Budget 2025: Semiconductor industry seeks tax breaks, design incentives

India’s Union Budget is more than just an annual financial statement—it is a blueprint that shapes the country’s economic trajectory and priorities. With the Union Budget for FY 2025-26 set to be presented on February 1, the semiconductor industry is abuzz with anticipation. This year, the stakes are especially high as India’s ambitious push to become a global semiconductor powerhouse is witnessing significant contributions from domestic giants, capturing international attention as well.

Ashok Chandak, President, IESA says: “India’s semiconductor sector is at a pivotal growth stage, driven by government initiatives, strategic collaborations, and a robust domestic market. Indian companies and IESA (India Electronics and Semiconductor Association) members have committed to projects worth over $20 billion. India should allocate $20 billion in the upcoming budget to propel the next phase of growth, innovations, and Atmanirbhar Bharat with Global Impact.”

To address the gaps in India's semiconductor ecosystem, the government needs to take a targeted and nuanced approach to identify specific weaknesses in the supply chain. For this, semiconductor veteran Raja Manickam, Founder & CEO, iVP Semi says: “This does not require billions of dollars but rather a collaborative effort from numerous companies each contributing a small piece of the puzzle. The funding required per company would likely fall in the $50-60 million range, with around 70-80 companies involved across various aspects of the supply chain.”

Semiconductor fabs require a robust infrastructure, including reliable power supply, high-purity water, and well-connected transport networks. The industry expects the government to announce region-specific incentives for states promoting semiconductor clusters. “Building semiconductor-specific infrastructure requires a combination of financial investment and policy support. I would like to see the government allocate resources for establishing semiconductor parks with ready-to-use facilities, including utilities like uninterrupted power and water supply,” says Shetal Mehta, Co-founder of Suchi Semicon. The company is setting up a $100 million OSAT plant in Surat without the central government’s incentives.

As India boasts key strengths such as a large talent pool, a growing consumer base, and a strategic geographic position, it also faces significant challenges in building a self-sustaining semiconductor ecosystem. Industry players are hopeful that this budget will introduce targeted incentives, streamline policies, and provide the necessary support to fast-track progress.

Anurag Awasthi, a semiconductor policy specialist says: “Incentives relating to R&D as well as for indigenisation of chemicals and gases, as pertinent to the semiconductor sector, if incorporated will be pertinent in the overall context. The critical part of this infrastructure is to build world-class qualification labs, in tune with the laid down standards. In terms of associated aspects, the budget could look at the aspects of warehousing, port infrastructure, workforce development metrics as well as the establishment of logistics infrastructure as part of a larger inter-ministerial canvas.”

Echoing the sentiment, Ajai Chowdhry, Chairman EPIC Foundation & MGB, National Quantum Mission of India believes: “There are two holes in the strategy. Firstly, there has to be an R&D facility. And secondly, a product design strategy for both systems and chips must be created by giving design incentives for both to feed the fabs created.” He adds, “A market creation strategy has to be developed to make fabs successful. The government should give preference to products designed in India. And for chips, the top 20 chips needed for India should be funded adequately with a more liberal DLI scheme going up to Rs 100-150 crore per chip. And post that such chips have to be specified for products being bought by the government replacing the current Chinese chips.”

The semiconductor industry is highly exclusive due to its immense capital requirements, complex technologies, and specialised expertise. Building advanced fabs costs billions while designing chips demands years of R&D and access to protected intellectual property. Dominated by a few global giants, only companies with deep pockets and long-term vision can compete in this field. So, for India to succeed in its semiconductor mission, the government has to focus on getting some big brands to manufacture in India.

“To attract technology holders, which will affect the growth of semiconductor manufacturing in India, the government should introduce policies such as income tax holidays for semiconductor companies for up to 10 years. This would be a key driver in attracting international investments as well. The exemption of taxes and duties on semiconductor manufacturing equipment would greatly ease the process for companies looking to set up operations here in India, as the current import taxes and duties exemption process is very cumbersome and delays imports,” says Eswara Rao Nandam, CEO & MD of Polymatech Electronics Limited.

As India has identified the semiconductor industry to be a key pillar for its economic and technological growth, the decisions made in this financial roadmap will be crucial in solidifying India’s position in the global chip supply chain and turning its semiconductor ambitions into reality.