India to roll out fresh chip incentives package, receives US partnership

New Delhi: The central government’s India Semiconductor Mission (ISM) is preparing a fresh incentive package to attract overseas chipmakers, packagers, testers and component suppliers into the country’s semiconductor ecosystem, according to its top executive.

A specific value for the incentives has not been arrived at, Akash Tripathi, chief executive of ISM said. He added that the package would include incentives for components as well this time.

Tripathi was speaking at a press briefing on Monday, the same day that the ISM announced a tie-up with the US for a semiconductor partnership.

“Our goal is to support the industry with requisite incentives for 10 years, and we’ll continue to do so including boosting the entire component ecosystem to come and set up operations here," Tripathi said, adding that around 20 new proposals are already being evaluated, including for full-scale fabs, assembly, testing and packaging plants.

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However, two senior officials closely associated with ISM told Mint on condition of anonymity that the new package would be upward of $10 billion. “The eventual ambition to have at least five more fabs before the end of this decade will need such scale of incentives, or perhaps more, if we want to build a robust semiconductor ecosystem," one of the officials said.

Incidentally, India's first tryst with semiconductor incentives also had an outlay of $10 billion (over six years). In December 2021, the Centre had announced the production-linked incentive (PLI) scheme to promote setting-up of semiconductor and display fabs, as well as chip packaging, assembly and testing facilities.

Components were offered a separate ‘SPECS’ (Scheme for Promotion of Manufacturing of Electronics) outlay of just $440 million.

The partnership with the US

The confirmation of a new incentives package came on the same day that the US Department of State (DoS) announced a partnership with ISM “to grow and diversify the global semiconductor ecosystem".

The agreement comes under the US’s International Technology Security and Innovation (ITSI) fund—a $500-million corpus under the country’s Creating Helpful Incentives to Produce Semiconductors (Chips) and Science Act, announced in August 2022.

A joint survey will be conducted by stakeholders of the US semiconductor ecosystem and the ISM, following which “potential future joint initiatives to strengthen and grow this critical sector" will be determined.

Funds allocated under the US-India ITSI fund could include commercial chip agreements in the long run, “which may serve critical defence and consumer industries", a veteran industry executive said on the fund.

At the same time, Tripathi said that proposals to modernize the Semi-Conductor Laboratory (SCL)—the Centre’s only operational chip fab—are also under evaluation.

“There are a number of interesting proposals that we have already received, and we’re looking to modernize it as a commercially operational fab. The exact details of the process are currently being worked upon," he said.

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Tripathi said the Centre has so far approved incentives worth ₹1.52 trillion ($18.1 billion) under his watch. Going forward, a number of key announcements from the proposals on India’s table are further expected, as a three-day inaugural edition of ‘Semicon India’ gets underway in Uttar Pradesh’s Greater Noida.

Ajit Manocha, president and chief executive of US-headquartered global industry body, Semiconductor Equipment and Materials International (Semi), added that the conference is expected to host “over 250 companies from the entire semiconductor ecosystem, from 24 different nations".

India’s push to set up an ecosystem of chipmakers, designers, assemblers has so far seen the approval of an $11-billion chip fab by Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Company (PSMC). Further, four outsourced semiconductor assembly and testing (OSAT) facilities have also been approved by ISM.

Three further facilities have so far also been announced, including a partnership between China’s Foxconn and Noida-headquartered HCL Technologies in January this year. On 5 September, Israel’s Tower Semiconductor and India’s Adani Group’s plans to set up an ₹84,000-crore ($10 billion) chip fab in Maharashtra was announced by the state government.

However, Tripathi stated that while “a Tower application" is under evaluation of ISM, he did not confirm if the application involved the Adani Group.

Challenges ahead

Amid the optimism, however, causes for concern remain. Yee-Shyi Chang, technology ambassador of Taiwan to India for industry body India Cellular and Electronics Association (ICEA), added that the key to achieving success in India’s semiconductor ecosystem will be in training engineers.

“India will need to train at least 10,000 engineers each year in chip fabrication and semiconductor engineering, in order to become a successful and viable economy for the world’s biggest chipmakers to consider this economy. India is at an advantageous position against the US in terms of availability of talent, and the Centre’s concerted ‘mission’ can make India’s journey easier. But it will take at least 10-15 years for the semiconductor economy to become meaningful and substantial," Chang said.

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Business cases, industry executives said, are already building up. Pankaj Mohindroo, chairman of ICEA, further added that India’s OSAT firms are already in talks to enable domestic chip supplies. “The first commercial chip from Micron’s OSAT in Sanand, Gujarat has already shipped, and consumer electronics and other companies are already in talks to source these memory chips for various devices," he said.

Adding to this, ISM’s Tripathi further added that OSATs represent “a substantial import substitution opportunity for India—and even export cases in the long run".