India is finalizing an incentive package of more than $10 billion to attract companies to start manufacturing semiconductors in the South Asian nation.

The government will offer incentives of 760 billion rupees ($10.2 billion) over six years for domestic production of semiconductor fabs, display fabs, design and packaging to cut down dependence on imports, said people familiar with the program. The Cabinet is expected to take up the proposal for approval soon.

The incentive program proposed by the Electronics Ministry is an effort by Prime Minister Narendra Modi to boost the share of manufacturing in the economy and reverse the pandemic induced slowdown.

The proposed plan includes government providing up to 50% of capital expenditure to companies selected for manufacturing semiconductor fab along with providing design-linked incentives.

The package is likely to be over and above the SOPs provided last year under production-linked incentives for manufacturing of electronic components and semiconductors.

According to the government estimates, the incentive plan will help India attract investments worth 1.7 trillion rupees (US$24 billion) in the next six years, the sources said.

Earlier in the month of October, an official source told PTI as quoted by Business standard, "The government is deliberating on a new semiconductor design-linked incentive scheme which envisages financial and infrastructure support for Indian MSMEs and startups right through the ideate stage to production stage. As and when these startups start producing and selling chips in the market, they shall also avail additional incentives under the scheme on their net sales turnover.”

India is separately in talks with Taiwan to start chip manufacturing plant worth US$7.5 billion to supply everything from 5G devices to electric cars with New Delhi willing to offer incentives and tax breaks.

It is also scouting for possible locations with adequate land, water and manpower to help the Taiwanese manufacturers set up factories.

Global majors such as Qualcomm, Intel, Mediatek, Infineon, and Texas Instruments have their research and development in India which contribute in the development of their chipsets.

The development comes amid prediction that a global chip shortage is likely to extend until early 2023 and demand may remain above the long-term expectation in 2022.

Image Credit: Business Standard