In Short:
The Indian government plans to minimize financial incentives for semiconductor chip packaging units in the second phase of its Semiconductor Mission. Instead, funds will focus on attracting major compound semiconductor and silicon photonics companies. Current incentives cover 50% of project costs, with four approved semiconductor units under construction, aiming to build a strong semiconductor ecosystem by investing approximately Rs 1.48 lakh crore.
The government is poised to maintain minimal financial incentives for semiconductor chip packaging units in the second phase of the India Semiconductor Mission (ISM), according to sources familiar with the matter. A substantial portion of the funding and incentives designated for this phase is expected to focus on attracting more compound semiconductor fabrication and silicon photonics companies to India.
Strategic Focus on Major Players
The Ministry of Electronics and Information Technology, the leading agency overseeing the ISM, believes that once major players in the compound and silicon photonics sectors establish their operations in India, it will facilitate the entry of additional prominent companies within the semiconductor ecosystem. This includes firms involved in outsourced assembly and testing (OSAT) as well as assembly, testing, marking, and packaging (ATMP).
A senior government official indicated, “All four projects we had announced under phase one have been launched, and we expect these plants to become operational over the next 12 to 18 months. The three OSAT and ATMP projects will commence production very soon. Therefore, our focus for the next phase should be more concentrated on attracting major industry players.”
Current Incentive Structure
At present, the central government provides a flat incentive of 50% of the project cost for both chip fabrication and packaging units on a pari-passu basis. Additionally, state governments where these units are established offer extra incentives such as tax breaks, as well as reduced rates for water and power.
Progress of Semiconductor Units
India currently has four ISM-approved semiconductor units at various stages of construction. These include one chip fabrication unit located in Dholera, Gujarat, and three chip packaging units, two of which are situated in Sanand, Gujarat, and one in Morigaon, Assam. The proposed total investment in these units amounts to Rs 1.48 lakh crore, according to government figures.
Investment Goals and Milestones
Under the Rs 76,000 crore Indian Semiconductor Mission, India aims to develop a comprehensive semiconductor chip manufacturing and packaging ecosystem. Launched in December 2021, the initiative has already seen notable advancements, such as the announcement by US-based Micron in June 2023 regarding the establishment of an OSAT unit in Sanand.
The projected investment for Micron’s plant stands at $2.75 billion, with the company committing $825 million and the remainder to be funded through a combination of central and state government incentives.
