What is the Semicon India Program and How Does it Work?

India announced the Semicon India Program on December 15, 2021 and has been receiving proposals from companies for semiconductor and display manufacturing from January 1, 2022. Key objectives include setting up greenfield semiconductor fabs and display fabs, developing R&D and design capabilities, and being able to compete with other bases in Asia to reduce India’s import dependencies. In this article, we list the new incentives for semiconductor manufacturers and R&D firms as well as product design and product deployment linked incentives. These new incentives will be in addition to the support for supply chain segments benefiting from existing Production-Linked Incentive (PLI) Schemes and electronics manufacturing schemes.

On December 15, 2021, India’s Union Cabinet approved the Semicon India Program (Program for Development of Semiconductors and Display Manufacturing Ecosystem in India), with an outlay of INR 760 billion (>US$10 billion) for the development of a sustainable semiconductor and display manufacturing ecosystem in India.

On December 30, 2021, it was announced that the government can start receiving company proposals under the program. The Minister of Electronics and Information Technology (MeitY), Ashwini Vaishnaw, said: “All the schemes have been notified, uploaded on the website and a portal has been prepared for receiving the applications. So January 1, 2022 onwards, we will start receiving the applications.”

On January 16, 2022 the MeitY announced it is seeking applications from 100 domestic companies, start-ups and MSMEs under its Design Linked Incentive (DLI) Scheme, which is part of the Program for Development of Semiconductors and Display Manufacturing Ecosystem in India.

On February 19, 2022, the Indian government confirmed that it had received applications from five companies to establish electronic chip and display manufacturing plants with an investment of INR 1.53 trillion (approx. US$20.5 billion). The window for applications to the semiconductor chip design and manufacturing scheme was previously February 15 but has now been extended. Speaking to The Economic Times, the minister of state for electronics and IT, Rajeev Chandrasekhar, said: “There is no deadline as such. Conversations with many global leaders are ongoing and so extending the date is certain,” said Chandrasekhar. “The government understands that this is a very time-intensive decision and made more so due to travel and physical meeting restrictions (due to the pandemic).”

What is the Program for Development of Semiconductors and Display Manufacturing Ecosystem in India?

The Program for Development of Semiconductors and Display Manufacturing Ecosystem in India will position the country as a global hub for electronic system design and manufacturing. The much-required package for the sector comes at a time when India has been facing a component shortage that has crippled the Indian automotive, consumer electronics, and mobile handset makers.

Through the program’s scope, the government hopes to attract large global chip makers to make India their production base. India wants to achieve technological leadership in these areas of strategic importance – also key to the security of the country’s critical information infrastructure. The goals also feed into the government’s vision for a Atmanirbhar Bharat (Self-Reliant India).

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Further goals include attractive massive investment and generating local jobs. According to Vaishnaw, this funding of US$10 billion will be provided over a period of six years and is expected to bring in investments of up to INR 1700 billion (US$22.5 billion).

Overall, the program will provide attractive incentives and support companies engaged in the manufacturing of silicon semiconductor fabs, display fabs, compound semiconductors/silicon photonics/sensors (including MEMS) fabs, semiconductor packaging (ATMP/OSAT), and semiconductor design.

Profiling the semiconductor demand in India

Rapid digitization, coupled with technological advancements in the capacity for intelligent computing and growth of AI has led to the unprecedented demand of semiconductors and chipsets across the world, including India, for manufacturing tech-enabled products.

End-use industries that are dependent on semiconductors include mobile devices, telecommunication equipment, industrial machinery, information technology, automobiles, automation (workplace, healthcare, manufacturing etc.), the Internet of Things (IoT) and several other industries that have applications for computing in some form or other.

According to the India Electronics and Semiconductor Association (IESA), semiconductor consumption in India was worth US$21 billion in 2019, growing at the rate of 15.1 percent. Research and development (R&D) in this industry, which includes electronic products and embedded systems, generated about US$2.5 billion in revenue.

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Due to its rich talent pool in IT design and R&D engineers, India has so far focused on its technical competencies in R&D and design in the industry. The Indian semiconductor design market was projected to grow by a compound annual growth rate (CAGR) of 29.4 percent from US$14.5 billion in 2015 to US$52.6 billion in 2020.

The new comprehensive package is thus intended at addressing the lack of semiconductor wafer fabrication (FAB) production units in India as against more competitive bases in China and Vietnam.

What are India’s incentive schemes for semiconductor and display manufacturing?

Semiconductor fabs and display fabs

The scheme for setting up of semiconductor fabs and display fabs in India shall extend fiscal support of up to 50 percent of project cost to all the eligible applicants, treating them on an equal footing. The applicants must be equipped with the technology as well as capacity to execute such highly capital intensive and resource incentive projects. The Central Government will work closely with the State Governments to establish high-tech clusters with requisite infrastructure in terms of land, semiconductor grade water, high quality power, logistics, and a research ecosystem. These clusters will be responsible for granting approvals to applications for setting up at least two greenfield semiconductor fabs and two display fabs India.

Semi-conductor Laboratory (SCL)

The Ministry of Electronics and Information Technology will explore possibilities for a joint venture between the Semi-conductor Laboratory (SCL), and a commercial fab partner to modernize the SCL’s brownfield fab facility.

Compound semiconductors / silicon photonics / sensors (including MEMS) fabs and semiconductor ATMP / OSAT units

The scheme for setting up these facilities in India shall extend fiscal support of 30 percent of capital expenditure to approved units. It is expected that a minimum of 15 such units of compound semiconductors and semiconductor packaging will be established under this scheme.

Semiconductor design companies

The Design Linked Incentive (DLI) Scheme under this comprehensive package will extend product design linked incentive of up to 50 percent of eligible expenditure. Additionally, product deployment linked incentive of six-four percent on net sales for five years will also be provided. Under this scheme, support will be offered to 100 domestic companies of semiconductor design for integrated circuits (ICs), chipsets, system on chips (SoCs), systems & IP cores and semiconductor linked design. This scheme will also aid in facilitating the growth of not less than 20 such companies which can achieve turnover of more than INR 15000 million (US$197.08 million) over the next five years.

Design Linked Incentive (DLI) Scheme: Categories of support

The Centre for Development of Advanced Computing (C-DAC), a scientific society operating under MeitY, will serve as the nodal agency for implementation of the DLI scheme. The DLI scheme aims to nurture at least 20 domestic companies involved in semiconductor design and facilitate them to achieve turnover of more than INR 15 billion in the next five years. 

A dedicated portal has been made available – www.chips-dli.gov.in – for inviting online applications from January 1, 2022 to December 31, 2024. The applicants can find the guidelines of the DLI Scheme on the portal and register themselves for availing support under the scheme.

India semiconductor mission

A specialized and independent “India Semiconductor Mission (ISM)” was launched on December 29, 2021 to drive the long-term strategies for developing a sustainable semiconductor and display ecosystem in India. The ISM will act as the nodal agency for efficient and smooth implementation of the schemes on semiconductors and display ecosystem.

Application form and guidelines for companies seeking approvals for the development of semiconductors and display manufacturing ecosystem in India

The IT ministry has released guidelines for implementation of the scheme and a semiconductor portal is being prepared for accepting and processing applications from interested companies. See table below for government notified PDF links.

Eligibility criteria and government fiscal support: Setting up silicon semiconductor fab

Eligibility criteria and fiscal support: Display fab

Eligibility criteria and financial incentives: Compound Semiconductors / Silicon Photonics (SiPh) / Sensors (including MEMS) Fab

Eligibility criteria and financial incentives: Semiconductor Assembly, Testing, Marking, and Packaging (ATMP) / Outsourced Semiconductor Assembly and Test (OSAT) Facility

Additional fiscal support for semiconductors and electronics production

Apart from approving the US$10 billion-dollar program for the development of a semiconductor and display manufacturing ecosystem in India, the Union government has also announced incentives worth INR 2300 billion (US$30 billion) to position India as a global hub for electronics manufacturing.

The breakdown of these incentives, which are provided for in every part of the supply chain, including electronic components, sub-assemblies, and finished goods, is as follows:

• Incentive support worth INR 553.92 billion (US$7.28 billion) has been approved under the Production-Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing, PLI scheme for IT Hardware, Scheme for the Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and the Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme.
• Furthermore, PLI incentives to the tune of INR 980 billion (US$13 billion) have been approved for allied sectors – ACC battery, auto components, telecom and networking products, solar PV modules, and white goods. These are the industries that use semiconductors as essential components.

Applications received as on February 19, 2022

• In a statement released to the media by the government on February 19, 2022: The first round of applications was invited till February 15, 2022 for establishment of Semiconductor and Display Fabs. The India Semiconductor Mission, which has been set up as a dedicated institution for the Semicon India Program, received five applications for Semiconductor and Display Fabs – with total investment to the tune of US$ 20.5 billion (INR 1.537 trillion).
  i) Vedanta Foxconn JV, IGSS Ventures and ISMC have proposed to set up electronic chip manufacturing plants with US$13.6 billion investment. They seek US$5.6 billion in support from the central government under the Semicon India Program to set up 28 nm to 65nm semiconductor fabs with capacity of approx. 120,000 wafers per month.
  ii) Vedanta and Elest have submitted applications to set up display fab projects with an investment of US$6.7 billion and seek support worth around US$2.7 billion. The latter have submitted proposals to set up Gen 8.6 TFT LCD Display Fab as well as 6th Generation Display FAB for the manufacture of State-of-art AMOLED display panels that are used in the advanced smartphones.
  iii) SPEL Semiconductor Ltd., HCL, Syrma Technology, and Valenkani Electronics have registered under the Scheme for Semiconductor Packaging and Ruttonsha International Rectifier Ltd. has registered under the Scheme for Compound Semiconductors.
  iv) Terminus Circuits, Trispace Technologies, and Curie Microelectronics have submitted applications under the Design Linked Incentive Scheme. The applicant companies have also submitted the proposals for technology acquisition, partnerships, and collaborations with research institutes as part of the applications.

In 2021, the government announced it was seeking to commercialize the ISRO-owned Semiconductor Lab (SCL) at Mohali. SCL Mohali has now been handed over to MeitY from Department of Space and will be opened up as a commercial fab for wider participation by Indian semiconductor design companies. 

Archive: Key foreign players India is talking to

As per recent media reports, talks for a free trade pact between India and Taiwan are ongoing – as a step towards creating a semiconductor manufacturing hub in India. The talks aim to facilitate India’s increasing demand for semiconductor chips and this is helped by the fact that global semiconductor giants like Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) are now looking to diversify their supply chains out of Taiwan due to water scarcity. However, complications arise when discussing such production relocation as these companies use components from hundreds of other firms. Setting up a hub in India would thus require convincing all those other firms to also set up a facility in India to smoothen supply of components. 

Both India and Taiwan are working together for creating a semiconductor manufacturing hub as well as the education and training of highly specialized manpower needed for the industry. Experts in fact estimate that around 30 percent of the 300,000 engineers graduating every year could get absorbed into the semiconductor industry every year. 

TSMC, which has a market value of more than US$550 billion and accounts for about 54 percent of global revenues from semiconductors, has set up a US$12 billion fab plant in the US – viewed in some quarters as a strategic move to counter Chinese aggression in light of Washington’s military support to Taiwan. Given the geopolitical factors, India emerges as a logical choice for a base for the semiconductor giant.

Furthermore, other existing investments in play include Abu Dhabi-Next Orbit Ventures, which has planned to invest US$100 million in a semiconductor fab project based in Gujarat; California-based INVECAS that has planned to invest between US$15-20 million for the setup of design centers in Bengaluru and Hyderabad; and Germany-based semiconductor firm Infineon Technologies. 

The Next Orbit ventures has raised concerns regarding delay in response to the “Expression of Interest (EoI)” applications. The Abu Dhabhi-based firm has formed a consortium with Israeli Tower Semiconductors and floated an EoI for a US$3 billion analogue 65-nanometre semiconductor fabrication unit in Dholera, an industrial hub in Gujarat.

This article was originally published on December 31, 2021. It was last updated February 21, 2022.

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