Express View on semiconductors : Betting big

The government is moving on its ambitious semiconductor plans. On Thursday, the Union cabinet approved three chip projects worth Rs 1.26 lakh crore. These include India’s first semiconductor fabrication plant to be set-up in Dholera, Gujarat, by the Tata Group.

The project, which has been set up in partnership with the Taiwan-based Powerchip Semiconductor Manufacturing Corporation (PSMC), is estimated to cost Rs 91,000 crore. Alongside , a separate Tata Group proposal for setting up an assembly-plant in Assam at a cost of Rs 27,000 crore has also been cleared, along with another one by CG Power in Sanand Gujarat which involves an investment of Rs 7,600 crore. These projects follow the government’s approval in June last year of Micron Technology’s assembly and test facility in Gujarat.

In December 2021, looking to develop a semiconductor ecosystem in the country, the government had put in Place a Rs 76,000 crore chip incentive scheme, announcing incentives for “every part of supply-chain including electronic components, sub-assemblies, and finished goods .”

Under this, the central government offers Fiscal support and state governments can offer additional incentives to attract investments. For instance , as reported in this paper, in the case of Micron, of the project cost of Rs 2.75 billion, the company will contribute $825 million, with 50 per cent coming from the central government and 20 per cent from the Gujarat government.

The Tata-PSMC plant is expected to serve industries such as high-performance computing, electric vehicles, defence and others. The chips will be primarily 28 nanometre, along with 50 nm and 55 nm.

In recent times, competition in this arena has become fierce . Countries like the US have put in place attractive schemes to facilitate investments. In fact, government support is seen as critical . Currently, South Korea, Taiwan and China account for around 70 per cent of the global manufacturing capacity, with the balance in the US and Japan. As reported in this paper, India’s incentive schemes are focused on all three parts of the semiconductor ecosystem — packaging units (ATMP facilities), assembly and testing projects (OSAT plants), and full-scale foundries that can manufacture chips.

In fact, the government is also setting up an R&D lab at the Semiconductor Laboratory, with the modernisation plan for the organisation involving an outlay of Rs 10,000 crore. A strong domestic ecosystem will help cater to the burgeoning demand in the country, assist in building of secure and resilient supply chains, while reducing reliance on some, the importance of which has become apparent during periods of geopolitical uncertainty . The government is providing support at a fiscal and regulatory level. It must also ensure a stable policy environment.