India has revamped its semiconductor policy with a Rs 1.27 lakh crore outlay, prioritizing chip design and supply chain development. The new framework reduces capital subsidies for manufacturing plants to 40% while increasing support for research and talent. This strategic shift aims to localize production for 75% of domestic demand by 2029.
The Union Cabinet has officially launched the second phase of India’s semiconductor mission, introducing a significant strategic pivot in how the government supports the electronics ecosystem. With a total outlay of Rs 1.27 lakh crore, the policy aims to move beyond simple manufacturing incentives to focus on building a robust design and ancillary supply chain within India.
Changes to Incentive Structure
A major feature of the new policy is the removal of subsidies for technology transfer and land acquisition. Previously, these were part of the incentive structure, but they faced implementation hurdles and difficulties in cost verification. Under the updated framework, the government will no longer cover technology transfer expenses. State governments are now expected to take the lead in facilitating land acquisition for semiconductor projects, shifting the financial burden and operational responsibility away from central direct subsidies.
Focus on Chip Design and Ancillary Units
Under the new guidelines, the government is prioritizing the domestic chip design ecosystem. Companies involved in high-end design, particularly those targeting advanced 7-nanometer nodes, can now qualify for subsidies covering up to 75% of project costs. This is supported by both central and state grants. Furthermore, the government has introduced a 30% incentive on capital costs for manufacturers of chemicals, gases, and specialized equipment, which are critical components of the semiconductor manufacturing supply chain.
Adjustment in Manufacturing Subsidies
While the government remains committed to supporting fabrication plants, the intensity of financial support has been adjusted. The capital expenditure subsidy for silicon fabs has been reduced from 50% to 40%. Other fabrication units are eligible for a 35% subsidy, while advanced packaging facilities will receive 35%, and conventional packaging units will get 25%.
Strategic Objectives and Risks
The government’s long-term vision is to fulfill approximately 70-75% of the domestic semiconductor demand through local design and manufacturing by 2029. By 2035, the goal is to position India as a key player in the global semiconductor landscape. For investors, this shift indicates a focus on higher-value intellectual property and supply chain self-sufficiency rather than just assembly. However, the success of this mission depends heavily on the ability of startups and companies to secure private equity funding, as government support is often linked to private investment milestones. Additionally, the move to offload land acquisition to states may create varying timelines for project implementation depending on state-level efficiency. Future updates will likely center on the number of design-focused companies receiving grants and the speed at which ancillary supply chain units are commissioned.