Industry urges govt to increase outlay of chip manufacturing scheme to Rs 10,000 crore

The electronics industry has urged the government to extend the promotion of the manufacturing of electronic components and semiconductors (SPECS) scheme by five years with an increased outlay of at least ₹10,000 crores in the Union Budget for 2023-24.

“As the scheme was launched for a period of three years the sunset period of SPECS will be in March 2023, which means the industry will not be able to take the benefits beyond this time,” the Indian Cellular and Electronics Association (ICEA) has submitted in its recommendations to the government. The note was reviewed by Mint.

The industry, through the association, argued that while the demand for over a threefold increase to the existing outlay, approved in 2020, may seem high, it would make the scheme more attractive for new companies.

The demand comes at a time countries such as the US and China are focusing on building and increasing their semiconductor and components manufacturing capacities amid geopolitical situations threatening to disrupt the global supply chains.

China, for instance, is reported to be readying a $143 billion fiscal incentive package for chip manufacturers amid curbs from the US. The US on the other hand signed a landmark bill in August to provide $52.7 billion in financial incentives for domestic semiconductor production and research.

India has a few schemes specifically targeted at enhancing local capabilities and capacities of semiconductor and allied component manufacturing. Under SPECS, the government is providing a financial incentive of 25% on capital expenditure for electronic components, semiconductor or display fabrication units, ATMP units, specialized sub-assemblies, and capital goods that comprise the downstream value chain of electronic products.

Under this scheme, the government has approved 32 applications with a total project outlay of Rs 11,130 crore, where it has committed incentives of Rs 1,519 crore. The total employment generation potential of the approved applications is 32,457, according to data from the ministry of electronics and information technology issued on Wednesday.

To widen and deepen electronics manufacturing, the Union Cabinet approved a comprehensive program with an outlay of Rs 76,000 crore for the development of semiconductors and display manufacturing ecosystem last year, and modified it in September this year to provide fiscal support of 50% of project cost for semiconductor fabs across the technology nodes as well as for compound semiconductors, packaging, and other semiconductor facilities.

This package is available for setting up of silicon-based semiconductor fabs across all technology nodes, TFT LCD or AMOLED-based display fabrication facilities, compound semiconductors or silicon photonics or sensors, fab or discrete semiconductor fabs and semiconductor ATMP (assembly, testing, marking, and packing) facilities or OSAT (outsourced assembly and testing) facilities, in the country.

The government has also created the Design Linked Incentive (DLI) scheme which provides financial incentives, design infrastructure support across various stages of development, and deployment of semiconductor design for integrated circuits, chipsets, SoCs or system-on-chips, systems, and IP cores and semiconductor linked design. The incentives are in two categories. One relates to product design where up to 50% of the eligible expenditure subject to a ceiling of Rs 15 crore per application is given and the second linked to a deployment where 6% to 4% of net sales turnover over five years subject to a ceiling of Rs 30 crore per application, is provided.