Why in the News?

• The Government has notified the second phase of the India Semiconductor Mission (ISM 2.0) with an outlay of about Rs. 1,27,500 crore.
• The scheme expands support beyond semiconductor fabrication to cover chip design, equipment, materials, packaging, research and development, and talent development.

What’s in Today’s Article?

• Semiconductor Ecosystem (Background, ISM 1.0, ISM 2.0, etc.)
• News Summary (Investment Support, Talent and R&D, Significance)

Semiconductor Ecosystem in India

• Semiconductors are essential components used in smartphones, computers, automobiles, defence systems, telecommunications equipment, consumer electronics and artificial intelligence infrastructure.
• Their strategic importance has increased because disruptions in global semiconductor supply chains can affect multiple industries.
• India has traditionally been strong in semiconductor design and engineering talent, but has had limited domestic manufacturing capacity.
• Government policy has therefore increasingly focused on developing an integrated ecosystem covering the entire semiconductor value chain.
• The India Semiconductor Mission was launched with this broader objective.
• The first phase, or ISM 1.0, received an allocation of Rs. 76,000 crore and resulted in the approval of 12 projects involving around Rs. 1.64 lakh crore of cumulative investment.

India Semiconductor Mission 2.0

• ISM 2.0 seeks to move beyond individual semiconductor projects and develop a complete domestic ecosystem. Its six pillars are:
  • Chip design: Supporting indigenous chip design, particularly for strategically important applications.
  • Machines and materials: Promoting domestic manufacturing of semiconductor equipment, chemicals and gases.
  • Fabs: Supporting the establishment of semiconductor fabrication facilities.
  • Packaging and testing: Expanding assembly, packaging and testing capabilities.
  • Research and development: Supporting advanced semiconductor technologies.
  • Talent development: Building the specialised workforce required by the industry.

News Summary

• The notified scheme has an outlay of approximately Rs. 1,27,500 crore.
• The Government expects ISM 2.0 to attract around Rs. 4 lakh crore of cumulative investment, generate semiconductor production worth Rs. 2 lakh crore, and achieve approximately Rs. 1 lakh crore of exports during the scheme period.
• The broader ecosystem is also expected to create 50,000-60,000 direct jobs, according to the Electronics and Information Technology Minister.

Investment Support

• The Centre will provide capital support of up to 40% for silicon fabrication units.
• Support of up to 35% will be available for compound semiconductor and discrete fabs, as well as specified display fabs and semiconductor packaging units.
• Incentives will be released on a pari-passu basis, meaning government support will correspond proportionately to capital invested in the project.
  • Pari passu is a Latin phrase that means "equal footing" or "moving together in equal step".
• The scheme also extends support upstream. Facilities producing wafers, substrates, chemicals and gases, as well as semiconductor testing and R&D facilities, can receive support of up to 30% of capital expenditure.
• Manufacturers of equipment, sub-assemblies and components can receive an additional production-linked incentive of 2-10% of the bill of materials.

Support for Indian Chip-Design Start-ups

• ISM 2.0 also seeks to strengthen India's semiconductor design ecosystem. The Centre can take minority stakes in Indian semiconductor start-ups, matching private investment to bridge funding gaps.
• Chip-design start-ups and MSMEs can receive seed funding of up to Rs. 15 crore, followed by government co-investment beyond that threshold.
• The scheme also provides for royalty financing, under which supported companies pay 5% of net revenue until the Government recovers 1.5 times its support.

Talent and R&D

• Research and development and talent development receive support of up to 75% of project cost, according to the notified framework.
• This is important because semiconductor manufacturing requires specialised skills spanning chip architecture, fabrication, packaging, equipment and materials.
• India has already exceeded an earlier target of developing 85,000 semiconductor engineers in four years, against the original 10-year timeline.

Significance

• ISM 2.0 attempts to address India’s semiconductor vulnerability by developing capabilities across the entire value chain, rather than focusing only on fabrication.
• It can strengthen supply-chain resilience, support domestic technology companies, generate skilled employment and increase India's participation in global semiconductor production.