Govt unlikely to launch a second semiconductor subsidy scheme this year

“The four projects have to be fully grounded. They have to start spending so that we have to give them money. When MeitY goes back to the finance ministry, they will ask 'We gave you the money. What have you done with that?” he added.

The first semiconductor proposal to get the greenlight under the capex-linked subsidy scheme was in June last year when Micron’s $2.75 billion (Rs 22,516 crore) chip packaging plant in Sanand, Gujarat, was announced. While the company will bear $825 million of the projected cost, the Centre and state government will together foot the rest of the bill.

In March this year, three more semiconductor manufacturing proposals were approved under a scheme — a fabrication plant or fab to be set up by Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corp (PSMC) in Gujarat’s Dholera at an investment of Rs 91,000 crore; a chip assembly and testing unit by Tata Semiconductor Assembly and Test Pvt Ltd in Assam at an investment of Rs 27,000 crore; and a chip packaging plant by CG Power and Japan’s Renesas in Sanand at a cost of Rs 7,600 crore.

According to the government, these four projects will drain an estimated Rs 59,000 crore from the Rs 76,000-crore semiconductor scheme.

A few more proposals are in the pipeline by the likes of software unicorn Zoho and information technology services major HCL while a $8-10 billion plan by Israeli chip company Tower has reportedly been asked to be reframed.

“It is unlikely that the next version of the semiconductor plan will be floated until the Budget next year. Fiscal objectives have to be always balanced. In India, there are three large sectors that need subsidies — agriculture, medium and small enterprises and large-scale manufacturing. The government has to give equal attention to everyone,” said a person close to the developments.

However, as Moneycontrol has reported earlier, MeitY has planned subsidies for acquiring land to set up factories under certain high-value electronics component categories under an incentive scheme to be rolled out in August-September with an expected outlay of Rs 30,000-40,000 crore. The bulk of the expenditure will be towards capital subsidies for land acquisition to set up factories in some component categories where the capital investment to output ratio is not high.

The subsidy scheme for electronics components manufacturing is a part of the government's agenda to increase the local value addition in the electronics sector. An increase in value addition in electronics manufacturing means more components will be sourced locally, instead of being imported, resulting in a higher share of revenues for the country.

India has a goal of achieving $300 billion in revenues from electronics production by 2025-26, up from around $103 billion now.

The India Cellular & Electronics Association (ICEA), in a submission to MeitY, has asked the government for a Rs 30,000-35,000-crore outlay for the scheme for components and sub-assemblies, along with capital expenditure support. It also said the incentive scheme is needed to support growing demand for electronic components to the tune of $75-80 billion by 2026, and $300 billion by 2032 to support $300 billion worth of electronics products manufacturing by 2026 and $1.2 trillion by 2032.