In order to boost the vision of Atmanirbhar Bharat Abhiyan and more India self-reliant in semiconductor manufacturing the government of India has approved a comprehensive programme for the development of sustainable semiconductor and display ecosystem in the country. In this regard the government has approved a production linked incentive (PLI) scheme with an outlay of Rs. 76,000 crore in the mid December, 2021. The Scheme provides Rs. 2.30 lakh crore incentives for the interested manufacturers. The programme aims to position India as a global hub for hi-tech production and attract large number of chip makers from India and abroad.
The advent of internet of things (IoT) and 5G technology in the country has boosted the demand for semiconductor chips. In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance. They are the keys to the security of critical information infrastructure. The demand for semiconductor chips, which is US$ 24 billion at present, is expected to reach about US$ 100 billion by 2025 in India.
Semiconductors are considered as key components of electronic devices, ranging from smartphones to cloud servers to modern cars, industrial automation, critical infrastructure, and defence system. Semiconductor manufacturing is a complex, capital and technology-intensive process of fabricating semiconductor wafers. Despite being late India now realises that semiconductors and displays are the foundation of modern electronics.
The programme is announced at a time when the world is witnessing a short supply of semiconductors. This would boost electronic manufacturing, and is expected to bring massive investments to the country. This would also result in 35,000 specialised jobs apart from indirect employment for about one lakh people.
Highlights
- The government plans to push electronics manufacturing to US $300 billion in coming six years from the present US $75 billion. As such, a number of incentives have been laid out for companies involved in silicon semiconductor fabs, display fabs, compound semiconductors, silicon photonics, sensors fabs, semiconductor packaging, and semi conductor design. The government anticipates investments of around Rs. 1.7 lakh crore and 1.35 lakh jobs by 2026 in the sectors.
- The schemes for establishing semiconductor and display fabs in India would extend fiscal support of up to 50 per cent of the project cost on pari-passu (equal) basis to applicants who are considered eligible and have the required technology as well capacity to carry out such highly capital and resources intensive projects.
- Compound semiconductor units, silicon photonics, sensors including, micro-electromechanical system (MEMS) fabrications and assembly, testing, marking, and packing (ATMP)/outsourced assembly and test (OSAT) facilities would be offered fiscal support of up to 30 per cent of capital expenditure to the approved units.
- Semiconductor and display fabrication needs a concealed mix of product, product and process technology, and high-capital investment. Taking into consideration all these factors, the government has designed a Design Linked Incentive (DLI) scheme.
- The Semiconductor Chip design companies would be offered a DLI of up to 50 per cent of eligible expenditure maximum 15 crore per application, and product deployment-linked incentive of 4–6 per cent on net sales for five years (for a maximum of Rs. 30 crores per application). The government would offer such support to at least 100 domestic companies, and further expects at least 20 such companies to hit revenue of Rs. 1,500 crores in the next five years.
- The Ministry of Electronics & Information Technology (MeitY) will take steps to modernise and commercialise the Semiconductor Laboratory (SCL) at Mohali. The ministry would also explore the possibility for the joint venture of SCL with a commercial fabrication partner to modernise the brownfield fabrication facility. (A brownfield investment is a type of foreign direct investment (FDI) when a company or government entity purchases or leases existing production facilities to launch a new production activity.)
- A specialised and Independent India Semiconductor Mission (ISM) has been set up as a dedicated institution. ISM is an independent business division within the Digital India Corporation with administrative and financial autonomy. Its aim is to chalk out the long term strategies for developing a sustainable semiconductors and display ecosystem. It will be the nodal agency to facilitate implementation of the scheme for setting up semiconductor and display fabs.
- As per the Ministry of Electronics and IT (MeitY), within the next four years, two big electronics chip companies and two display manufacturing units are expected to be set up which would require an investment in the range of Rs. 30,000 and 50,000 crore.
- Besides 20 companies comprising chip packaging firms, compound semiconductors for automotive sector, power equipment, etc., are expected to be operational in three years. They also entail an investment between Rs. 3,000 crore and 5,000 crore.
- The Centre would closely work with the state governments on high-tech clusters with requisite infrastructure in terms of land, semiconductor grade water, power, logistics, and research ecosystem in order to approve applications for establishing at least two greenfield semiconductor fabs and two display fabs in the country. (A greenfield investment is a type of FDI in which the parent company opens a subsidiary in another country, building its operations from the ground up.)
- The government also intends to support companies by giving them purchase preference in procurement of electronic products under the Public Procurement (Preference to Make in India Order of 2017).
India’s semiconductor demand, till now, has been met through imports. Therefore, to make India economically self-reliant and a global technology leader, there was a need to incentivise the value chain.
Interested Foreign Players
Taiwan showed interest in creating semiconductor manufacturing hub in India. The global semiconductor giants like Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC), also from Taiwan, are interested in diversifying their supply chains out of Taiwan due to scarcity of water. Both India and Taiwan are also working on education and training of highly specialised personnel needed for this industry.
Moreover, global companies from the US and South Korea, etc., have also expressed their keen interest to invest on Indian start-up companies under the design segment.
The government is also offering a clear twenty-year roadmap, where the focus will be on generating highly skilled employment opportunities. The government is planning to offer a large part of the incentive on successful implementation of design by way of production-linked incentive (PLI) to incentivise start-up companies on the road to success. In the second phase, the government plans to promote chip manufacturers through PLI.
Conclusion
With the substantial fiscal incentives coupled with non-fiscal benefits, India’s semiconductor industry is likely to contribute significantly towards achieving US$ 1 trillion digital economy. This will help India achieving a US$ 5 trillion GDP by 2025. This would also lead to a multiplier effect on allied sectors such as electronics, telecom, automotive industry, railways, electrical products, etc.
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