India clears $10B incentives to lure chipmakers

The Indian government has cleared incentives worth INR760 billion (US$10 billion) to establish more than 20 chip design, components manufacturing and fab units over the next six years.

The Programme for Development of Semiconductors and Display Manufacturing Ecosystem is targeting two fab units for displays, and ten units each for designing and manufacturing components. The initiative will also offer incentives to startups to design and produce chips.

Figure 1: Chips with that? The Programme for Development of Semiconductors and Display Manufacturing Ecosystem is aiming for two fabs for displays, and ten units for components.
(Source: Unsplash)

It is possible that India will sweeten the deal by offering the benefits of the Production Linked Incentive (PLI) scheme, including loans and subsidies on land, to the chip companies. The Ministry of Electronics and IT (MEITY) will now invite applications from companies.

Tata Group, which is in talks with southern states to set up a semiconductor manufacturing unit, may emerge as an interested party.

Chipping away

In the past, India has tried several times to build a semiconductor ecosystem but without much success.

In 2020, the government invited expressions of interest from companies looking to set up new semiconductor units in India.

Unfortunately, it was unable to attract any players. The administration had tried in 2013 as well, by offering zero customs duty on the necessary parts and machinery for setting up a fab unit.

This comes at a time when there is a massive global shortage of semiconductors affecting several industries, including automobiles and electronics.

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Global chip supply chains were broken in part because of the pandemic, leading to a severe shortage. This – coupled with geopolitical tensions between the US and China – is forcing many countries to find ways to reduce their chip dependency on other countries.

This in turn has led to a shortage of the machinery required to set up a fab unit. India is likely to face further challenges as it doesn't have any experience in chip manufacturing.

Added to this, a chip plant requires an uninterrupted power supply and consumes massive water – both of which can be challenging in parts of the country.

India is trying to position itself as a manufacturing destination, and having a domestic chip unit will help. This policy is one of the many initiatives undertaken by the government to boost domestic industry.

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— Gagandeep Kaur, contributing editor, special to Light Reading