Domestic chip design to receive big push through Rs 1.27 lakh crore Semicon 2.0

The Centre on Monday notified the operational framework for its Rs 1.27 lakh crore Semicon 2.0 programme, putting the design of Indian chips and intellectual property at the front of an expanded semiconductor strategy that will also subsidise manufacturing equipment, raw materials, fabrication plants and advanced chip packaging.

The new mission, approved by the Union Cabinet in July, divides government support into six pillars, with at least three being entirely devoted to chip design. Incentives are being offered for designing chips needed for strategic purposes, the commercial market and domestically developed chips deployed at scale.

For chips meant for areas of national importance and critical infrastructure, the government will identify technologies and building blocks, including intellectual property (IP) for compute, memory, radio frequency, power, networking and sensors, that it wants developed in India.

Indian-owned and controlled companies can participate independently or with global companies, research organisations and academic institutions. The Centre for Development of Advanced Computing (C-DAC), under the IT Ministry, will issue requests for proposals and select developers through competitive bidding.

The IP created under these projects will be jointly owned by the company and C-DAC. A second design track is aimed at building commercially viable Indian fabless chip companies. The scheme will provide eligible firms access to electronic design automation (EDA) tools, multi-project wafer fabrication, IP cores, compute sub-systems and post-silicon validation.

Start-ups and MSMEs designing commercial chips can receive seed funding of up to Rs 15 crore, or 50% of project cost, whichever is lower. The government can also make equity co-investments alongside venture capital or private equity investors.

Larger companies can opt for royalty financing, under which they will pay 5% of a product's net revenue until 1.5 times the government's financial support has been recovered. For this track, the scheme has also widened eligibility beyond Indian citizens.

Companies incorporated and headquartered in India can qualify if they are owned and controlled by Indian citizens or Overseas Citizens of India (OCIs), provided they also have a significant operational and manpower presence in the country.

“I was also glad to see that the scheme has this time been opened up to OCI companies owned by Overseas Citizens of India, which is a very good decision, since they bring rich global experience that will help create truly advanced design companies in India,” said Arjun Malhotra, co-founder of HCL and chairperson of the EPIC Foundation.

Beyond design, the scheme also attempts to build the largely imported upstream supply chain needed to operate semiconductor factories. Companies setting up R&D facilities for semiconductor equipment, plants making semiconductor-grade wafers, photomasks, photoresists, substrates, chemicals and gases, testing facilities, or units producing semiconductor equipment and components can receive capital expenditure support of 30%.

Equipment manufacturers will additionally get a declining production-linked incentive of 10%, 8%, 6%, 4% and 2% over five years beginning FY 2028-29, on the value of their bill of materials sourced from domestic manufacturers.

The combined support will be capped at 50% of eligible capital expenditure. For large silicon wafer fabs, the Centre will fund 40% of eligible capital expenditure, with projects required to invest at least Rs 20,000 crore and have a capacity of at least 40,000 300-mm wafer starts a month.

Compound semiconductor, photonics, sensor and discrete semiconductor fabs, and display fabs will also be eligible for capex incentives of up to 35%. Advanced semiconductor packaging projects, including 2.5D and 3D packaging and heterogeneous integration, will receive 35% capex support, compared with 25% for legacy packaging.

R&D projects in advanced semiconductor technologies and talent-development projects can receive support of up to 75% of project cost, including state incentives. “India achieved its target of developing 85,000 semiconductor engineers over a period of 10 years in just four years, and has now set a new target of developing one lakh more engineers… Students from tier-II and tier-III cities have already designed more than 250 chips… The semiconductor ecosystem being developed in India is also expected to create 50,000-60,000 direct jobs,” said IT Minister Ashwini Vaishnaw.

Under ISM 1.0, the government has approved a total of 12 chip plants, including various assembly and testing (ATMP/OSAT) plants being set up by the likes of Micron Technology and a chip fabrication facility being developed by Tata Electronics in partnership with Taiwan’s PSMC.

At least three of these plants, including Micron, Kaynes Semicon and CG Semi, have started commercial production, though the fab is still under construction. These chips are also being exported.