Semiconductor manufacturing has been a major focus of the government in the recent past, especially in terms of the volume budgetary allocation, but industry leaders believe that the design ecosystem needs more monetary support to sustain
Industry experts believe that for the country’s semiconductor industry to step up in its game, higher budgetary allocation and lower import and GST levies are essential
From ISM 2.0 to higher budgetary allocation and stricter norms for the PLI scheme for electronics manufacturing, the industry is looking at several important announcements in Union Budget for 2025-26
An expansion of the production-linked incentive (PLI) scheme, particularly a higher allocation for the sops, tops the wish list of chip makers from Finance Minister Nirmala Sitharaman in her Union Budget for 2025-26.
Stakeholders across the semiconductor industry aren’t alone, the entire manufacturing industry is awaiting some major announcements on February 1, as the government goes full throttle on ‘Make in India’.
Semiconductor manufacturing has been a major focus of the government in the recent past, especially in terms of the volume budgetary allocation, but industry leaders believe that the design ecosystem needs more monetary support to sustain.
Industry experts believe that for the country’s semiconductor industry to step up in its game, higher budgetary allocation and lower import and GST levies are essential.
“Measures like lower GST on indigenously manufactured components, reduced import duties on semiconductor-grade inputs, and zero to low interest funding for domestic companies can catalyse growth for home-grown semiconductor manufacturers,” said Hareesh Chandrasekar, cofounder and chief executive of AGNIT Semiconductors.
Heightened Focus On Manufacturing
The India Electronics and Semiconductor Association (IESA) has submitted to the finance ministry a recommendation for extending the PLI scheme beyond the current allocation of INR 76,000 Cr (about $10 Bn) with an additional provision of $20 Bn for the next five years.
It said the Semicon India Programme and the India Semiconductor Mission (ISM) have delivered significantly to the country’s GDP growth, job creation, foreign investments, industrial self-reliance, and helped bolster India’s position in the global chip market. The proposed allocation of $20 Bn in the Budget will propel the next phase of growth, innovations, and Atmanirbhar Bharat with a global impact, IESA said.
The government had in 2021 set aside $10 Bn for semiconductor manufacturing research and design and earmarked INR 1K Cr for semiconductor design startups.
Raghu Panicker, CEO of Kaynes Semiconductor, told Inc42 that ISM 2.0 could be introduced with a $20-Bn outlay. It would be highly beneficial for the nascent semiconductor manufacturing space in India while it will also make the design and packaging industry stronger.
Epic Foundation, another industry body, has lined up a few steps for the government to boost its semiconductor manufacturing industry. Ajai Chowdhry, founder of HCL and chairman of Epic Foundation, said in a statement that the government needs to prioritise high-quality chips for the nation. He provided a list of 30 chips and 30 priority products that should be developed and manufactured in India.
“Chips and other products are in high demand in the country, but they are all imported now. We must create a clear preference for India trusted chips for government purchases to help create the market and make startups and others successful… We recommended allocating INR 44,000 Cr to (build India as) a product nation, with INR 15,000 Cr going towards system products and INR 11,000 Cr for semiconductor products. The balance is for additional incentives and acquisitions,” he said.
Speaking to Inc42, Ajit Manocha, president and chief executive of SEMI, agreed that there is a disparity between allocations in semiconductor design and manufacturing in India. However, he also believes that manufacturing currently needs more push.
“India is well established and successful with regards to design and is on the right path going forward, however, we are still in the early stages of manufacturing investments and still have a long way to go. I have strongly recommended focusing on manufacturing and related investments in the respective ecosystem and infrastructure. This will help India to capitalise on projected growth in semiconductor demand in the coming years and the drive to diversify supply chains,” Manocha said.
Manufacturing Boost For Electronics
The semiconductor industry is also expecting higher budgetary allocation and stricter norms for the PLI scheme for electronics manufacturing to enhance domestic value creation. This will ensure the chips designed and built in India get a larger market in the country.
IESA in its proposal pointed out that the local value addition in electronics stands at less than 18%, and said that it must be increased to 40% to create more jobs and retain more economic value domestically.
It has also urged the Centre to introduce additional PLI outlays linked to it and sought a heightened focus on the mobile phone segment.
A few months back, the Economic Times had reported that India was mulling $4-5 Bn incentives to companies for making components locally for gadgets like mobile phones and laptops. IESA has further escalated the demand, seeking a $5-Bn incentive for the electronics components industry.
Focus Beyond Manufacturing
While there is no denying that building semiconductor fabs is highly cost-intensive and requires more funding support from the government, compared to design. More funding to design may help the segment grow faster, given that India’s design capabilities are already strong.
Kaynes’ Panicker said that while the government is providing tools to enable chip design and subsidising the shuttle runs, the quantum of subsidy for design still needs to be increased because the cost of engineering is quite high here.
The industry is also hoping for a few separate and new DLIs for building systems on modules and railway products, he said.
Epic Foundation has urged the Centre to focus on designing India’s own chips using RISC-V. “India has made significant strides with the development of RISC-V technology, eliminating the need to pay licence fees. Building on this, we should focus on designing our own chips using RISC-V to safeguard against future sanctions. In the light of new geopolitics, we must leverage our strengths in chip design and our large home market to become a critical part of the global value chain,” Chowdhry said in a statement.
Apart from these major focus areas, the industry stakeholders are also pushing for certain tax benefits for exports of semiconductor and electronic products in the Budget. IESA, for instance, has sought 2% additional incentive and tax benefits for the Indian companies, simplification of export procedures, and logistical support for access to the global market.
To improve product creation and intellectual property (IPR) in the country’s semiconductor industry, the industry body has suggested a INR 10,000-Cr budget allocation for targeted R&D initiatives across the ESDM sector on a PPP model, separate from funding academic institutes.
A parliamentary panel recently pulled up the Ministry of Electronics and IT (MeitY) for surrendering over half of the funds allocated to semiconductor and display manufacturing projects in 2023-24. It claimed that under the modified programme for the development of semiconductors and display manufacturing ecosystem in India, MeitY spent only INR 681.11 Cr out of the total allocation of INR 1,503.36 Cr as of March 31, 2024.
Speaking on the industry’s high expectations from the Centre in the upcoming Budget, despite the recent negative development, Panicker said, “For the government to spend the allocated budget, the industry needs to build the products and claim the subsidies. So, it is a mix of the industry problem and the government problem. I think the government is doing a good job in supporting semiconductor manufacturing in the country.”
[Edited By Kumar Chatterjee]