The Union Cabinet has approved a uniform incentive of 50% of the project cost for setting up semiconductor, display and compound semiconductor fabrication units.

Why in news?

• Maharashtra is witnessing a political firestorm.
• The Vedanta Limited shifted its decision to set up a $20 billion Vedanta-Foxconn semiconductor manufacturing facility in neighbouring Gujarat, despite finalising its location near Pune (Mh).
• Foxconn is a major chip supplier to Apple. It has suspended its operations in the Chinese tech hub of Shenzhen and is now shifting to India.
• Bigger companies, such as Intel, TSMC, Samsung, etc., have announced such plans.

Spats between states over the location of critical industries display the grim picture of competitive bidding in India. This portrays India’s negative image as against ease of doing business.

About the Incentive Scheme

• The scheme has been named the “Programme for Development of Semiconductors and Display Manufacturing Ecosystem.”
• Previously, the three schemes had an incentive range of 30-50%.
• 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% of the total cost of the project.
• This scheme aims to project India’s position as global hub for electronics manufacturing with semiconductors as the foundational building block.

Why need such an incentive?

• Huge Investments involved: Semiconductor Fabrication facility requires many expensive devices to function. Complex tools and equipment are required to test quality and move silicon from location to location within the ultra-clean confines of the plant.
• Economy of scale:   In semiconductor fabrication, a high volume production is required to be maintain so as to meet the increasing demand of the marketplace, at the same time, a strong financial backing as Indian market is very much uncertain about financial fluctuations.
• Requirement highly skilled labour:   Semiconductor fabrication is a multiple-step sequence of photolithographic and chemical processing steps during which electronic circuits are gradually created on a wafer made of pure semiconducting material. This actually requires high skills.
• Scarcity of raw materials: From a value-chain perspective, it needs silicon, Germanium & Gallium arsenide and Silicon carbide which are not available in India and needs to be imported.
• Uncertain Indian market: A semiconductor fabrication facility in India cannot independently rely on Indian customers for their entire sales structure. They have to maintain overseas customer base to balance inflections from Indian market due to market trends, government policies etc.
• Disposal of hazardous waste: Many toxic materials are used in the fabrication process such as arsenic, antimony, and phosphorus. Hazardous impact on the environment by the industry may act as an impediment to India’s commitment to mitigate climate change.

Other supportive initiatives in India

• India Semiconductor Mission (ISM): It was announced with the aim to attract large-scale investments for manufacturing facilities in the midst of a global chip crisis.
• Make in India: This aims to transform India into a global hub for Electronic System Design and Manufacturing (ESDM).
• PLI scheme: In December 2021 the Centre sanctioned ₹76,000 crore under the production-linked incentive (PLI) scheme to encourage the manufacturing of various semiconductor goods within India.
• DLI scheme: It offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
• Digital RISC-V (DIR-V) program: It intends to enable the production of microprocessors in India in the upcoming days achieving industry-grade silicon and design wins by December 2023.
• India Semiconductor Mission (ISM): The vision is to build a vibrant semiconductor and display design and innovation ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design

Way forward

• Policy framework: As foundry setup is highly Capital intensive, it must be supported with a solid long term plan and financial backing. This backing is required from the entrepreneur & the government both.
• Fiscal sustenance: In text of Indian Government as tax holiday, subsidy, zero duty, financial investment etc. will play an important role in promoting the Fab along with the semiconductor industry in India; this will put further pressure on already large Fiscal Deficit.
• Support Infrastructure: World class, sustainable infrastructure, as required by a modern Fab be provided, with swift transportation, large quantity of pure water, uninterrupted electricity, communication, pollutant free environment etc.

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