Market Research

Silicon photonics is becoming the optical backbone of AI data centres, and India has started to write it into semiconductor policy. For FY2026-27, the Modified Scheme covering compound semiconductors, silicon photonics, sensors, discrete fabs and ATMP/OSAT targets nine units, INR 11,000 crore of investment and about 3,000 jobs.

Globally, the capacity race is already under way. Tower Semiconductor announced a multi-fold expansion of its 300mm silicon photonics capacity in Japan in July 2026, while Intel claims to be the only high-volume foundry supplying 300mm indium phosphide (InP) silicon photonics. Co-packaged optics (CPO) still accounts for only about 0.5% of AI data centre optical modules in 2026, according to TrendForce, so the market is early.

For Indian investors, the practical questions are which facility model to choose, what it costs and what infrastructure it needs. This guide answers them using IMARC Engineering's semiconductor facility planning ranges and the latest 2026 policy data.

What Is a Silicon Photonics Manufacturing Facility?

A silicon photonics facility manufactures photonic integrated circuits that move data using light instead of electrical signals, on CMOS-compatible silicon lines. India's semiconductor mission classifies it as a distinct facility category, separate from silicon wafer fabs, compound semiconductor fabs and OSAT units. The scope typically includes:

• Wafer fabrication: waveguides, modulators and photodetectors patterned on silicon wafers.
• Laser integration: III-V materials such as indium phosphide (InP), which suit high-speed optical communications.
• Advanced packaging: fibre attach, 2.5D or 3D integration and co-packaged optics assembly.
• Electro-optical testing: wafer-level and final test of optical and electrical performance.

Why Is India Building Silicon Photonics Capability Now?

Policy momentum, incentive depth and a growing base of operating projects explain the timing:

• Semicon 2.0: approved on 15 July 2026 with an outlay of INR 1,27,500 crore.
• ISM 1.0 progress: 12 manufacturing projects approved with committed investment above INR 1.64 lakh crore, and three companies (Micron, Kaynes and CG Semi) already in commercial production.
• Fiscal support: up to 50% of capital expenditure for compound semiconductor, silicon photonics, sensor and ATMP/OSAT facilities.
• Budget allocation: INR 8,000 crore for the modified semiconductor programme in 2026-27, the largest single-year outlay since launch.
• State layering: Gujarat, Odisha, Tamil Nadu, Karnataka and Uttar Pradesh add capital subsidies on approved projects.

Which Technology Choices Define the Facility?

Technology decisions fix capital intensity, partner needs and the product portfolio. Four choices matter most:

• Wafer size: 200mm lines suit pilot and niche volumes, while 300mm lines are where global capacity is moving for data centre volumes.
• Laser strategy: in-house III-V integration raises capex and partner dependence, while sourced lasers lower entry cost.
• Product focus: pluggable transceivers are the volume product today, while CPO and near-package optics are the next wave for AI clusters.
• Back-end capability: packaging, assembly and electro-optical test is the fastest-growing equipment category globally, because manufacturing bottlenecks have shifted from the wafer to the back end.

Which Facility Model Should New Entrants Choose?

Model selection should match promoter capability, capital and partner access. A phased path usually carries the lowest execution risk:

• Phase 1: photonic packaging, assembly and test using imported photonic wafers, which has the lowest capital intensity and fastest market entry.
• Phase 2: a compound or photonics pilot line on 200mm wafers once customer qualification begins.
• Phase 3: a 300mm photonics line only after offtake and technology partnerships are secured.

How Much Does a Silicon Photonics Facility Cost in India?

Costs scale with wafer size, process scope and whether lasers and packaging are in-house. The ranges below are indicative planning benchmarks from IMARC Engineering's semiconductor facility guide, not quotations for a specific project:

• Photonic packaging and test (ATMP/OSAT-type): INR 1,500-15,000 crore.
• Compound semiconductor and III-V fabs: INR 3,000-15,000 crore.
• Mature-node wafer fabs (28-110 nm): INR 30,000-90,000 crore or more including utilities.
• Reference projects: the SiCSem silicon carbide fab in Odisha is INR 2,066 crore, while the Tata-PSMC 12-inch fab in Dholera is INR 91,000 crore.
• Utilities share: utility infrastructure typically represents 20-30% of total project cost.

Because central support can reach 50% of approved capex, the net investment depends heavily on how early the ISM application is prepared and how well the project is aligned to scheme conditions.

What Infrastructure and Utilities Does the Facility Need?

Photonic circuits are sensitive to particles, vibration and temperature drift, so infrastructure specifications follow semiconductor norms:

• Cleanrooms (ISO 14644-1): ISO Class 4-6 for compound and photonic wafer areas, and ISO Class 5-8 for assembly and packaging.
• Environmental control: temperature stability of plus or minus 0.1 degree Celsius in critical bays and 40-45% relative humidity with plus or minus 1% stability.
• Ultra-pure water: resistivity above 18.2 megohm-centimetre and total organic carbon below 1 part per billion, at 500-5,000 cubic metres per day for wafer fabs.
• Power: 5-25 MW for compound semiconductor fabs and 2-15 MW for OSAT operations, with UPS and generator backup.
• Gases and chemicals: bulk and specialty gas systems, toxic gas monitoring, abatement and chemical distribution.
• Vibration control: isolated foundations for lithography and precision metrology tools.
• Fab software: Manufacturing Execution System, Advanced Process Control and yield management for traceability and defect analysis.
• Waste treatment: removal of fluorides, heavy metals and organics before discharge.

How Long Does Setup Take and Which Approvals Apply?

Complete programmes typically extend 30-72 months depending on scope. The main stages are:

• Facility model and market assessment: 3-6 months.
• Feasibility, DPR and ISM application: 6-12 months.
• Site selection and approvals: 9-18 months.
• Detailed engineering: 9-15 months.
• Construction and tool installation: 18-30 months.
• Qualification and ramp-up: 12-24 months.

Approvals depend on location and process, and commonly include:

• ISM incentive approval and state semiconductor policy registration.
• Environmental Clearance under EIA 2006 where applicable, plus Consent to Establish and Consent to Operate.
• Factory Licence under OSH Code 2020 and fire approvals per NBC 2016 Part 4.
• Hazardous waste authorisation under HOWM Rules 2016 and MSIHC Rules 1989 compliance.
• PESO licensing for gases and AERB registration for ion implanters or X-ray based tools.

What Risks Should Investors Plan For?

• Technology partnerships: process know-how, licensors and equipment vendors need to be secured during feasibility, not after approval.
• Utility under-estimation: utilities are routinely under-budgeted, which causes both capex overruns and yield excursions.
• Import dependence: specialised wafers, lasers and process materials create lead-time and customs exposure.
• Talent gaps: photonics design, process integration and test engineers are scarce and need early recruitment.
• Demand timing: CPO adoption is at about 0.5% of AI optical modules, so offtake commitments should be validated before capacity is committed.

How IMARC Engineering's Expertise Can Help in Silicon Photonics Facility Setup

• Facility model selection and market assessment across photonics, compound semiconductor and packaging scope.
• Feasibility studies, DPR preparation and ISM application support.
• Site selection, cleanroom design and utilities engineering for UPW, gases, HVAC and power.
• Equipment specification, vendor coordination and capex-opex financial modelling.
• Regulatory approvals, chemical safety planning and commissioning support.

Get in Touch With Our Team: https://www.imarcengineering.com/contact-us 

Conclusion

Silicon photonics offers India a way to enter the AI infrastructure value chain without competing directly on leading-edge logic. Success will depend on choosing a facility model that fits partner access and demand, engineering utilities and cleanrooms from the feasibility stage, and aligning applications with Semicon 2.0 incentives. Sponsors who plan these elements early can move from policy opportunity to qualified production with fewer delays, fewer cost overruns and stronger customer confidence.

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IMARC Engineering
Phone: +91-120-433-0800
Email: sales@imarcengineering.com
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