies — Micron Technology, CG Power, Kaynes Technology and Tata Electronics — would commence commercial manufacturing of semiconductor chips in 2026. Micron’s assembly, testing, marking and packaging plant in Sanand, Gujarat, was approved in June 2023 with a $2.75 billion investment. It is 60 per cent complete and is expected to become one of the largest back-end semiconductor plants in the world, generating 5,000 direct jobs and 15,000 indirect jobs.

Tata Electronics is constructing a semiconductor fab in Dholera, Gujarat, in partnership with Taiwan’s Powerchip Semiconductor Manufacturing Corp, with an investment of Rs 91,000 crore. The facility will have a capacity of 50,000 wafers per month. CG Power, in partnership with Renesas Electronics of Japan and Stars Microelectronics of Thailand, is setting up a semiconductor ATMP unit in Sanand with an investment of Rs 7,600 crore, targeting 15 million units per day for consumer, industrial, automotive and power applications.

In August 2025, the Cabinet approved four additional semiconductor projects in Odisha, Punjab and Andhra Pradesh with an outlay of Rs 4,600 crore, focused on compound semiconductors and advanced packaging. These units will manufacture high-power discrete semiconductor devices such as MOSFETs, IGBTs, Schottky bypass diodes and transistors in both silicon and silicon carbide, with applications in automotive electronics, electric vehicles, renewable energy systems and communication infrastructure.

Yet, even as India’s fabrication capacity begins to materialise, significant gaps remain. India’s internal semiconductor demand over the next five years is expected to account for nearly 10 per cent of global consumption. But semiconductor projects typically require construction timelines of 36 to 60 months, making long-term policy visibility and ecosystem partnerships critical.

India’s strength lies in design and emerging front-end fabrication; what it lacks is the decades-deep expertise in back-end processes, assembly, testing and advanced packaging — something that Malaysia has spent half a century building.

Vaishnaw has also stated that India aims to be among the world’s top four semiconductor manufacturing nations by 2032. Achieving that ambition will require not just domestic capacity but integration into global supply chains through partnerships with countries that possess complementary strengths. Malaysia represents precisely the kind of partner India needs.

The China-Plus-One Imperative And Strategic Convergence

The strategic logic underpinning the India-Malaysia semiconductor partnership extends beyond bilateral complementarity. Both countries are positioning themselves as critical nodes in the global semiconductor industry’s ongoing reconfiguration, a shift driven by the China-plus-one strategy that has become a diversification mantra for multinational corporations seeking to reduce supply-chain vulnerabilities.

The China-plus-one approach, for semiconductor companies, has translated into increased investment in Southeast Asian hubs and emerging fabrication centres in South Asia.

Apple has shifted certain iPhone production stages to India, whilst Vietnam assembles AirPods and other accessories. Samsung invested early in Vietnam, making it a primary hub for smartphone production. Foxconn has moved assembly lines to India and expanded capacity in Mexico.

Malaysia has been a prime beneficiary of this trend. As part of the China-plus-one strategy, major global players are increasing their reliance on Malaysia to ensure business continuity and risk mitigation. The country’s free industrial zones and electrical and electronics clusters in Penang and Kulim have become innovation hubs for packaging and testing operations. Strategic partnerships, mergers and acquisitions are reshaping the competitive landscape, with investors viewing Malaysia’s OSAT sector as a high-value opportunity due to strong growth forecasts.

India, meanwhile, has recognised that the China-plus-one window is narrowing. Industry analysts note that whilst India aims to exploit the China-plus-one strategy to become a global powerhouse in chip manufacturing, the approach has evolved into a “China-plus-many" model, where companies diversify across multiple regions rather than selecting a single alternative. To capture this opportunity, India must resolve supply-chain constraints, infrastructure gaps, skills shortages and policy inconsistencies — and do so rapidly.

The India-Malaysia partnership offers a solution. By linking India’s emerging fabrication capacity and design prowess with Malaysia’s established back-end ecosystem, both countries can present global semiconductor majors with an integrated Asia-Pacific corridor that spans design, fabrication, advanced packaging, testing and assembly. This is not simply about bilateral cooperation; it is about constructing an alternative geography for semiconductor production that reduces dependence on any single node whilst maintaining competitiveness.

The Framework: What The Multi-Layered Arrangement Could Deliver

According to India’s foreign ministry, the multi-layered semiconductor cooperation framework under negotiation encompasses several pillars.

First, government-to-government memoranda of understanding will provide the policy architecture and regulatory alignment necessary for cross-border collaboration. Second, industry-led partnerships will enable joint ventures in assembly and testing, co-development of advanced packaging technologies and long-term offtake agreements that give global majors confidence in capacity reservations across both countries.

Third, talent pipelines will address one of the semiconductor industry’s most pressing constraints. Malaysia faces a shortage of highly specialised talent in advanced packaging technologies, particularly in 2.5D and 3D integrated circuits, photonics integration and AI-enabled test automation. India, with its substantial pool of engineering graduates and existing design workforce, could help fill that gap through training programmes and workforce exchanges.

The Malaysia-India Digital Council, established during Prime Minister Anwar Ibrahim’s visit to Delhi, is already working on bilateral collaboration in artificial intelligence, digital talent, digital public infrastructure and cybersecurity, providing a model for human capital cooperation in semiconductors.

Fourth, research and development collaboration will focus on next-generation technologies. Sources in the ministry indicate interest in joint R&D on silicon photonics, which will be critical for speeding up AI chips, as well as on bio-MEMS chips, PMUT advanced ultrasonics and other “more-than-Moore" technologies.

Malaysia’s SilTerra fab in Kulim has developed leading-edge chip technologies in these areas, working with partners such as imec and Silicon Valley start-ups, and such capabilities could complement India’s ISM 2.0 focus on producing equipment and materials, designing full-stack Indian intellectual property and fortifying supply chains.

Fifth, the framework is expected to include provisions for co-location of manufacturing facilities, enabling Indian companies to establish assembly and testing operations in Malaysia whilst Malaysian OSAT firms explore opportunities to support India’s emerging fabs. This reciprocal access would create network effects similar to those observed between Penang and Kulim, where the presence of global companies and a strong supporting supply-chain ecosystem generate agglomeration benefits.

Finance Minister Nirmala Sitharaman’s announcement of ISM 2.0 in Budget 2026, with its emphasis on industry-led research and training centres for semiconductor development, signals India’s readiness to move beyond first-generation fabrication towards a more holistic ecosystem strategy. Malaysia’s experience in building such ecosystems over five decades makes it an ideal partner for this next phase.

If PM Modi’s visit to Malaysia achieves its objectives, the result will be more than a bilateral agreement. It will represent the foundation of a semiconductor corridor stretching from India’s emerging fabs in Gujarat, Odisha, Punjab and Andhra Pradesh to Malaysia’s advanced packaging and testing clusters in Penang and Kulim.

For both countries, the partnership offers strategic positioning in a global semiconductor landscape that is fragmenting along geopolitical lines whilst simultaneously consolidating around a few critical nodes. By linking their complementary capabilities, India and Malaysia can present themselves not as isolated alternatives but as an integrated system — a proposition far more attractive to multinational corporations managing complex, multi-stage production processes.

The visit may not resolve all implementation challenges or guarantee success. But if the framework takes shape as envisioned, it will mark a significant step towards realising India’s semiconductor ambitions whilst deepening Malaysia’s role in global supply chains.

News opinion Opinion | The Strategic Calculus Behind PM Modi’s Malaysia Gambit

Read More