At present India’s semiconductor demand is entirely met through imports. Thus, there was a need to incentivise the value chain to make India economically self-reliant and technology leaders. The Government envisioned a comprehensive program for developing semiconductors and display manufacturing ecosystem in India with a budget of over Rs 76,000 crores.
The fiscal support commitment through the new schemes has reached Rs 2,30,000 crores, covering the entire electronics supply chain – electronic components, sub-assemblies, and finished goods. In the first phase of rollout, incentives worth Rs 1,53,392 crores were announced for manufacturers of mobile phones, IT hardware (covering tablets, laptops, server, all in one- PC), telecom & networking equipment, auto components, ACC battery, White goods (covering LED & Air-conditioner), Solar PV modules and specified electronic components. The latest is incentives for silicon semiconductor fabs, display fabs, compound semiconductors, silicon photonics, sensor fabs, semiconductor packaging and semiconductor design.
Semiconductor and display fab requires a stealthy mix of product, product technology, process technology and high capital investment. Considering the same, unlike the past schemes which were based on production achievement, the programme designed by the Government to incentivize the sector is based on the project cost or capital expenditure. The broad framework of fiscal support committed under the scheme is as under:
- Semiconductor fab units will be offered fiscal support of up to 30% to 50% of project cost based on node size being manufactured.
- Display fab units will be offered fiscal support of up to 50% of project cost with an upper ceiling of Rs 12,000 crores.
- Compound semiconductor units, silicon photonics, sensors (including MEMS) fabs and ATMP/OSAT facilities will be offered fiscal support of up to 30% of capital expenditure to approved units.
- Chip product design companies (fabless companies) will be offered a design-linked incentive of up to 50% of eligible expenditure (maximum of Rs
- 15 crore per application) and product deployment-linked incentive of 4-6% on net sales for 5 years (maximum of Rs 30 crores per application). The Government is looking to offer such support to at least 100 domestic companies and further expects at least 20 such companies to hit revenue of Rs 1,500 crore in 5 years.
The application window for the schemes is open from 1 January 2022 and remains open for 45 days for semiconductor and display fabs and 3 years for other schemes. Special quality and cost-based selection criteria will be followed for approvals of semiconductor and display fabs.
In addition, as a non-fiscal incentive 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 2017. This will support companies setting up manufacturing in India captive demand base for Indian manufactured chips, which has been one of the prime concerns of the chip manufacturing companies.
Global companies from Taiwan, the US, South Korea etc have expressed keen interest to invest, with a special focus on domestic companies, startups under the design segment. It is envisaged that the scheme would bring an investment of around $22 billion leading to the employment of over 1,35,000 in the next four years.
The Government is also planning to establish an “India Semiconductor Mission” to drive long-term strategies for the sustainable development of the chip and display industry. Under this mission, the Central Government would also work with State Governments to provide pre-requisite infrastructure support in terms of land, semiconductor grade water, power, logistics and research ecosystem. The Government is also offering a clear twenty-year roadmap where the focus would be on generating highly skilled employment opportunities.
Another positive deviation from subsidizing/ incubating IP creation in India through a Government sponsored agency has been to offer a large part of the incentive on successful implementation of the design by way of production linked incentive which will incentivize companies/start-ups based on success rather than intent.
The second phase of promoting India as a manufacturing destination has been set in motion through the scheme where chip manufacturers shall benefit from the overwhelming response and demand created by the first phase of PLI. Further, with substantial fiscal incentives coupled with non-fiscal benefits, it is likely that India’s semiconductor dream is likely to be fulfilled and shall contribute significantly to achieving a $1 trillion digital economy and a $5 trillion GDP by 2025 and have a multiplier effect on allied sectors such as electronics, telecom, automotive, railways, electrical products etc.
(The writer is Partner, EY India)