India plans $1 billion cash incentive scheme to woo global chip companies

India is offering more than $1 billion in cash to each semiconductor company that sets up manufacturing units in the country as it seeks to build on its smartphone assembly industry and strengthen its electronics supply chain, two officials said.

Prime Minister Narendra Modi's 'Make in India' drive has helped to turn India into the world's second-biggest mobile manufacturer after China. New Delhi believes it is time for chip companies to set up in the country.

"The government will give cash incentives of more than $1 billion to each company which will set up chip fabrication units," a senior government official told Reuters, declining to be named as he was not authorised to speak with media.

"We're assuring them that the government will be a buyer and there will also be mandates in the private market (for companies to buy locally-made chips)."

Read more: Xiaomi renews commitment to Make in India with new initiatives

How to disburse the cash incentives has yet to be decided and the government has asked the industry for feedback, said a second government source, who also declined to be identified.

Governments across the world are subsidising the construction of semiconductor plants as chip shortages hobble the auto and electronics industries and highlight the world's dependence on Taiwan for supplies.

India also wants to establish reliable suppliers for its electronics and telecom industry to cut dependence on China following border skirmishes last year.

Chips made locally will be designated as "trusted sources" and can be used in products ranging from CCTV cameras to 5G equipment, the first source said.

But the sources did not say whether particular semiconductor companies have shown interest in setting up units in India.

India's technology ministry did not respond to a request for comment.

PREVIOUS ATTEMPTS

India has previously tried to woo semiconductor players but firms were deterred by India's wobbly infrastructure, unstable power supply, bureaucracy and poor planning.

The renewed government push to lure chipmakers is more likely to succeed, following the success of the smartphone industry, industry insiders say.

Moreover, Indian conglomerates, such as the Tata Group, have also expressed interest in moving into electronics and high-tech manufacturing.

India in December invited an "expression of interest" from chipmakers for setting up fabrication units in the country or for the acquisition of such manufacturing units overseas by an Indian company or consortium.

The government extended the last date of submission for that expression of interest to end-March from Jan. 31, given the level of industry demand, the government source said.

A consortium of investors led by Abu Dhabi-based fund Next Orbit Ventures has shown interest in setting up in India, an auto industry source said.

Next Orbit did not respond to a request for comment.

A shortage of chips is holding back India's auto sector just when it sees early signs of a recovery in demand after sales plunged in 2020 because of the pandemic.

Also read: Taiwan has enough water to keep chipmakers humming till May

Indian technology ministry officials met executives from the Society of Indian Automobile Manufacturers (SIAM), a leading auto industry body, earlier this year to assess car makers' demand for chips, three auto industry sources said on condition of anonymity.

The government estimates it would cost roughly $5-$7 billion to set up a chip fabrication unit in India and take 2-3 years after all the approvals are in place, one of the auto industry sources said.

The source added that New Delhi is willing to offer companies concessions, including waivers on customs duty, research and development expenses and interest free loans.