India and the US are collaborating on a semiconductor plant for cutting-edge technologies like infrared, gallium nitride, and silicon carbide. India's semiconductor sector is expanding with a Rs 1.25 lakh crore investment in five projects, receiving significant incentives. Concerns exist over potential incentive reductions for certain projects. Experts advocate for a focus on advanced semiconductor nodes and product design companies. India aims to establish 10 fabs, emphasizing the need for sustained incentives to bolster the chip ecosystem and reduce import reliance, projecting growth in semiconductor demand by FY30.
India and the US have joined hands in a groundbreaking agreement to establish a cutting-edge semiconductor fabrication plant, focusing on the production of infrared, gallium nitride, and silicon-carbide semiconductors. This initiative is bolstered by the support of the India Semiconductor Mission and a strategic technology partnership involving Bharat Semi, 3rdiTech, and the US Space Force, paving the way for the facility's development.
India's semiconductor ambitions have reached new heights as it aims to localize the entire value chain, encompassing materials to wafers. With a substantial investment of Rs 1.25 lakh crore allocated across five chip projects—comprising one chip fabrication unit and four assembly and testing projects—India has committed around Rs 62,000 crore in incentives, representing a significant portion of the earmarked Rs 76,000 crore for the initial phase. The government is contributing 50% of the capital cost, with state governments pitching in between 25-30%.
Looking ahead, the government is poised to allocate an additional $10 billion for the second phase, emphasizing a comprehensive approach beyond just fabs. However, there are concerns regarding potential reductions in incentives and capital expenditure support for Outsourced Semiconductor Assembly and Test (OSAT) projects, possibly dropping to 20-30% from the initial 50%.
Pankaj Mohindroo, chairman of the India Cellular and Electronics Association (ICEA), and other experts express apprehension that such adjustments could impede the growth of India's chip industry, which is still in its early stages. Reflecting on past experiences, the initial lukewarm response to varied capital support levels underscores the significance of incentives, as demonstrated by the pivotal 50% support that sealed the deal with Micron, a US-based company.
While major industry players are currently focused on commitments in Europe and the US, the allocation of $10 billion for India's semiconductor initiative in the first phase appears modest compared to global investments in the sector. Nevertheless, experts suggest that India's emphasis on advanced semiconductor technology nodes, particularly below 28 nm, could be a strategic move to attract investments and expertise.
Neeraj Bansal from KPMG advocates for a focus on product design companies, highlighting their potential for high-value generation with relatively lower investment requirements. The semiconductor initiative's incentives, which cover a significant portion of capital costs and offer expedited approvals, ample land availability, and cost-effective labor, are indeed appealing, fostering a conducive environment for growth.
As India aims to establish 10 fabs over the next decade, the necessity of a more substantial allocation and retention of incentives becomes apparent to nurture a complete chip ecosystem. With projections indicating a substantial rise in India's semiconductor requirements by FY30, there is a pressing need to boost local production to curtail import dependence and foster export capabilities.
In conclusion, India's semiconductor journey holds promise for creating high-level jobs, driving innovation, and positioning the country as a key player in the global semiconductor landscape. With a strategic focus on technology advancement, talent development, and robust industry support, India is poised to carve a significant niche in the semiconductor domain, fueling economic growth and technological prowess.
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