03/01/2024, 11:23 India's Semiconductor Moment | India Corporate Law

India Corporate Law

India’s Semiconductor Moment

By Paridhi Adani, Rishabh Shroff, Preeti Pandey, Aniket Singhania & Stuti Kaushik on December 11, 2023

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The Indian semiconductor market is expected to reach USD 55 billion by 2026, more than 60% of
which is driven by three industries: smartphones & wearables, automotive components, and
computing & data storage.[1] Currently, majority of the demand in the Indian semiconductor
market is met by imports. In order to reduce the dependency on imports of semiconductors and
to fill the semiconductor supply chain gap caused due to COVID-19 and the strained relations
between United States and China, the Government of India has approved the Semicon India
Programme with an initial financial outlay of INR 76,000 crore (USD 9.13 billion approx.) for the
development of a sustainable semiconductor and display ecosystem in India.[2] While
inaugurating the Semicon India 2023, a national-level conference focusing on the

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semiconductor industry, in Gandhinagar, Gujarat, PM Modi said that India is becoming a grand
conductor for investments in the semiconductor sector.[3]

Key initiatives and support to semiconductor industry by Government of

India

The Government of India has established the India Semiconductor Mission (“ISM”)[4] to address
the global semiconductor shortage and encourage manufacturers to set up their semiconductor
facility in India.

The Government of India has issued four schemes under the ISM, which as the nodal agency,
will be responsible for carrying out technical and financial appraisal of the applications
received, recommending selection of applicants and performing other responsibilities as
assigned by the Ministry of Electronics and Information Technology from time to time. These
four schemes are as follows:

Modified Scheme for setting up of Semiconductor Fabs in India[5]

Eligibility Criteria

Description Companies, consortia, joint ventures proposing to set up

silicon CMOS based semiconductor fab in India for
manufacturing logic, memory, digital integrated circuits
(“ICs”), analog ICs, mixed signal ICs or system on chips
(“SoCs”)

Technology Wafer size: 300 mm Installed capacity: 40,000 wafer starts

per month or above

Operational Experience The applicant should own or possess production grade

licensed technologies for proposed technology process
and demonstrate roadmap to advanced nodes
technologies through licensing or development.

Minimum Capital Investment Threshold INR 20,000 crore (USD 2.40 billion approx.)

Minimum Revenue Threshold INR 7,500 crore (USD 900 million approx.) (including
group companies) in any of the three financial years
preceding the year of submission

Government Support

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Fiscal Support 50% of Project Cost ‘Project Cost’ includes capital

expenditure on (a) land, building, plant and machinery,
clean rooms, equipment and associated utilities; (b) in-
house and captive research and development; (c)
transfer of technology; and (d) other costs including
interest during construction and insurance costs. Such
project cost will have to be made on or after the date of
approval of the project company’s application by ISM and
within six years therefrom. Fiscal support agreement will
need to be executed between ISM and the project
company for disbursement of fiscal support. Units
receiving fiscal support will need to remain in
commercial production for at least three years from the
date of commencement of commercial production.

Non-Fiscal Support (a) infrastructure development support; (b) demand

aggregation support; and (c) research & development,
skill development and training support

Modified Scheme for setting up of Display Fabs in India[6]

Eligibility Criteria

Description Companies, consortia, joint ventures proposing to set up

a display fabrication unit in India for manufacturing TFT
LCD or AMOLED based display panels

Technology Generation 8 or above for TFT LCD Generation 6 or above

for AMOLED

Capacity 60,000 panels per month or more for TFT LCD 30,000
panels per month or more for AMOLED

Operational Experience (a) Own and operate a commercial display fab facility
with TFT LCD technology of generation 6 or above; or (b)
Own or possess licensed technologies for generation 8 of
TFT LCD technology or generation 6 of AMOLED
technology and demonstrate the roadmap to advanced
technologies through licensing or development.

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Minimum Capital Investment Threshold INR 10,000 crore (USD 1.20 billion approx.)

Minimum Revenue Threshold Same as in (a) above

Government Support

Fiscal and Non-Fiscal Support Same as in (a) above

Modified Scheme for setting up of Compound Semiconductors and ATMP Facilities in

India[7]

Eligibility Criteria

Description Companies, consortia, joint ventures Companies, consortia, joint ventures

proposing to set up compound
semiconductors, silicon photonics,
sensors, discrete semiconductors fab
in India for manufacturing high
frequency, high power or
optoelectronics devices
proposing to set up semiconductor
assembly, testing, marking and
packaging (“ATMP”) or outsourced
semiconductor assembly and test
(“OSAT”) facilities in India

Technology Wafer size: 150/200 mm or more N/A

Capacity: 500 or more wafer starts
per month (in 100 mm equivalent)

Operational Experience (a) Own and operate a commercial
compound semiconductor, silicon
photonics, sensors fab, discrete
semiconductors fab, or silicon
semiconductor fab; or (b) Own or
possess licensed process
technologies for the proposed fab.
(a) Own and operate a commercial
semiconductor packaging unit; or (b)
Own or possess licensed
technologies for the proposed
semiconductor packaging unit and
demonstrate roadmap to advanced
packaging technologies through
licensing or development.

Minimum Capital Investment INR 100 crore (USD 12.01 million INR 50 crore (USD 6.01 million
Threshold approx.) approx.)

Government Support

Fiscal Support 50% of Capital Expenditure ‘Capital Expenditure’ shall include expenditure
incurred on land, building, clean rooms, plant, machinery, equipment and
associated utilities (including used / second hand / refurbished); transfer of

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technology including cost of technology; and research & development. Such

capital expenditure will have to be made on or after the date of approval of
the project company’s application by ISM and within five years therefrom.
Fiscal support agreement will need to be executed between ISM and the
project company for disbursement of fiscal support. Units receiving fiscal
support will need to remain in commercial production for at least three years
from the date of commencement of commercial production.

Non-Fiscal Support Same as in (a) above

Design Linked Incentive Scheme[8]

Financial Incentives

Categories of support Startups and MSMEs may apply under the ‘design
infrastructure support’ and ‘product design linked
incentive’ categories.Domestic companies, startups and
MSME may apply under the ‘deployment linked incentive’
category.

Product Design Linked Incentive Reimbursement of up to 50% of the eligible expenditure,

subject to maximum of INR 15 crore (USD 1.80 million
approx.) per application to approved applicants engaged
in semiconductor design for ICs, chipsets, SoCs, systems
and IP cores and semiconductor linked design, that can
be demonstrated in an operational environment and are
ready for volume production.

Deployment Linked Incentive Incentive of 6% to 4% of net sales turnover over 5 years,

subject to maximum of INR 30 crores (USD 3.60 million
approx.) per application to approved applicants whose
semiconductor design for ICs, chipsets, SoCs, systems
and IP cores and semiconductor linked design are
deployed in electronic products.

Eligible expenditure Eligible expenditure will include manpower cost, capital

investment, software intellectual property and licenses,
intellectual property right registration, field trials, and
production costs.

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Additionally, project proponents will be eligible to avail various tax benefits, including
exemption from basic customs duty on machinery, electrical equipment, other instruments and
their parts for use in fabrication of semiconductor wafer or in assembly, testing, marking and
packaging of semiconductor chips. The manufacturer may also explore various incentive
schemes, such as export oriented unit scheme to avail duty-free import or opt for manufacture
and other operation in warehouse scheme for deferment of payment of customs duty on import
of capital goods for the project till clearance of such goods from the custom-bonded warehouse,
or waiver of customs duty for finished goods exported from India. Project proponents will need
to comprehensively analyse the tax benefits/ exemptions and structure the project contracts
with their contractors and/or subcontractors accordingly to avail benefit of the tax schemes and
policies.

The Government has also planned to change the engineering curriculum to include specialised
courses on semiconductors. It is expected that India will have more than 1 lakh semiconductor
design engineers in the next five years.

Key incentives offered by State Governments to aid the ISM

With a view to support the ISM, few states of India have also formulated specific policies for
semiconductor industry, offering fiscal and non-fiscal incentives. These include additional
capital assistance as a percentage of the capital subsidy provided by the Central Government
under the ISM schemes, allotment of land for the project at subsidised rates, 100%
reimbursement of stamp duty and registration fee for lease/sale/transfer of land for the project,
ready access to utilities and other industrial infrastructure, access to power at subsidised tariff,
and exemption from payment of electricity duty.

In addition to preferential market access to locally-based semiconductor companies, the state

policies also envisage establishing a single window clearance system for (i) facilitating all
information regarding clearances required for the project, (ii) obtaining statutory clearances
required at the state level, including application, payment, tracking and approval thereof, (iii)
risk-based synchronised inspection by regulatory agencies, (iv) incentive administration, (v) post
land allotment services, and (vi) grievance redressal. Gujarat was the first state to bring out a
dedicated semiconductor policy in 2022[9], followed by the states of Uttar Pradesh[10] and
Odisha[11].

An applicant may claim incentives under any one of the ISM schemes (and not more than one
ISM scheme) and related policies of the State Governments.

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India emerging as a global semiconductor hub

Some of the world’s top chip manufacturers have committed to make significant investments
under the ISM. Their confidence in India was exhibited during Semicon India 2023, which was
attended by prominent semiconductor companies and start-ups, such as Micron Technology,
Applied Materials, Foxconn, SEMI, Cadence, and AMD. India’s growing start-up ecosystem will
also provide strength to the semiconductor sector. India’s emergence as a potential
semiconductor hub can be gauged from the following:

US-based Micron Technology Inc. (“Micron”) has signed a memorandum of understanding

(“MOU”) with the Gujarat Government to set up a INR 22,500 crore (USD 2.70 billion
approx.) semiconductor facility at Sanand near Ahmedabad, Gujarat. This project marks
the largest investment in the ISM schemes.[12]

Foxconn has declared investing over USD 1.2 billion in India. It has executed an agreement
to build a manufacturing facility for electronic components in Tamil Nadu and has
purchased 21.5 million square feet of land in Bengaluru and Telangana.[13]

AMD has announced an investment of around USD 400 million over the next five years in
India to construct a state-of-the-art campus in Bangalore, which will serve as the world’s
largest research and development facility for the company.[14]

Applied Materials has announced a gross investment of USD 400 million in India over the
next four years for construction of a collaborative engineering centre in Bengaluru, for
development and commercialisation of technologies for semiconductor manufacturing
equipment.[15]

Prominent industry suppliers, such as Simmtech and Air Liquide are currently engaged in
discussions with the Central Government to initiate their operations in India.[16]

On July 20, 2023, India and Japan formally signed a memorandum of cooperation covering
five key areas –involving innovation and technology exchange– to bolster the
semiconductor sector in both countries.[17]

Sahasra Semiconductors has set up a semiconductor assembly, test and packaging unit in
Bhiwadi, Rajasthan, which is expected to commence commercial production of first made-
in-India memory chips from October 2023.[18]

It is time for India to leverage the semiconductor ecosystem and ensure a collaborative effort
between the Government, Indian industry, and global players to establish resilient supply
chains for semiconductors globally.

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[1] 2023 TMT (Technology, Media, and Entertainment, Telecom) report by Deloitte

[2] https://ism.gov.in/about-semiconindia

[3] https://www.ndtv.com/india-news/pm-narendra-modis-mega-50-offer-for-firms-to-set-up-
semiconductor-manufacturing-4248177

[4] https://ism.gov.in/about

[5]
https://d2p5j06zete1i7.cloudfront.net/Cms/2022/Oct/07/1665119978_Notification_Modified_Schem

[6]
https://d2p5j06zete1i7.cloudfront.net/Cms/2022/Oct/07/1665120088_Notification_Modified_Schem

[7]
https://d2p5j06zete1i7.cloudfront.net/Cms/2022/Oct/07/1665120229_Notification_Modified_Schem

[8] https://d2p5j06zete1i7.cloudfront.net/Cms/2022/May/05/1651757254_notification_dli.pdf

[9]
https://dst.gujarat.gov.in/Portal/Document/1_486_Gujarat_Semiconductor_Policy_2022_27_Broch

[10] https://startinup.up.gov.in/wp-content/uploads/2023/01/UPEMP2020-English_191122.pdf

[11] https://investodisha.gov.in/download/Odisha-Semi-Conductor-Manufacturing-and-
Fabless-Policy-2023.pdf

[12] https://www.hindustantimes.com/business/micron-begins-construction-of-2-75-billion-
semiconductor-plant-in-gujarat-101695478422567.html

[13] https://www.forbesindia.com/article/take-one-big-story-of-the-day/iphone-manufacturer-
foxconn-ready-to-cash-in-on-indias-expanding-
economy/87643/1#:~:text=In%20India%2C%20Foxconn%20presently%20operates,2%20percent%2

[14] https://www.livemint.com/companies/news/amd-to-invest-400-million-in-india-over-next-
five-years-to-build-new-india-campus-in-bangalore-11690523499403.html

[15] https://economictimes.indiatimes.com/tech/technology/applied-materials-to-establish-
collaborative-engineering-centre-in-bengaluru-for-400-million/articleshow/101196428.cms?
from=mdr

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[16] https://www.thehindubusinessline.com/info-tech/after-micron-semiconductor-component-
players-to-set-up-india-operations/article67139311.ece

[17] https://www.thehindubusinessline.com/news/national/india-japan-sign-moc-for-
semiconductor-supply-chain-partnership/article67102409.ece

[18] https://www.financialexpress.com/business/industry-indias-sahasra-semiconductor-to-
start-chip-production-from-september-3209581/

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