The cost advantage could come from a combination of government incentives that reduce capital expenditure, lower manpower costs, competitive power tariffs and the development of a domestic ecosystem for semiconductor materials, gases and equipment.
“Putting together all these things, there will be cost savings of anywhere between more than 10% vis-à-vis the locations where they are situated now,” Sinha said.
His comments come after the Union Cabinet approved the second phase of the India Semiconductor Mission (ISM 2.0) with an outlay of ₹1.27 lakh crore. The program has a 10- to 12-year horizon and is expected to attract nearly ₹4 lakh crore in investments, generate around ₹2 lakh crore in semiconductor production and drive exports of about ₹1 lakh crore over its lifetime.
Government incentives could reduce capex burden
Sinha said government and state-level incentives would substantially reduce the capital expenditure burden for companies setting up semiconductor facilities in India.
“50-60% of their capex will be depreciated because the government is giving this incentive,” he said.
According to Sinha, this could help new semiconductor facilities in India compete with plants in other parts of the world that have been operational for several years and have already depreciated their initial investments.
India could therefore offer companies a similar cost structure despite being a relatively new destination for semiconductor manufacturing, he said.
Lower operating costs could add to India’s advantage
The cost advantage could extend beyond the initial investment in a facility.
Manpower and electricity are among the key operating costs in semiconductor manufacturing. Sinha said manpower accounts for around 13% of the cost in a fab, while power accounts for about 17%.
India’s lower manpower costs and competitive electricity tariffs offered by state governments could provide companies with further savings, he said.
The advantage could increase as more parts of the semiconductor supply chain are established domestically.
“If we are able to manufacture chemical gases and materials as well, and equipment companies are doing their R&D and some kind of manufacturing, and they have also set up their support systems in India, this will further lower the cost of opex,” Sinha said.
ISM 2.0 to bring government co-investment for semiconductor startups
ISM 2.0 will also continue support for semiconductor startups provided under the first phase of the programme, including seed funding and access to electronic design automation (EDA) tools.
These tools are used by chip designers to develop and test semiconductor designs.
Sinha said such support helps startups overcome some of the biggest challenges in the early stages of development. Once a startup develops a proof of concept, or POC, it can approach venture capital firms and other investors for funding.
A key addition under ISM 2.0 is government co-investment alongside private investors.
“If investors validate the decision of ISM that this company is really good, [the government] will also put in the same amount of money on the same terms and conditions as the VC or investor,” Sinha said.
According to him, this provision was not available under the earlier program and could help attract more venture capital into India’s semiconductor startup ecosystem.
Government will not interfere in day-to-day management
Sinha said the government did not intend to become a burden on startups receiving support under the programme.
While the exact structure of equity participation, management control and board representation will be clarified in the notification and guidelines, he said the government would not seek to participate in the day-to-day management of companies.
“We are there to support them. We are not there to be seen as a burden on any startup company,” Sinha said.
ISM 2.0 expands India’s semiconductor ambitions
The second phase of the India Semiconductor Mission represents a broader approach than the first phase, with the government seeking to build an end-to-end semiconductor ecosystem in India.
While ISM 1.0 focused heavily on establishing semiconductor fabrication and packaging capacity, the new phase is expected to support a wider range of activities, including semiconductor design, materials, equipment and other parts of the supply chain.
The Union Cabinet has also approved a separate ₹62,500 crore mobile manufacturing scheme for five years. The scheme is expected to support mobile phone production worth nearly ₹39 lakh crore and create around 60,000 direct jobs.
Both ISM 2.0 and the mobile manufacturing scheme are expected to be notified within 20 days, according to Electronics and IT Minister Ashwini Vaishnaw.
