Context: The Centre’s ₹1.27 lakh crore Semicon 2.0 programme seeks to strengthen India’s semiconductor ecosystem through a three-part approach: developing strategic semiconductor technologies, creating commercially viable chips, and ensuring their market deployment.
- The programme places chip design at the centre of India’s next phase of semiconductor development, addressing a key gap despite India already being a major global base for semiconductor design engineers.
- Much of India’s existing chip-design work is undertaken for multinational semiconductor companies; Semicon 2.0 seeks to increase the number of Indian-owned Intellectual Property (IP) and fabless semiconductor companies.
Three-Part Design Push
1. Strategic Semiconductor Technologies
- The first track targets semiconductor technologies considered important for national security and critical infrastructure.
- The government will identify priority Intellectual Property (IP), System-on-Chip (SoC) and modules, including building blocks for computing, memory, radio frequency, power, networking and sensors.
- Eligible startups and Micro, Small and Medium Enterprises (MSMEs) can receive milestone-linked seed funding of up to ₹15 crore or 50% of project cost, whichever is lower.
- The government can also make equity co-investments alongside venture capital and private equity investors.
- Larger eligible companies can opt for royalty financing, under which they pay 5% of net revenue from the supported product until 1.5 times the government assistance has been recovered.
2. Commercial Chip Design
- A second track focuses on commercial chip-design companies, particularly young fabless semiconductor firms that design and sell chips while outsourcing physical fabrication.
- Companies will receive access to expensive Electronic Design Automation (EDA) tools, multi-project wafer fabrication services, IP cores, compute subsystems and post-silicon validation facilities.
- The eligibility framework has been expanded to companies owned and controlled by Overseas Citizens of India (OCIs), provided they are incorporated and headquartered in India and maintain significant operational and manpower presence in the country.
- This provision seeks to leverage the global experience and networks of the Indian-origin semiconductor community while building advanced design firms within India.
3. Deployment-Linked Incentive: Helping Indian Chips Find Buyers
- Designing a chip is only the first challenge; a major hurdle is convincing electronics manufacturers to adopt a newly developed Indian chip at commercial scale instead of relying on established foreign suppliers.
- Semicon 2.0 therefore introduces a separate Deployment-Linked Incentive (DLI) to address the “last-mile” problem between chip development and market adoption.
- Chips and SoCs launched after the scheme’s announcement will receive reimbursement equivalent to 9% of net sales for five years.
- The benefit is capped at ₹30 crore per application and ₹120 crore per company, including group entities.
- For commercial products, the scheme also provides a domestic-sourcing incentive: the benefit declines from 10% to 2% over five years based on the value of the product’s Bill of Materials (BoM) sourced domestically.
Broader Semiconductor Ecosystem
- Semicon 2.0 extends support beyond chip design to address gaps throughout the semiconductor supply chain.
- Companies establishing semiconductor-equipment Research and Development (R&D) facilities, photomask/photoresist manufacturing units, substrate, chemical and gas production, testing facilities, and semiconductor-equipment/component manufacturing can receive 30% capital-expenditure support.
- Equipment manufacturers will additionally receive a Production-Linked Incentive (PLI).
- Large silicon wafer fabrication plants (fabs) will be eligible for 40% capital-expenditure support.
Why Chip Design Matters for India
- Semiconductor design is a major strength of India’s existing technology ecosystem, but the country has historically captured less value because many Indian engineers work for foreign-owned semiconductor companies.
- Building Indian-owned fabless firms can help India move from being primarily a global talent and design-services base to an owner of semiconductor IP, products and companies.
- Fabless companies can avoid the enormous capital requirements of owning fabrication plants by outsourcing manufacturing while retaining control over chip architecture, IP and product development.
Important Terms
- Fabless Semiconductor Company: A company that designs and sells semiconductor products but outsources physical chip fabrication to specialised foundries.
- Semiconductor Fab: A manufacturing facility where integrated circuits are physically fabricated on silicon wafers.
- System-on-Chip (SoC): A semiconductor integrating multiple computing and functional components onto a single chip, commonly used in smartphones, automobiles, IoT devices and other electronics.
- Electronic Design Automation (EDA): Software and tools used to design, simulate, verify and develop semiconductor chips.
- Deployment-Linked Incentive (DLI): An incentive linked not merely to developing a semiconductor product but to its actual commercial deployment and sales.
Strategic Significance for India
- Economic: Greater domestic ownership of semiconductor IP can increase India’s share of value addition in the electronics ecosystem.
- Technological: It can help develop indigenous capabilities in advanced computing, communications, sensors, power electronics and other strategic technologies.
- National Security: Domestic semiconductor capabilities reduce vulnerabilities arising from excessive dependence on foreign technology and supply chains.
- Innovation: Seed funding, access to design infrastructure and private-capital co-investment can help startups move from prototypes to commercially viable products.
- Global integration: Inclusion of OCI-owned companies can combine global semiconductor expertise with Indian R&D and manufacturing capabilities.
Key Challenge
- India’s semiconductor challenge is no longer limited to designing chips; it must also ensure that Indian-designed products are manufactured, validated, adopted by electronics companies and scaled commercially.
- Semicon 2.0 therefore attempts to create an integrated chain:
Research & IP → Chip Design → Fabrication → Testing/Validation → Commercial Deployment → Market Scale.
