Budget 2025: What Gujarat's semiconductor industry wants from FM

With the Union Budget 2025-26 to be presented by Finance Minister Nirmala Sitharaman on Saturday (February 1), the semiconductor industry which is undergoing a transformation, is looking forward to an increase in incentives.

In FY24, the semiconductor industry was allocated Rs 6,903 crore in the Union Budget, a 52 per cent increase from the 2023-24 Budget. This year, industry experts hope that the government will significantly increase the allocation again.

Industry's expectations

The semiconductor industry in Gujarat expects that the Budget will have significant incentives to strengthen domestic semiconductor manufacturing capabilities and R&D, say industry stakeholders.

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“India has always been a consumer of semiconductor chips rather than a producer. However, in the last few years, the government has taken a significant step in building a semiconductor manufacturing ecosystem in our country. While the provisions of Rs 1,0000 crore under the Production Linked Incentive (PLI) scheme has brought in larger companies to venture into the sector, tax benefits for R&D expenditure and subsidies for accessing advanced tools can further attract the MSMEs to invest in the industry,” says Ashok Abhaybhai Mehta, MD of Suchi Semicon.

Mehta is a second-generation textile trader who diversified into semiconductor sector in 2023 in partnership with semiconductor players from Japan and the Philippines.

Suchi Industries, a Surat-based 30-year-old textile firm, is one of the many textile companies that ventured into the semiconductor industry in 2023 by setting up an Outsourced Semiconductor Assembly and Test (OSAT) facility worth Rs 870 crore.

Seeking financial support from govt

“Suchi Semicon has already applied for the Centre’s incentives under SPECS (Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors) and the India Semiconductor Mission (ISM) of the state government. The Gujarat Semiconductor Policy (2022-27) assured to offer fiscal and non-fiscal support to eligible projects and 50 per cent capital subsidy for building a desalination plant within the initial five years. Banking on the assurance we tried our hands in the semiconductor industry and established Suchi Semicon. But we still awaiting the state government’s nod for the capital support along with the 50 per cent capital support. Our applications are still under review,” Mehta said and added that the company has had to apply for a bank loan and might shut down if they don’t get the financial support.

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“The Union Budget 2024 laid the groundwork for India's semiconductor sector’s development. The announcement of Rs 76,000 crore for the Production Linked Incentive (PLI) scheme made sure global semiconductor manufacturers come to India while encouraging domestic companies to diversify in the sector. However, we are still in the nascent stage of semiconductor manufacturing. A mid-term review of the PLI scheme's effectiveness, and identifying loopholes is necessary. But the sector also needs a further push to cut down the cost of establishment. Right now, the minimum investment threshold to establish a semiconductor unit in India ranges from Rs 50 crore to Rs 20,000 crore depending on the type of the plant. Out of which, Rs 50 crore is the minimum mandatory investment for setting up an OSAT plant as per the government policy, and an additional Rs 20,000 crore is required for modification, assembly marking, and packaging unit semiconductor fabrication plant,” Amit Agrawal, the Project Director of Tata Semiconductor Projects, Gujarat told The Federal.

Issue of huge establishment costs

Owing to the huge establishment costs, the MSMEs have not been able to enter the sector. Noticeably, many traders of the MSME sector had shown interest in diversifying into semiconductor sector hoping for greener avenues and to recover from losses incurred during the Covid-19 pandemic.

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“Most of them backed down not only due to the establishment cost but also due to the huge cost involved in the research and development to enter a new sector,” said Mehta.

“I have been associated with the textile sector for the last 30 years. It seemed impossible to diversify into such a technical sector like semiconductors initially. I visited eight countries during the last three years to study the semiconductor ecosystem before I ventured into the sector. This is an expenditure that I had to manage on my own. Now, that the manufacturing of the first phase is to begin, the company has employed 120 engineers for operating the new OSAT facility. They are being trained in Philippines at the cost of the company. The government is yet to take into consideration costs like these. It would be helpful if this Budget addresses these issues,” he added.

Noticeably, industry experts feel that the costs can be reduced by focusing on domestic manufacturing capabilities rather than using OSAT, and to achieve that more funds need to be poured into the Semicon India Programme under the Indian Semiconductor Mission.

Semiconductor courses in education institutes

“If semiconductor fabrication units limit themselves to manufacturing nanochips only, the cost is unlikely to go down given it is a niche and highly specialised process and we do not have indigenous technologies yet. If the ecosystem also promotes the production and manufacturing of microchips which has widespread application across various electronic devices, it would bring down the costs and also help the MSMEs wanting to divert in the sector. But more importantly, the Budget 2025 should focus beyond manufacturing.

“The industry is looking forward to incentives on developing a complete semiconductor ecosystem including support for the growth of ancillary industries such as chip design, packaging, and testing. More funds are needed to create dedicated semiconductor clusters,” said Pankaj Yadav, an Associate Professor at PDEU (Pandit Deendayal Energy University) and founder of Semiconductor Analysis and Testing Solutions.

“The government also needs to bring courses on semiconductors as a new subject in the premium education institutions like IITs to generate a domestic talent pool in the coming years. Right now, engineers of various disciplines hired by companies like Tata who have put up plants in Gujarat are receiving training in Taiwan and South Korea which is an additional cost to the company,” he added.