Centre Scaling up Fab Subsidy by $5bn to $15bn to Attract Majors

India has ambitions to become a major chip hub on the lines of the United States, Taiwan and South Korea, and has been courting foreign companies to set up operations in the country.

· Capex subsidy for assembly and testing plants (ATMP/OSAT) from the current 50 per cent to 30 per cent for conventional packaging technologies, and 40 per cent for advanced packaging technologies.

· In Micron’s case, nearly 70 per cent of its $2.7 billion plant will be paid through subsidies offered by the Central Government, and the Gujarat government.

· Micron Technology’s ATMP plant in Gujarat’s Sanand is running 133 days behind schedule, due to the company’s inability to hire sufficient construction headcount.

[ABS News Service/30.08.2024]

AFTER HAVING committed nearly all of the $10 billion in subsidies under its ambitious semiconductor manufacturing incentive policy, the government has prepared a blueprint for the second phase of the scheme — it could increase the outlay of the programme to $15 billion, offer capital support for raw materials and gases used in chip manufacturing, and reduce subsidies for assembly and testing plants, The Indian Express has learnt.

“In a short period of time, we managed to clear four chip proposals including a fabrication plant. The original incentive policy outlay of $10 billion will almost get over once subsidy payments are made to the entities setting up these facilities.

We want to attract more such plants, and therefore, have pegged that the new 2.0 scheme should have a higher outlay of $15 billion so that we can remain competitive, given that many countries are trying to attract chip manufacturing,” a senior government official said, requesting anonymity since the discussions are currently private.

India has ambitions to become a major chip hub on the lines of the United States, Taiwan and South Korea, and has been courting foreign companies to set up operations in the country. So far, the country has approved a fabrication plant worth $11 billion being set up by Tata Electronics in partnership with Taiwan’s Powerchip, and three different chip assembly plants being set up by the Tatas, US-based Micron Technology, and Murugappa Group’s CG Power in partnership with Japan’s Renesas.

In an internal note prepared with the projections for the renewal of the scheme, the government has also decided to reduce the capex subsidy for assembly and testing plants (ATMP/OSAT) from the current 50 per cent to 30 per cent for conventional packaging technologies, and 40 per cent for advanced packaging technologies.

In the first iteration of the incentive policy, which was released in December 2021, the Centre had offered a 30 per cent capex subsidy for chip packaging and testing plants. However, in September 2022, it had increased the subsidy for such plants to 50 per cent. It is understood that it was done as a precursor to Micron Technology’s proposal, as the government wanted to facilitate the company establishing an assembly plant in India, which was eventually approved in June 2023.

Now though, the government wants to go back to its earlier subsidy contribution, there is a growing perception within sections of the administration that it has overspent on packaging and assembly plants. For instance, in Micron’s case, nearly 70 per cent of its $2.7 billion plant will be paid through subsidies offered by the Central Government, and the Gujarat government.

The government also does not want to support technology transfer costs under the new incentive scheme, it is understood. This means that companies partnering with others for using their chip manufacturing technology may have to pay out of their own pocket.

Under the new scheme, the government could also offer capital equipment and ecosystem support such as gases, chemicals, and raw materials needed at assembly and testing plants. It could also look at incentivising fabrication of micro-LED displays.

It is also learnt that Micron Technology’s ATMP plant in Gujarat’s Sanand is running 133 days behind schedule, due to the company’s inability to hire sufficient construction headcount. The Tatas have sought that the requirement for PSMC to demonstrate capability to manufacture 28 nanometre chips should be exempted for extending fiscal support for the node. The government is considering the company’s request, but has not come to a conclusion yet.