India reboots plan to attract chip makers to build fabs in country

After several initial deals stalled, the Indian government is re-inviting applications for building semiconductor facilities in the country as the US-China chip trade war transforms the sector.

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After initial efforts to attract semiconductor manufacturers to India stumbled, the government is trying again, keeping hopes alive that the country could emerge as a major chip maker at a time when a US-China trade war is transforming the industry and stirring worries about the technology supply chain.

This week, after several potential deals fell through, the government is re-inviting applications to a program aimed at developing semiconductor manufacturing facilities and  offering total subsidies of around $10 billion (₹76,000), according to a statement from India’s IT ministry.

In contrast to the last application window, which was open in January 2022 for one-and-a-half months, the new application process will be open until December 2024, the ministry said.

The applications will be filed under the Modified Semicon India Program, and the Indian Semiconductor Mission will act as the coordinating agency for development of new fabrication facilities.

“Under the Modified Program, fiscal incentive of 50% of the project cost is available to companies/consortia/ joint ventures for setting up of semiconductor fabs in India of any node (including mature nodes),” the ministry said, adding that the 50% incentive would also be available as part of the project cost for setting up display fabrication facilities of specified technologies.

The country has also launched a new application window for its Design Linked Incentive (DLI) plan, which is part of the broader initiative to turn the nation into a chip fabrication hub. The DLI program will also be open until December 2024.

“Till date 26 applications have been received under DLI Scheme and five applications have been granted approval,” the IT ministry said, adding that the DLI plan offers financial incentives as well as design infrastructure support across various stages of development and deployment of semiconductor design for integrated circuits, chipsets, systems on chips, IP cores, and semiconductor-linked designs over a period of five years.

Could this be India’s opportunity to be a chip hub?

 India's move to re-invite applications could help the country cater to the huge global demand for chips and position itself as a manufacturing hub as geopolitics transforms trade relations, analysts said.

“India has the potential to become a semiconductor hub for all local, regional, and global demand. We have a big domestic market in India and good engineering and design talent,” said Pareekh Jain, principal analyst at Pareekh Consulting.  

India, according to Jain, could position itself as a manufacturing hub for semiconductors as geopolitics forces nations to look at destinations other than the existing manufacturing hubs to ensure the semiconductor supply chain.

The Indian subcontinent has had exposure to semiconductor manufacturing as it is home to some of the design and R&D centers of most of the big semiconductor manufacturers, said Asif Anwar, executive director of global automotive practice at Strategy Analytics.

The last year has seen the US and China embroiled in a semiconductor trade war to gain chip-making supremacy. Recently, the US has been trying to curb investments and the transfer of chip technology know-how to China by putting pressure on  nations, such as The Netherlands and Japan, which are home to semiconductor machinery and parts manufacturing giants.

This has spurred a counteroffensive from Beijing in the form of a ban imposed on US-based Micron chips being used in China.

In response to this move, Washington appears to be planning to issue stricter rules on investments it will allow in Chinese companies operating in the field of advanced semiconductors, AI, and quantum computing.

Semiconductor fabs will create jobs

Creating semiconductor fabrication facilities in India could pay huge dividends for the country, according to Jain.

“It will create jobs, reduce India's import bill, increase GDP growth, and should be able to reduce the cost of products for Indian consumers. It will have a multiplier effect and likely to increase production in other industries also, which require chips and display units,” Jain said, citing what he called the country’s “successful” mobile phone manufacturing initiatives, which over the last decade have spurred major phone makers to set up plants on the subcontinent.

However, New Delhi’s initial efforts to start semiconductor and display fabrication units has not seen too much success up until now.

In the last few months, India’s IT ministry saw two out of three big potential deals for  semiconductor manufacturing stall.

One of the deals involved a joint venture between India-based Vedanta and Taipei-based Foxconn, and the other was spearheaded by chip consortium ISMC.

The ISMC deal has stalled due to Intel's move to take over Israeli chip maker Tower, a partner in the consortium, according to the South China Morning Post, which cited several sources. Meanwhile, according to the news site, the Foxconn-Vedanta deal has hit a snag, as Netherlands-based STMicroelectronics — which was supposed to be part of the initiative — is balking at finalizing an agreement to participate.

A third deal, which is appears to be moving toward completion, calls for Singapore-based IGSS Ventures to build a semiconductor fab unit in Tamil Nadu.

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