Why in News?

The Indian government, having nearly exhausted the $10 billion subsidy under its ambitious semiconductor manufacturing incentive policy, is planning a second phase with a $15 billion outlay.

This expansion aims to provide capital support for raw materials and gases used in chip manufacturing, while reducing subsidies for assembly and testing plants.

What’s in Today’s Article?

• India’s Semiconductor Ambitions
• India's Major Leap into Semiconductor Manufacturing
• The Semiconductor Manufacturing Incentive Policy

India’s Semiconductor Ambitions:

• Background:
  • In today’s world, semiconductors constitute the backbone of modern electronics, indispensably situated at the junction of a wide range of industries.
  • Given their broad applicability, countries across the globe are strategising to mitigate risks associated with over-reliance on a single supply source of semiconductor chips.
  • This also serves to fortify national security and economic well-being, considering recent geopolitical conflicts.
• Advantages to India: India has 20% of the world’s semiconductor design workforce, a rapidly evolving technology landscape and a thriving domestic market, all of which are conducive in building an indigenous semiconductor ecosystem.
• How to sustain the growing momentum?
  • Pacing up of initiatives:
    • In the last few decades (prior to the current push), India made multiple attempts to join the global semiconductor industry but fell short primarily due to the lack of proactiveness in policy implementation.
    • Drawing lessons from the past, the government can ensure swift execution of policies under its freshly formulated strategy.
  • Inching up the value chain: To establish an end-to-end semiconductor ecosystem, India can consider strategically moving across the industry value chain.
  • Leveraging the talent edge: Estimates say that India will require 1.2 million skilled people in the semiconductor sector by 2032. The clock is ticking, and India must develop its talent ecosystem fast. 

India's Major Leap into Semiconductor Manufacturing:

• The government is aiming for India to be among the top five global destinations (on the lines of the United States, Taiwan and South Korea) for semiconductor manufacturing by 2030.
• Government initiatives, such as the National Electronics Policy or the USD10 billion production linked incentive (PLI) scheme for semiconductor manufacturing, are also boosting India’s chipmaking aspirations.
• India has been luring foreign companies to set up operations in the country. For example,
  • The country has approved a fabrication plant worth $11 billion being set up by Tata Electronics in partnership with Taiwan’s Powerchip.
  • 3 different chip assembly plants are being set up by the Tatas, US-based Micron Technology, and Murugappa Group’s CG Power in partnership with Japan’s Renesas.
• Hence, with the right blend of proactive actions, tech skills, infrastructural acceleration and fiscal investments, India has the potential to achieve this target. 

The Semiconductor Manufacturing Incentive Policy:

• In the first iteration of the incentive policy released in 2021,
  • The Centre had offered a 30% capex subsidy for chip packaging and testing plants.
  • However, the Centre had increased the subsidy for such plants to 50% in 2022.
• The Semiconductor Manufacturing Incentive Policy 2.0:
  • Focus on chip fabrication:
    • India wants to go up (beyond assembly and packaging facilities) the complexity ladder in the semiconductor ecosystem, where nations like Malaysia already have a stronghold.
    • Therefore, the new scheme could see an increased focus on fabrication plants, and more advanced display technologies.
  • Technology transfer costs:
    • Under the new incentive scheme, the government does not want to support technology transfer costs.
    • This implies that companies that collaborate with others to use their technology for chip fabrication may have to pay for it themselves.
  • Capital equipment and ecosystem support:
    • Under the new scheme, the government could also offer capital equipment and ecosystem support such as gases, chemicals, and raw materials needed at assembly and testing plants.
    • It could also look at incentivising fabrication of micro-LED displays.