Chip Shortage: Cabinet approves 50 percent incentive for semiconductor firms

*The Indian Ministry of Electronics and Information Technology announces the modified programme shall provide fiscal support of 50 percent of capital expenditure in equal footing mode for setting up of compound semiconductors, silicon photonics, sensors, and discrete semiconductors fabs in the economy

Gbenga Kayode | ConsumerConnect,

Several months after the central government’s announcement of an incentive scheme to encourage semiconductor and display manufacturers to build plants in India, the Union Cabinet has harmonised the incentives to make the scheme more attractive to investors.

ConsumerConnect learnt the Union Cabinet Wednesday, September 21, 2022, approved a uniform incentive of 50 percent of the project cost for setting up semiconductor, display and compound semiconductor fabrication units in the country.

Until recently, the three schemes had an incentive range of 30 to 50 percent, ET report said.

Experts recommend 50 percent fiscal support: Official

The new 50 percent fiscal support to all three schemes was based on a unanimous recommendation by an advisory committee consisting of experts from around the world, said the Ministry of Electronics and Information Technology in a statement.

While incentives for setting up semiconductor fabrication were based on the size of the chip, for display fabrication and compound semiconductor fabs, the incentives were largely 30 percent of the total cost of the project, the statement noted.

The Ministry also stated: “Given the niche technology and nature of compound semiconductors and advanced packaging, the modified programme shall also provide fiscal support of 50 percent of capital expenditure in pari-passu (equal footing) mode for setting up of compound semiconductors, silicon photonics, sensors and discrete semiconductors fabs.”

Rajeev Chandrasekhar, Minister of State for Electronics and IT, noted the government further said the modifications in the scheme aimed to harmonise the incentives for various categories.

When the government announced the scheme in December 2021, advanced nodes such as 28 nanometre (nm) stood to attract higher incentives than others, such as 65 nm, report said.

The Indian Government, however, decided that a uniform incentive should be given to all schemes to ensure the presence of players in all segments, Chandrasekhar added.

Besides, the Union Cabinet  Wednesday also removed the Rs 12,000 crore incentive limit for setting up display fabrication units and allowed firms that make semiconductor nodes above 65 nm to apply for incentives under the scheme.

A senior executive at ISMC Analog, one of the fab incentive applicants, disclosed the consortium had pushed for making the upfront incentive slab at 50% for all, “both verbally and in writing to ISM during our June meeting.”

Meanwhile, Foxconn Chairman Young Liu is expected to meet Prime Minister Modi November 2022, for semiconductor talks, as the Taiwanese giant looks to further its ambitious plans for semiconductor manufacturing in the country, sources aware of Liu’s India plans told ET.

The government programmes are geared towards addressing the technology talent gap in 12-14 months, said Chandrasekhar.