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Semiconductor manufacturing in India - Processes, Regulations and Impact
Semiconductor manufacturing in India - Processes, Regulations and Impact
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Semiconductor manufacturing in India - Processes, Regulations and Impact. At the recently concluded Vibrant Gujarat Summit in January, 2024, Chairman of the Tata Group N Chandrasekaran announced plans for the conglomerate to set up a large semiconductor fabrication plant in Gujarat. In the last year, several exciting developments have taken place in India. This includes companies like Vedanta, Qualcomm planning to set base for semiconductors in India, a MoU between India and the European Union for semiconductor supply chains. In this post, Compliance Calendar traces the processes, applicable schemes and fiscal incentives and the prospects of Indian businesses boosting India’s semiconductor manufacturing capabilities. Why is India starting to invest heavily in semiconductor facilities and manufacturing? With advancements in 5G, IoT, AI, Robotics, Smart Manufacturing and a host of digital and tech developments, the global electronics market is currently valued at over 150 lac crores. Semiconductors are the backbone of this revolution. The domestic production of electronic goods has increased substantially from 1.9 lakh crore in 2014-15 to 4.97 lakh crore in 2020-21 (industry estimates) at a Compound Annual Growth Rate (CAGR) of 17%. India’s share in global electronics manufacturing has grown from 1.3% in 2012 to 3.6% in 2019, as per industry estimates. These form the basis of a wide range of electronic devices, from smartphones to cloud servers, automated cars, industries, infrastructure and defense. Governments all around the world in developed countries, including fast-developing nations such as India are trying to build an ecosystem that allows easier manufacturing, set-up, trade and exchange of semiconductors, to leverage the potential gains from the boost in technological innovation powered by semiconductors. India’s 76,000 crores Semiconductor Mission This specific government program is aimed at enabling India’s emergence as a global hub for electronics manufacturing and design. Administered by the Ministry of Electronics and IT, it aims to set up Semiconductor Fabs in India. The India Semiconductor Mission, within Digital India Corporation, Meity shall act as the nodal agency to drive long term strategies for implementation of this program. As part of this, four other schemes have been launched. These are : Modified Scheme for setting up of Semiconductor Fabs in India Modified Scheme for setting up of Display Fabs in India Modified Scheme for setting up of Compound Semiconductors and ATMP Facilities in India Design Linked Incentive Scheme Key incentives : Under the Modified Scheme for setting up of Semiconductor Fabs in India, the government shall extend fiscal support of up to 50% of project cost on pari-passu basis to the approved applicants. Capital expenditure for this scheme includes expenditure on plant, machinery, equipment (as well as accompanying packaging, freight, insurance, IT and IT enabled infrastructure, as well as investment in R&D (including testing, tools, software cost and license fee, expenditure on technology, IPR, Patents and Copyrights) Chips to Startup Programme The Chips to Startup (C2S) Programme is aimed at training and building specialized manpower over a period of 5 years in the area of Very Large-scale Integrations and Embedded System Design. It is ultimately aimed at leap frogging India in this space by way of inculcating the culture of System-on-Chip (SoC)/ System Level Design. Eligible startups and MSMEs can apply for the program and collaborate with academic institutions in the country to develop working prototypes as well as add to capacity building in the area of microelectronics. Basic Customs Duty exemption for Semiconductor Manufacturing in India To promote indigenous manufacturing of Semiconductor in India, the Department of Customs has exempted Capital goods, Machinery, electrical equipment, other instruments and their parts for manufacturing. Specified capital goods, machinery, electrical equipment, and other instruments used in the process of semiconductor manufacturing are exempted from payment of Basic Customs Duty. National Electronics Policy and Electronics Manufacturing Clusters The National Electronics Policy aims to position India as a global hub for electronics system design and manufacturing, including semiconductors. The government has been promoting the development of Electronics Manufacturing Clusters to provide the necessary infrastructure for semiconductor manufacturing. Scheme for setting up Display Fabs in India Notified in the year 2021, efforts have been made to establish semiconductor fabrication facilities (fabs) in India. Fabs are crucial for manufacturing integrated circuits and other semiconductor components. Fiscal support of upto 50% of the project cost, up to a maximum of 12,000 crores is available for eligible entities. The minimum capital investment is placed at 10,000 crores, which is allowable to companies/consortia/joint ventures. The Government of India may also extend the benefits of Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme for development of infrastructure / Common Facility Centre subject to the proposal satisfying the EMC 2.0 framework requirements. Graphics Processing Unit cluster As part of the India AI program to support the growth of startups focused on training artificial intelligence models within India, this initiative will promote both domestic startups and foreign companies that are interested in fostering indigenous intellectual property related to chip design for AI applications. This support will be extended through the INR 11-12 billion (US$132.61 million-US$144.67 million) design-linked incentive scheme. Design Linked Incentive Scheme Program for Development of Semiconductors and Display Manufacturing Ecosystem in India - deployment of semiconductor design(s) for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design(s) over a period of 5 years. Fiscal support of 50 percent of project cost on pari-passu basis for all technology nodes under Scheme for Setting up of Semiconductor Fabs in India. Fiscal support of 50 percent of project cost on pari-passu basis under Scheme for Setting up of Display Fabs. Fiscal support of 50 percent of capital expenditure on pari-passu basis under Scheme for Setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor ATMP /OSAT Facilities in India. Additionally, target technologies under the Scheme will include discrete semiconductor fabs. Under the modified program, a uniform fiscal support of 50 percent of project cost shall be provided across all technology nodes for setting up of semiconductor fabs. Given the niche technology and nature of compound semiconductors and advanced packaging, the modified program shall also provide fiscal support of 50 percent of capital expenditure in pari-passu mode for setting up of compound semiconductors / silicon photonics / sensors / discrete semiconductors fabs and ATMP/OSAT. International developments and co-operations agreements between India and other countries Agreement for cooperation between Japan and India In October 2023, the Union Cabinet of India approved a Memorandum of cooperation between India and Japan that covers five key areas of cooperation, which include semiconductor design, manufacturing, equipment research, talent development, and enhancing the resilience of the semiconductor supply chain. A specialized organization is also aimed to be set up that will work on fostering partnerships on both government-to-government and industry-to-industry levels, fostering innovation and technology exchange to bolster the semiconductor sector in both countries. Memorandum of Understanding between India and European Union In November, 2023, India and EU signed a MoU to increase the resilience of the semiconductor value chain, while also covering research and innovation, talent development, partnerships and exchange of market information. Semiconductor Manufacturing Incentives in the United States USA passed an Act in the year 2022, called the CHIPS Act that stands for Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022. The act is aimed at passing on benefits worth over $52 billion in the next five years to aid research and production of semiconductors. Challenges in semiconductor industry in India - Opportunities for startups Establishing semiconductor manufacturing facilities is a complex and capital-intensive process. India faces challenges such as infrastructure development, high initial investment costs in setting up manufacturing facilities, and global competition - particularly from established hubs in East Asian countries. India is also highly dependent on global supply chains for raw materials, equipment and crucial technology. Redesigning efficient supply chains - While the Ministry of Electronics and Information Technology (MeitY) anticipates that the electronics manufacturing sector in India will reach a value of US$300 billion by 2026, it is also true that India heavily relies on chip imports for these electronic devices. This is likely to burden India’s import bills, creating new opportunities for startups for introducing efficiency in semiconductor supply chains. R&D, fabrication, design and innovation - Semiconductor designing is a highly technical field, requiring professionals with specialized knowledge in areas such as chip design, fabrication, and testing. This paves way for businesses engaged in R&D, training and providing innovation services to existing and new startups in the fab and chip design space. Other than the fiscal incentives offered by the government, cost-effective production in India, access to workforce, the strategic location of the Indian peninsula offering excellent connections for exports are also opportunities for entrepreneurship in semiconductor innovation. Focus on Assembly, Testing, Packaging, and Marking (ATMP) - India is also planning to boost its ATMP facilities, which is a faster and more economical option for developing the semiconductor ecosystem. ATMP facilities specialize in the packaging, testing, and marking of chips, rather than their actual fabrication. The landscape of the semiconductor industry in India is dynamic, and new challenges may emerge over time. We have advised hundreds of manufacturing and design startups for their India-entry and securing key intellectual property and mandatory licenses. Having incorporated companies in most jurisdictions across the world, including USA and EU, Compliance Calendar’s experts can help your business navigate the regulatory challenges involved in niche and emerging markets like semiconductors.
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OPC to Private Limited
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