India Plans To Raise The Stakes In Chip Production With New $15 Billion Incentives

The Central government is reportedly set to boost its chip manufacturing incentive policy, raising the funding outlay for the second phase to $15 billion, an increase from the $10 billion allocated in the first phase.

This comes as Tata group is constructing India’s inaugural commercial semiconductor fabrication plant in collaboration with Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC).

This project is estimated to cost over Rs 91,000 crore.

Additionally, the government has greenlighted three assembly and testing plants, known in the semiconductor industry as ATMP (Assembly, Testing, Marking, and Packaging) and OSAT (Outsourced Semiconductor Assembly and Test).

While less complex than semiconductor fabrication plants, the assembly and testing facilities play a critical role in the semiconductor supply chain.

The first of these, approved in June 2023, is being constructed by Micron Technology, a US-based company.

Tata Group is also setting up an assembly plant in Assam to cater to specific clients.

The third facility is being built by CG Power and Industrial Solutions, part of the Murugappa Group, in collaboration with Japan's Renesas Electronics.

Collectively, these four projects will cost more than Rs 1.48 lakh crore, with the central government contributing nearly Rs 59,000 crore in capital expenditure subsidies.

State governments have further incentivised these investments by offering discounted land and electricity rates to attract these critical projects.

At present, India’s presence in the semiconductor chip manufacturing sector is minimal, with the majority of global production concentrated in Taiwan and the United States.

The US has implemented a substantial chip incentive programme with an outlay of $50 billion, significantly larger than that of India.

Similarly, the European Union is courting chip manufacturers with an incentive scheme on par with that of the US.

Establishing domestic fabrication plants is vital for India’s economic and strategic objectives, as semiconductor chips are integral to a wide array of industries, from aerospace to automotive to household appliances.

Amid escalating geopolitical tensions, particularly between the US and China—two major players in the technology value chain—India is looking to capitalise on these dynamics to strengthen its local semiconductor industry through government-backed initiatives.

However, it’s crucial to note that the Tata-PSMC fabrication plant will not be producing advanced nodes, as the requisite technology is currently beyond the capabilities of both companies.

Manufacturing smaller node-size chips requires extensive technological innovation, an area where companies like TSMC hold a considerable advantage over other players.

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