Semiconductors and displays are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0. Semiconductors have been a key enabler in the advancement of electronics for the past 50 years and will continue to play an even greater role with the introduction of new technologies and applications including IoT, artificial intelligence, 5G, smart cars, smart factories, data centres, robotics, etc. Semiconductor industry can be broadly classified under three categories: Logic, Memory and DAO (Discrete, Analog and Others) with 42%, 26% and 32% of the industry revenue, respectively.
Displays constitute a significant portion of the total Bill of Materials (BoM) in electronic products. For instance, displays account for over 25% of the BoM in case of smartphones and over 50% in case of LCD/LED TVs.
With an exceptional talent pool of 20% of world’s semiconductor design engineers, India remains a highly attractive destination for global semiconductor design companies. Despite a thriving design ecosystem and availability of trained and highly competent manpower, a minuscule portion of the Intellectual Property (IP) generated belongs to the country as it is mostly held by the global companies.
As per estimates from ELCINA, the electronic components manufacturing sector suffers from a disability of around 10% due to the lack of adequate infrastructure, domestic supply chain and logistics; high cost of finance; inadequate availability of quality power; limited design capabilities and focus on R&D by the industry; and inadequacies in skill development. Given this and the capital-intensive nature of display manufacturing, there is need to incentivize the industry to set up a Semi-conductor and Display Fab facility in India.
The vision of National Policy on Electronics 2019 (“NPE 2019”) is to position India as a global hub for Electronics System Design and Manufacturing (“ESDM”) and create an enabling environment for the industry to compete globally. The Government of India (“GoI”) through Ministry of Electronics and Information Technology (“MEITY”) in December 2020 and March 2021 released Expression of interest for setting up / expansion of existing semiconductor wafer / device fabrication (fab) facilities in India or acquisition of semiconductor fabs outside India and for setting up of Display Fabrication Units in India
In furtherance of the vision of Aatmanirbhar Bharat and positioning India as the global hub for ESDM, the Union Cabinet has approved the comprehensive schemes for the development of sustainable semiconductor and display ecosystem in the country on 15 December 2021 which was further notified on 21 December 2021 by MEITY. The Guidelines for all schemes issued on 30 December 2021.
In order to drive the long-term strategies for developing a sustainable semiconductors and display ecosystem, a specialized and independent “India Semiconductor Mission (ISM)” will be set up. The ISM will be led by global experts in semiconductor and display industry. It will act as the nodal agency for efficient and smooth implementation of the schemes on Semiconductors and Display ecosystem.
With the approval of the programme for development of semiconductors and display manufacturing ecosystem in India with an outlay of Rs.76,000 crore (>10 billion USD), GoI has announced incentives for every part of supply chain including electronic components, sub-assemblies, and finished goods. Under the program, the following schemes are notified:
- Scheme for setting up of Semiconductor Fabs in India
- Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor Assembly, Testing, Marking and Packaging (ATMP) /OSAT facilities in India
- Scheme for setting up of Display Fabs in India
- Design Linked Incentive (DLI) Scheme
The various schemes under the program can be further decoded under following relevant aspects:
- Eligible product and categories
- Type of Incentives
- Eligibility under the Schemes
- Eligible product and categories
The Incentive Programme aims to provide attractive incentive support to companies/consortia/joint venture as private limited company or public limited company proposing to set up:
| Description of Product | Specific Technical requirement |
| Silicon CMOS based Semiconductor Fab in India for manufacturing Logic / Memory / Digital ICs (Integrated Circuits) / Analog ICs / Mixed Signal ICs / System on Chips (SoCs) [Silicon Semiconductor Fab] | Node Size(s) – 65/45/28 nm or advanced (including intermediate nodes) Wafer Size – 300 mm Installed Capacity – 40,000 Wafer Starts per Month (WSPM) or above |
| Compound Semiconductors / Silicon Photonics (SiPh) / Sensors [including Microelectromechanical Systems (MEMS)] Fab in India for manufacturing High Frequency / High Power / Optoelectronics devices | Wafer Size – 150 / 200 mm or more Capacity – 500 or more Wafer Starts / Month (in 100 mm equivalent) |
| Semiconductor Assembly, Testing, Marking, and Packaging (ATMP) / Outsourced Semiconductor Assembly and Test (OSAT) Facility in India | – |
| Display Fabrication Unit (Fab) in India for manufacturing TFT LCD or AMOLED based display panels | Technology – Generation 8 or above for TFT LCD OR Generation 6 or above for AMOLED Capacity – 60,000 Panels / month or more for TFT LCD 30,000 Panels / month or more for AMOLED |
| Semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design [Financial incentives and design infrastructure support will be extended to domestic companies*, start-ups and MSMEs] | – |
* Domestic companies shall be defined as those which are owned by resident Indian citizens as defined in the FDI Policy Circular of 2017 or extant norms. A company is considered as ‘Owned’ by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens. The approved applicants that claim incentives under the scheme shall retain their domestic status (i.e., more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens) for a period of three years after claiming incentives under the scheme.
2. Type of Incentives
The incentives are determined separately for each segment which are:
| Category | Amount of Incentive/Fiscal Support | Maximum Incentive | No. of beneficiaries | Last date/ Tenure of the Scheme |
| #Semiconductor Fabs*** | Node Size 28nm or Lower – Up to 50% of Project Cost* Node Size – Above 28 nm to 45nm – Up to 40% of Project Cost* Node Size – Above 45 nm to 65nm – Up to 30% of Project Cost* Project Cost includes Capital Expenditure / Investment incurred on Building, Plant, Machinery, Clean rooms, Equipment and Associated Utilities, Research and Development (R&D), Transfer of Technology (ToT) Agreements and land) which is to be made on or after the date of acknowledgement of an application and within six years of date of acknowledgement of such application.** The used / second hand / refurbished plant, machinery, and equipment (including for associated utilities and R&D) allowed under the Scheme shall have a minimum residual life of at least five (5) years, at the time of transfer of assets. In case of fiscal support being provided as equity either in part or in full, Government of India’s share will not exceed 49% of total project equity. The fiscal support will be released to the applicant(s) by the Nodal Agency on pari-passu basis. | No limit prescribed | At least 2 beneficiaries | 45 days i.e. 14 February 2022 from 1 January 2022 which may be extended and reopened with the approval of MEITY Support under the scheme shall be provided for a period of six years. |
| #Compund Semiconductor and other related** | 30% of Capital Expenditure except land (i.e., Capital Expenditure / Investment incurred on Building, Plant, Machinery, Clean rooms, Equipment and Associated Utilities, Research and Development (R&D), Transfer of Technology (ToT) Agreements)* is made on or after the date of acknowledgement of an application and within 5 years of date of acknowledgement of such application. The used / second hand / refurbished plant, machinery and equipment (including for associated utilities and R&D) allowed under the Scheme shall have a minimum residual life of at least 5 (five) years. | No limit prescribed | No cap (As per Press Release, at least 15 such units are expected to be established.) | Initially for a period of three (3) years starting from 1 January 2022. |
| #Display Fabrication Unit (Fab)*** | 50% of Project Cost* (i.e., Capital Expenditure / Investment incurred on Building, Plant, Machinery, Clean rooms, Equipment and Associated Utilities, Research and Development (R&D), Transfer of Technology (ToT) Agreements and land) is made on or after the date of acknowledgement of an application and within six years of date of acknowledgement of such application.** The used / second hand / refurbished plant, machinery, and equipment (including for associated utilities and R&D) allowed under the Scheme shall have a minimum residual life of at least five (5) years, at the time of transfer of assets. The fiscal support will be released to the applicant(s) by the Nodal Agency on pari-passu basis. In case of fiscal support being provided as equity either in part or in full, Government of India’s share will not exceed 49% of total project equity. | INR 12,000 Crore per applicant | Maximum 2 applicants | 45 days i.e. 14 February 2022 from 1 January 2022 which may be extended and reopened with the approval of MEITY Support under the scheme shall be provided for a period of six (6) years |
| ##Design Linked Incentive Scheme – Semiconductor design**** | Product Design Linked Incentive (P-DLI) by Start-up or MSME – Reimbursement of up to 50% of the eligible expenditure (i.e. manpower cost, capital investment, Software IP & Licenses, IPR Registration, Field Trials, Production costs)* Deployment Linked Incentive (DLI) by domestic company, Start-up or MSME – Incentive of 6% to 4% of net sales turnover* over 5 years (Year 1-2 – 6%, Year 3-4 – 5%, Year 5 – 4%) Design Infrastructure Support for MSME or Start-ups – | INR 15 Crore per application INR 30 Crore per application Threshold amount of Net Sales to be made by Applicant: i) INR 1 Crore from Year 1 to Year 5 for Start-up & MSME (ii) INR 5 Crore from Year 1 to Year 5 for domestic companies other than Start-up & MSME. Reimbursement of up to ₹30 Lakh per application for MPW fabrication of design and post-silicon validation activities. | 100 domestic companies with not less than 20 such companies to achieve turnover of more than INR1500 Crore in the next 5 years. | To be initially opened for 3 years from 1 January 2022. Incentive will be given for a period of five (5) years |
*Relevant definitions can be referred under relevant notifications and guidelines issued by MEITY.
**Additional financial support, if any, offered by the State Government or any of its agencies or local bodies may also be availed. However, an applicant under this Scheme will not avail incentive under the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) under the Semiconductor Fab, Compound Semiconductors Fab and ATMP category.
*** GoI may extend the benefits of Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme for development of infrastructure / Common Facility Centre subject to the proposal satisfying the EMC 2.0 framework requirements.
**** Design Infrastructure Support for Start-ups / MSMEs would be provided in the form of of National EDA Tool Grid, IP Core Repository, MPW and Post Silicon Validation, e-learning resources etc. or engage with incubators in semiconductor design or semiconductor linked design for undertaking specific activities under the scheme.
## Eligibility under DLI Scheme shall not affect eligibility under any other Scheme and vice versa.
#Up to 2.5% of the outlay of the scheme shall be earmarked for meeting the R&D, skill development and training requirements for the development of compound semiconductors and ATMP ecosystem in India.
The said projects in Semiconductor and Display will be supported through purchase preference in procurement of electronic products by the Government under the Public Procurement (Preference to Make in India) Order 2017.
3. Eligibility under the Schemes
The criteria as mentioned under the notifications and guidelines are:
| Category | Key criteria |
| Semiconductor Fab | The applicant should have the following operational experience: A. Own and operate 65/45/28nm (including intermediate nodes) or advanced nodes process(es) in Silicon CMOS Semiconductor Fab OR B. Own or possess production grade licensed technologies for 28nm process and demonstrate the roadmap to advanced nodes technologies through licensing or development Minimum Capital Investment of INR 20,000 crore Minimum Revenue of INR 7,500 crore (including Group Companies) in ESDM in any of the three financial years preceding the year of submission. The applicant(s) will be evaluated by the Nodal Agency based on Quality and Cost Based Selection (QCBS) criteria. This will include technical parameters such as process technologies, project implementation capacity, operation capability, etc. This will also include financial parameters such as fiscal support sought from the government. The QCBS evaluation criteria shall be decided by MEITY in consultation with Nodal Agency. After the process of QCBS evaluation, the Nodal Agency will hold negotiations with the selected applicant(s) under the scheme to propose the appropriate technology mix, applications, generation, capacity, etc., and structure and quantum of fiscal support under the scheme. |
| Compound Semiconductor and other (ATMP/OSAT) related | The applicant should have the operational experience of: A. Own and operate a commercial unit OR B. Own or possess licensed process technologies for the proposed unit and demonstrate the roadmap to advanced packaging technologies through licensing or development Minimum Capital Investment of: INR 100 crore for Compound Semiconductors / Silicon Photonics (SiPh) / Sensors (including MEMS) Fab, and INR 50 crore ATMP/OSAT There is no restriction on any applicant from making multiple applications and / or for multiple locations. The applicants will be evaluated by the Nodal Agency through a process of technological and financial appraisal. Units receiving fiscal support under the Scheme shall have to remain in commercial production for a period of at least 3 (three) years from the date of commencement of commercial production or 1 (one) year from the date of receipt of last fiscal support, whichever is later, and provide an undertaking for the same. The incentive against the capital expenditure will be released after the approval of the application, subject to capital expenditure exceeding the threshold value and commencement of commercial production. |
| Display Fab | The applicant should have the operational experience of : 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 Minimum Capital Investment of INR 10,000 crore Minimum Revenue of INR 7,500 crore (including Group Companies) in any of the three financial years preceding the year of submission QCBS approval as mentioned in Semiconductor Fab |
| Semiconductor Design | No specific criteria prescribed except being domestic companies. |
If an application is made for Fab as well as ATMP unit, then the minimum threshold of capital expenditure / investment applicable for such application shall be the higher of the individual threshold investment for each of the category covered under the application.
Under the respective schemes, there is non-refundable application fee to be paid for submitting the application.
The Nodal Agency for the relevant schemes would be India Sem-Conductor Mission or C-DAC (Centre for Development of Advance Computing) or any other agency to be prescribed.
The disbursement claim to be made quarterly/half yearly/annually based on respective schemes parameter within 9 months of the end of Financial Year. Further, the successful applicant needs to file Monthly Review Report (“MRR”) or Quarterly Review Report (“QRR”) as per respective schemes.
Semiconductors and display manufacturing is very complex and technology-intensive sector involving huge capital investments, high risk, long gestation and payback periods, and rapid changes in technology, which require significant and sustained investments. The program will give an impetus to semiconductor and display manufacturing by facilitating capital support and technological collaborations.
The program will usher in a new era in electronics manufacturing by providing a globally competitive incentive package to companies in semiconductors and display manufacturing as well as design. This shall pave the way for India’s technological leadership in these areas of strategic importance and economic self-reliance.
In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure. The approved program will propel innovation and build domestic capacities to ensure the digital sovereignty of India. It will also create highly skilled employment opportunities to harness the demographic dividend of the country.
Under the Program, GoI will work closely with the State Governments to establish High-Tech Clusters with requisite infrastructure in terms of land, semiconductor grade water, high quality power, logistics and research ecosystem to approve applications.
Development of semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy with deeper integration to the global value chain. The program will promote higher domestic value addition in electronics manufacturing and will contribute significantly to achieving a USD 1 Trillion digital economy and a USD 5 Trillion GDP by 2025.
Being the scheme is limited in terms of number of application involving bidding process, involvement of State Government for infrastructure and additional incentives, time line and eligibility conditions, it is utmost important to have adequate project management and support to deliberate and accordingly prepare the application and apply to obtain the approval.
About the Author:
Vineet has over 16+ years of consulting experience in leadership role in Tax and Regulatory Stream [Indirect tax including GST (around 13 years in Big 4)] and working with leading players in diverse industry sectors including ESDM sector. He has delivered successfully as part of Darda Advisors LLP on various approvals and disbursements under Central and State Policies including ongoing MEITY and other Ministries’ PLI Schemes. Vineet has conducted various sessions (Seminars and webinars) on various tax and regulatory topics (including GST) at Client’s place, Business Parks, and other forums (ASCI, FTCCI, JICA, KOTRA, EPC, ICAI, ICFAI, JITO, RGA and others).
https://www.linkedin.com/in/d-vineet-suman-a5a28729
You can reach out on 91-99529 26239 or email [email protected].
Follow Darda Advisors LLP: https://www.linkedin.com/company/darda-advisors-llp
