India’s Semiconductor Moment.

The Indian semiconductor market is expected to reach USD 55 billion by 2026, more than 60% of which is driven by three industries: smartphones & wearables, automotive components, and computing & data storage.[1] Currently, majority of the demand in the Indian semiconductor market is met by imports. In order to reduce the dependency on imports of semiconductors and to fill the semiconductor supply chain gap caused due to COVID-19 and the strained relations between United States and China, the Government of India has approved the Semicon India Programme with an initial financial outlay of INR 76,000 crore (USD 9.13 billion approx.) for the development of a sustainable semiconductor and display ecosystem in India.[2] While inaugurating the Semicon India 2023, a national-level conference focusing on the semiconductor industry, in Gandhinagar, Gujarat, PM Modi said that India is becoming a grand conductor for investments in the semiconductor sector.[3]

Key initiatives and support to semiconductor industry by Government of India

The Government of India has established the India Semiconductor Mission (“ISM”)[4] to address the global semiconductor shortage and encourage manufacturers to set up their semiconductor facility in India.

The Government of India has issued four schemes under the ISM, which as the nodal agency, will be responsible for carrying out technical and financial appraisal of the applications received, recommending selection of applicants and performing other responsibilities as assigned by the Ministry of Electronics and Information Technology from time to time. These four schemes are as follows:

Modified Scheme for setting up of Semiconductor Fabs in India[5]

Eligibility Criteria
Description	Companies, consortia, joint ventures proposing to set up silicon CMOS based semiconductor fab in India for manufacturing logic, memory, digital integrated circuits (“ICs”), analog ICs, mixed signal ICs or system on chips (“SoCs”)
Technology	Wafer size: 300 mm Installed capacity: 40,000 wafer starts per month or above
Operational Experience	The applicant should own or possess production grade licensed technologies for proposed technology process and demonstrate roadmap to advanced nodes technologies through licensing or development.
Minimum Capital Investment Threshold	INR 20,000 crore (USD 2.40 billion approx.)
Minimum Revenue Threshold	INR 7,500 crore (USD 900 million approx.) (including group companies) in any of the three financial years preceding the year of submission
Government Support
Fiscal Support	50% of Project Cost ‘Project Cost’ includes capital expenditure on (a) land, building, plant and machinery, clean rooms, equipment and associated utilities; (b) in-house and captive research and development; (c) transfer of technology; and (d) other costs including interest during construction and insurance costs. Such project cost will have to be made on or after the date of approval of the project company’s application by ISM and within six years therefrom. Fiscal support agreement will need to be executed between ISM and the project company for disbursement of fiscal support. Units receiving fiscal support will need to remain in commercial production for at least three years from the date of commencement of commercial production.
Non-Fiscal Support	(a) infrastructure development support; (b) demand aggregation support; and (c) research & development, skill development and training support

Modified Scheme for setting up of Display Fabs in India[6]

Eligibility Criteria
Description	Companies, consortia, joint ventures proposing to set up a display fabrication unit in India for manufacturing TFT LCD or AMOLED based display panels
Technology	Generation 8 or above for TFT LCD Generation 6 or above for AMOLED
Capacity	60,000 panels per month or more for TFT LCD 30,000 panels per month or more for AMOLED
Operational Experience	(a) Own and operate a commercial display fab facility with TFT LCD technology of generation 6 or above; or (b) Own or possess licensed technologies for generation 8 of TFT LCD technology or generation 6 of AMOLED technology and demonstrate the roadmap to advanced technologies through licensing or development.
Minimum Capital Investment Threshold	INR 10,000 crore (USD 1.20 billion approx.)
Minimum Revenue Threshold	Same as in (a) above
Government Support
Fiscal and Non-Fiscal Support	Same as in (a) above

Modified Scheme for setting up of Compound Semiconductors and ATMP Facilities in India[7]

Eligibility Criteria
Description	Companies, consortia, joint ventures proposing to set up compound semiconductors, silicon photonics, sensors, discrete semiconductors fab in India for manufacturing high frequency, high power or optoelectronics devices	Companies, consortia, joint ventures proposing to set up semiconductor assembly, testing, marking and packaging (“ATMP”) or outsourced semiconductor assembly and test (“OSAT”) facilities in India
Technology	Wafer size: 150/200 mm or more Capacity: 500 or more wafer starts per month (in 100 mm equivalent)	N/A
Operational Experience	(a) Own and operate a commercial compound semiconductor, silicon photonics, sensors fab, discrete semiconductors fab, or silicon semiconductor fab; or (b) Own or possess licensed process technologies for the proposed fab.	(a) Own and operate a commercial semiconductor packaging unit; or (b) Own or possess licensed technologies for the proposed semiconductor packaging unit and demonstrate roadmap to advanced packaging technologies through licensing or development.
Minimum Capital Investment Threshold	INR 100 crore (USD 12.01 million approx.)	INR 50 crore (USD 6.01 million approx.)
Government Support
Fiscal Support	50% of Capital Expenditure ‘Capital Expenditure’ shall include expenditure incurred on land, building, clean rooms, plant, machinery, equipment and associated utilities (including used / second hand / refurbished); transfer of technology including cost of technology; and research & development. Such capital expenditure will have to be made on or after the date of approval of the project company’s application by ISM and within five years therefrom. Fiscal support agreement will need to be executed between ISM and the project company for disbursement of fiscal support. Units receiving fiscal support will need to remain in commercial production for at least three years from the date of commencement of commercial production.
Non-Fiscal Support	Same as in (a) above

Design Linked Incentive Scheme[8]

Financial Incentives
Categories of support	Startups and MSMEs may apply under the ‘design infrastructure support’ and ‘product design linked incentive’ categories.Domestic companies, startups and MSME may apply under the ‘deployment linked incentive’ category.
Product Design Linked Incentive	Reimbursement of up to 50% of the eligible expenditure, subject to maximum of INR 15 crore (USD 1.80 million approx.) per application to approved applicants engaged in semiconductor design for ICs, chipsets, SoCs, systems and IP cores and semiconductor linked design, that can be demonstrated in an operational environment and are ready for volume production.
Deployment Linked Incentive	Incentive of 6% to 4% of net sales turnover over 5 years, subject to maximum of INR 30 crores (USD 3.60 million approx.) per application to approved applicants whose semiconductor design for ICs, chipsets, SoCs, systems and IP cores and semiconductor linked design are deployed in electronic products.
Eligible expenditure	Eligible expenditure will include manpower cost, capital investment, software intellectual property and licenses, intellectual property right registration, field trials, and production costs.

Additionally, project proponents will be eligible to avail various tax benefits, including exemption from basic customs duty on machinery, electrical equipment, other instruments and their parts for use in fabrication of semiconductor wafer or in assembly, testing, marking and packaging of semiconductor chips. The manufacturer may also explore various incentive schemes, such as export oriented unit scheme to avail duty-free import or opt for manufacture and other operation in warehouse scheme for deferment of payment of customs duty on import of capital goods for the project till clearance of such goods from the custom-bonded warehouse, or waiver of customs duty for finished goods exported from India. Project proponents will need to comprehensively analyse the tax benefits/ exemptions and structure the project contracts with their contractors and/or subcontractors accordingly to avail benefit of the tax schemes and policies.

The Government has also planned to change the engineering curriculum to include specialised courses on semiconductors. It is expected that India will have more than 1 lakh semiconductor design engineers in the next five years.

Key incentives offered by State Governments to aid the ISM

With a view to support the ISM, few states of India have also formulated specific policies for semiconductor industry, offering fiscal and non-fiscal incentives. These include additional capital assistance as a percentage of the capital subsidy provided by the Central Government under the ISM schemes, allotment of land for the project at subsidised rates, 100% reimbursement of stamp duty and registration fee for lease/sale/transfer of land for the project, ready access to utilities and other industrial infrastructure, access to power at subsidised tariff, and exemption from payment of electricity duty.

In addition to preferential market access to locally-based semiconductor companies, the state policies also envisage establishing a single window clearance system for (i) facilitating all information regarding clearances required for the project, (ii) obtaining statutory clearances required at the state level, including application, payment, tracking and approval thereof, (iii) risk-based synchronised inspection by regulatory agencies, (iv) incentive administration, (v) post land allotment services, and (vi) grievance redressal. Gujarat was the first state to bring out a dedicated semiconductor policy in 2022[9], followed by the states of Uttar Pradesh[10] and Odisha[11].

An applicant may claim incentives under any one of the ISM schemes (and not more than one ISM scheme) and related policies of the State Governments.

India emerging as a global semiconductor hub

Some of the world’s top chip manufacturers have committed to make significant investments under the ISM. Their confidence in India was exhibited during Semicon India 2023, which was attended by prominent semiconductor companies and start-ups, such as Micron Technology, Applied Materials, Foxconn, SEMI, Cadence, and AMD. India’s growing start-up ecosystem will also provide strength to the semiconductor sector. India’s emergence as a potential semiconductor hub can be gauged from the following:

US-based Micron Technology Inc. (“Micron”) has signed a memorandum of understanding (“MOU”) with the Gujarat Government to set up a INR 22,500 crore (USD 2.70 billion approx.) semiconductor facility at Sanand near Ahmedabad, Gujarat. This project marks the largest investment in the ISM schemes.[12]
Foxconn has declared investing over USD 1.2 billion in India. It has executed an agreement to build a manufacturing facility for electronic components in Tamil Nadu and has purchased 21.5 million square feet of land in Bengaluru and Telangana.[13]
AMD has announced an investment of around USD 400 million over the next five years in India to construct a state-of-the-art campus in Bangalore, which will serve as the world’s largest research and development facility for the company.[14]
Applied Materials has announced a gross investment of USD 400 million in India over the next four years for construction of a collaborative engineering centre in Bengaluru, for development and commercialisation of technologies for semiconductor manufacturing equipment.[15]
Prominent industry suppliers, such as Simmtech and Air Liquide are currently engaged in discussions with the Central Government to initiate their operations in India.[16]
On July 20, 2023, India and Japan formally signed a memorandum of cooperation covering five key areas –involving innovation and technology exchange– to bolster the semiconductor sector in both countries.[17]
Sahasra Semiconductors has set up a semiconductor assembly, test and packaging unit in Bhiwadi, Rajasthan, which is expected to commence commercial production of first made-in-India memory chips from October 2023.[18]

It is time for India to leverage the semiconductor ecosystem and ensure a collaborative effort between the Government, Indian industry, and global players to establish resilient supply chains for semiconductors globally.