Will Budget 2023 see allocation for semiconductor incentive schemes?

The Rs 76,000 crore overlay is expected to be spent over six years, but a beginning must be made this year — of at least Rs 5,000 crore

Union Finance Minister Nirmala Sitharaman’s first Budget speech was on July 5, 2019, after Narendra Modi took oath as Prime Minister of India for the second term.

The speech promised a “scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as Semi-conductor Fabrication (FAB)”.

Three-and-a-half years later this government is about to deliver its last full budget and till now the scheme has not seen any approvals and release of money for projects. The status of the scheme and the need for a reboot to the nodal agency, the India Semiconductor Mission, is a different story.

Will we finally see part of that Rs 76,000 crore allocated in this year’s budget and if so, how much will be a good portion? To even make a guess, we have to consider and analyse various factors.

The scheme offers incentives for multiple streams of projects of which silicon fabs are likely to be the ones with the highest project cost followed by display fabs. Both these categories were closed for applications in February, and expected to re-open after the first round of decisions, which has already missed the promised deadline of December 2022.

The other categories such as compound semiconductor and sensor fabs, chip-packaging and design are open for three years since January 2022, and the current applicant count is not publicly known.

The combined investment value of the three applications for silicon fabs was revealed to be $13.6 billion earlier, subsequent media reports and change of exchange rates hint at around $13.98 billion (Rs 60,000 crore by Vedanta-Foxconn, Rs 28,500 crore by IGSS, and Rs 24,500 crore by ISMC).

On the question of whether the 50 percent ‘fiscal support’ promised by the Union government is all upfront incentive, the guideline simply says that “the structure and quantum of fiscal support for the selected applicants will be determined after negotiations by the nodal agency’.

The approval process is mentioned in Section VII of the guidelines while Section VIII and IX are about the claim for fiscal support and the disbursement of the same. Going through them leaves one with a feeling that much of the exact details are still left to ‘nodal agency’, ‘negotiations’, what kind of agreement is signed between the approver and the approved, and so on.

It is not known whether the nodal agency has forwarded a list of eligible applicants to Ministry of Electronics and Information Technology(MEITY), which in turn is expected to place it before the Union Cabinet for approval. If it has come to that stage, it is likely that Sitharaman will have to allocate a certain amount in this Budget.

For silicon fabs, while the exact details can vary based on various factors, a rough estimate may be around 20 percent of the project cost for land, building, and infrastructure, and 60 percent for equipment. Much of the subsidisation of land and provisions for water and electricity are the responsibility of the state governments who have promised incentives over and above that from the Centre.

Putting all these together, at least for silicon fabs, it may be good enough if the minister allocates 5 percent of the project cost this year, that is Rs 1,200 crore to Rs 6,000 crore depending how many and which all of the three proposals will be approved. The big part of funds may be needed only in the 2025 Budget (for equipment).

A similar analysis will hold for display fabs also, though with an additional factor. When the policy was first released in December 2021, though 50 percent fiscal support was offered for display fabs, there was a maximum cap of Rs 12,000 crore fiscal support per application. The combined project cost of the two applications — one each from Vedanta and ELEST — was revealed to be around Rs 50,000 crore. In other words, each of them likely planned it around Rs 24,000 crore.

MEITY modified the scheme midway — interestingly while the scheme was still closed for new applications — and removed the cap. Whether it allowed the two applicants to tweak their proposals after modification to the scheme is not yet known.

The costs in other categories can vary from a few to hundreds of crores of rupees for each project, but depending on the number of applicants, the overall value can be in thousands of crores of rupees.

The Powerchip Semiconductor Manufacturing Corp (PSMC) has recently shown interest in partnering with Indian business groups to build fabs, and may apply in the second round. Whether MEITY has factored this in and communicated to the finance ministry is not known, but it is less likely as the latter has so far not even commented on such a development.

The Rs 76,000 crore overlay is expected to be spent over six years, but a beginning must be made this year — at least Rs 5,000 crore; ideally Rs 10,000 crore or more.

Arun Mampazhy (Twitter: @nano_arun) is a semiconductor engineer.

Disclimer: The views expressed are the author's own. They do not necessarily reflect the views of DH.