This Article is Written by Anay Singh .
Introduction
Today, an ever-evolving technological landscape places semiconductors and integrated circuits (ICs) as one of the cores of modern electronics capable of energizing everything from a smartphone to a computer, and defense systems down to emerging technologies. With geopolitical strains, pandemic disruptions, and technological competition, the global semiconductor supply chains are under serious unprecedented pressure. India sees this an opportunity to position itself as a key player in the global semiconductor ecosystem.
The Indian government is fast-tracking the semiconductor manufacturing opportunities through deliberate policies, large monetary investments, and international collaboration. This article seeks to analyze the legal and regulatory developments around semiconductors in the Indian context, review the developments on the ground, identify the challenges yet to be overcome, and speculate on the future direction of India’s semiconductor dream.
The Strategic Importance of Semiconductors and Integrated Circuits
Semiconductors have emerged as the fundamental building blocks of the digital age, underpinning critical technologies across virtually every sector:
- Economic Impact: The global semiconductor market is projected to exceed $1 trillion by 2030, representing one of the highest-value manufacturing sectors worldwide.
- National Security: Advanced semiconductor capabilities directly impact defense technologies, encryption systems, and critical infrastructure.
- Technological Sovereignty: Control over semiconductor design and manufacturing provides technological independence and resilience against supply chain disruptions.
- Digital Transformation: Semiconductors enable breakthroughs in artificial intelligence, quantum computing, 5G/6G communications, and other frontier technologies.
For India, which presently procures near about 100% of its semiconductor needs, amounting to $15 billion a year, building its base has become an economic imperative as well as a strategic requirement.
India’s Comprehensive Legal Framework for Semiconductor Development
India has endorsed a multi-layered legal and regulatory framework to govern and promote semiconductor development:
Intellectual Property Protection Regime
In the foundation of India’s semiconductor legal architecture lies a robust intellectual property protection system:
- The Semiconductor Integrated Circuits Layout-Design Act, 2000: This specialized legislation provides comprehensive protection for semiconductor IC layouts, granting creators exclusive rights to commercialize their designs for ten years. The Act also establishes registration procedures, defines infringement parameters, outlines enforcement mechanisms, and provides protection for 10 years (Section 15),
- Integration with Broader IP Framework: The semiconductor-specific protections complement India’s broader IP regime, including the Patent Act of 1970 (as amended) and the Copyright Act of 1957. Such instruments thus put into place a multi-pronged protective system for semiconductor innovations underlying the circuit design, the manufacturing processes, and even the final applications.
- International Alignment: India’s semiconductor IP framework maintains alignment with international standards through its adherence to the TRIPS Agreement, ensuring that protections meet global benchmarks while incorporating India-specific provisions.
- Rights Conferred by Registration: Once registered, the proprietor has exclusive rights to reproduce, sell, and distribute the layout design (Section 17). In case the design is used or reproduced without permission, it may be considered to be an infringement and the aggrieved proprietor may take legal action against the unauthorized user (Section [18]).
- Infringement and remedies: The Act provides mechanisms for addressing infringement through civil remedies such as injunction and damages as well as criminal penalties for wilful infringement (Section 18,56).
- Prohibition of Certain Designs: (Non-registrable Designs) The Act prohibits registration of designs that are not original or have been commercially exploited in India or any convention country (Section 7). This ensures that only innovative designs receive protection.
Need for Semiconductor Integrated Circuits Layout Design Law:
The Semiconductor Integrated Circuits became necessary because of the inadequacies of the currently existing intellectual property rights (IPR) legislation to satisfy the specific functional and technical requirements of semiconductor layout designs, it became obligatory to introduce a semiconductor integrated circuits layout-design law for the country. The writer mentions how the conventional intellectual property framework could not do the job, which made it necessary to have specialized legislation on that:
1. Patent Law Was Inadequate
Exclusion under Section 3(o) of the Patents Act, 1970:
Layouts of semiconductor integrated circuits were excluded from patentability, considering them “topographies of integrated circuits” not involving an “inventive step” that is characteristically essential to patentability.
Functional vs. Inventive Focus:
Patents protect invention, while semiconductor layouts are functional arrangements of transistors and circuitry. To patent every feature of a complex IC layout will practically lead to filings that will be too long and impractical.
2. Copyright Law Has Its Limitations
Functional Designs Do Not Fall Under This Category:
Copyright protects art by creative concepts and functional utility Copyrights may not be applicable in protecting layout designs, although such designs involve creativity. The strong point will always be technical functionality.
Reverse Engineering Allowed:
Reverse engineering is allowed under “fair use” as per copyright law, allowing opponents to replicate layouts legally. 3. Industrial Design Law Inapplicability
Ornamental vs. Functional Protection:
The Designs Act, of 2000 protects the visual appearance, not the internal functional arrangement of circuits. Semiconductor layouts deserve protection for technical efficacy, not their aesthetics.
3. Trade Secret Law Applicability Weakness
Vulnerability To Reverse Engineering:
Trade secrets cannot protect semiconductor layouts since reverse engineering is legal as per TRIPS Article 35. Competitors can disassemble and legally copy designs.
4. Breaches of International Compliance
TRIPS Obligations:
TRIPS (Article 35-38) required member countries to protect semiconductor layouts under sui generis (stand-alone) laws. Since the existing IPR laws were not in conformity with TRIPS provisions, the SICLD Act thus became necessary.
SICLD Act Gaps Addressed Features
Sui Generis Protection:
- There exists a separate IP category that protects layout designs (3D arrangements of circuitry elements).
- Registration of layout designs for protection provides clarity and enforceability.
Functional Approach:
- The protection of the technical functionality of layouts has been safeguarded not just aesthetics.
Equitable Rights:
- A 10-year exclusivity is granted to prevent unauthorized reproduction, sale, or import of a design under protection. Reverse engineering could be done for purposes of development while copying it would be barred.
Enforcement Mechanisms:
- It provides for not only criminal penalties but also civil remedies with a maximum punishment of 3 years in prison plus fines for infringers.
SICLD Act Impact
TRIPS-Compatible: Bringing India in conformity with the international best practices about IP would greatly improve investor confidence.
Fostering Industry: Establishing a protective shield for the semiconductor industry promotes semiconductor innovation through the protection of its R&D investments. Following major schemes such as the Semicon India Programme (which provides 76,000 crore in incentives) and the Design Linked Incentive Scheme further strengthen domestic capabilities.
Investment Framework and Financial Incentives
India has created a progressively liberalized investment environment specifically calibrated for semiconductor development:
- Foreign Direct Investment Policy: The automatic approval route allowing 100% FDI in semiconductor manufacturing represents a cornerstone of India’s investment strategy. This policy eliminates bureaucratic hurdles for international semiconductor companies considering Indian operations, streamlining the establishment process.
- Production-Linked Incentive (PLI) Scheme: This performance-based incentive framework provides financial support of 4-6% on incremental sales for eligible semiconductor manufacturers over five years. The scheme incorporates specific provisions addressing semiconductor manufacturing’s unique capital requirements and extended gestation periods.
- India Semiconductor Mission (ISM): Established as a specialized division within the Digital India Corporation, the ISM operates with a dedicated allocation of ₹76,000 crore (approximately $10 billion). The mission functions as both a funding mechanism and a regulatory coordinator, streamlining approvals across multiple government departments.
- Design-Linked Incentive (DLI) Scheme: Complementing manufacturing incentives, this program provides reimbursement of up to 50% of eligible expenses for semiconductor design companies. The scheme incorporates specialized provisions for intellectual property development, prototype creation, and deployment.
Environmental and Safety Regulatory Framework
Given semiconductor manufacturing’s complex environmental footprint, India has developed specialized regulatory guidelines:
- Environmental Clearance Process: Semiconductor fabrication facilities must undergo enhanced environmental impact assessments under the Environmental Protection Act, addressing specific concerns related to chemical usage, ultra-pure water requirements, and emissions.
- Hazardous Materials Management: The Hazardous and Other Wastes (Management and Transboundary Movement) Rules establish specific protocols for the handling, storage, and disposal of chemicals unique to semiconductor manufacturing, including specialized provisions for volatile organic compounds and heavy metals.
- Occupational Safety Standards: The Occupational Safety, Health and Working Conditions Code incorporates semiconductor-specific provisions addressing cleanroom environments, radiation exposure, and chemical handling protocols.
India’s Current Progress in Semiconductor Development
India’s semiconductor journey has gained significant momentum through several landmark developments:
The India Semiconductor Mission (ISM)
Launched in December 2021, the ISM represents the most comprehensive government initiative to develop India’s semiconductor ecosystem. Key features include:
- Specialized Administrative Structure: The ISM operates as an independent business division with technical expertise in semiconductor technologies, providing a single point of contact for investors, technology partners, and other stakeholders.
- Financial Commitment: The ₹76,000 crore ($10 billion) allocation demonstrates unprecedented government commitment, with funding distributed across four key segments: silicon semiconductor fabs, display fabs, compound semiconductors/silicon photonics/sensors, and semiconductor packaging facilities.
- Governance Framework: The ISM operates under a specialized governance structure that includes industry experts, academic representatives, and government officials, ensuring balanced decision-making that incorporates technical, commercial, and strategic considerations.
Milestone Investments and Partnerships
India has secured several high-profile semiconductor investments that demonstrate growing international confidence:
- Micron Technology’s Manufacturing Facility: In June 2023, Micron announced a $2.75 billion investment to establish a semiconductor assembly and test facility in Gujarat. The project represents India’s first major memory chip manufacturing operation, supported by $1.3 billion in government incentives through a tailored application of the semiconductor PLI scheme.
- Tata Electronics and Powerchip Semiconductor Manufacturing Corporation (PSMC): This $10 billion joint venture aims to establish an advanced semiconductor fabrication facility producing 28-nanometer to 40-nanometer chips. The partnership demonstrates successful utilization of the Modified Special Incentive Package Scheme (M-SIPS) combined with state-level land and infrastructure incentives.
- Semiconductor Laboratory (SCL) Modernization: The government has initiated the modernization of the Semiconductor Laboratory in Mohali through a technology transfer agreement with global partners, upgrading its capabilities from 180nm to 65nm processes.
Ecosystem Development Initiatives
Beyond manufacturing facilities, India has made progress in developing the broader semiconductor ecosystem:
- Semiconductor Design Centers: The government has established specialized semiconductor design centers in partnership with academic institutions, including the Indian Institutes of Technology. These centers focus on developing intellectual property in strategic areas including power electronics, radio frequency chips, and memory technologies.
- Skill Development Programs: The Electronics Sector Skills Council of India has launched targeted programs for semiconductor manufacturing skills, aiming to train 85,000 engineers and technicians over five years through specialized courses developed in collaboration with industry partners.
- Semiconductor Research Consortia: Public-private research partnerships have been established with participation from global semiconductor firms, Indian technology companies, and academic institutions to develop next-generation semiconductor technologies.
Persistent Challenges in India’s Semiconductor Journey
Despite significant progress, India continues to face substantial challenges in developing a competitive semiconductor industry:
Technical and Infrastructure Barriers
- Advanced Manufacturing Technology Gap: India lacks experience in leading-edge semiconductor manufacturing processes (below 28nm), requiring extensive technology transfer arrangements and learning curves.
- Ultra-Pure Materials Supply Chain: Domestic supply chains for semiconductor-grade materials remain underdeveloped, with critical dependencies on imported silicon wafers, specialized gases, and chemicals.
- Power and Water Infrastructure: Semiconductor manufacturing requires exceptional reliability in power delivery (99.999% uptime) and massive quantities of ultra-pure water, presenting infrastructure challenges in many Indian industrial regions.
Financial and Risk Management Challenges
- Extended Return on Investment Timelines: Semiconductor fabrication facilities typically require 3-5 years before reaching production capacity, with ROI horizons extending 7-10 years, creating financing challenges for both public and private investors.
- Technology Obsolescence Risk: The rapid advancement of semiconductor manufacturing technology creates significant obsolescence risk, requiring careful technology selection and upgrade planning.
- Global Competition for Investment: India faces intense competition from countries offering aggressive semiconductor incentives, including the United States ($52 billion CHIPS Act), European Union (€43 billion Chips Act), and established semiconductor powers like Taiwan and South Korea.
Human Capital and Knowledge Ecosystem
- Specialized Workforce Limitations: While India produces numerous software engineers, the country faces shortages in specialized roles critical to semiconductor manufacturing, including process engineers, equipment specialists, and yield optimization experts.
- Intellectual Property Development Capacity: India’s semiconductor IP portfolio remains limited compared to global leaders, with gaps in essential building blocks like advanced processor architectures and memory cell designs.
- Industry-Academia Collaboration: Historically limited collaboration between semiconductor companies and academic institutions has restricted the development of specialized research capabilities and talent pipelines.
Future Direction and Strategic Recommendations
To address these challenges and accelerate India’s semiconductor development, several strategic initiatives merit consideration:
Legal and Regulatory Framework Enhancements
- Unified Semiconductor Development Act: India would benefit from comprehensive legislation that consolidates various semiconductor initiatives under a single legal framework, streamlining approvals and creating specialized dispute resolution mechanisms for semiconductor-related matters.
- Semiconductor Intellectual Property Exchange: Establishing a legal framework for a semiconductor IP exchange would facilitate technology transfer, promote domestic IP development, and create standardized licensing terms for semiconductor building blocks.
- Environmental Fast-Track for Semiconductor Projects: Creating specialized environmental clearance procedures specifically calibrated for semiconductor manufacturing would accelerate project implementation while maintaining rigorous standards.
Ecosystem Development Strategies
- Focused Technology Specialization: Rather than attempting to compete across all semiconductor segments initially, India should prioritize specific niches aligned with domestic strengths, such as automotive semiconductors, power electronics, and analog/mixed-signal chips.
- Semiconductor Commons Initiative: Developing shared infrastructure for semiconductor design verification, prototype manufacturing, and testing would lower barriers to entry for startups and medium-sized enterprises.
- Manufacturing Services Model: Encouraging the establishment of semiconductor foundry services specifically oriented toward small and medium production volumes would support India’s diverse electronics manufacturing sector.
International Partnership Models
- Strategic Technology Transfer Agreements: Pursuing government-to-government agreements for semiconductor technology transfer, similar to historical arrangements that enabled Taiwan and South Korea to develop their industries, could accelerate capability development.
- Diaspora Engagement Program: Creating specialized incentives to attract Indian semiconductor professionals working abroad could rapidly inject expertise into the developing ecosystem.
- Joint Research Initiatives: Establishing binational semiconductor research centers with established semiconductor powers would accelerate knowledge development and prepare the ground for future manufacturing capabilities.
Conclusion: India’s Semiconductor Inflection Point
India stands at a critical inflection point in its semiconductor journey. The unprecedented convergence of government commitment, private sector interest, and global supply chain reconfiguration creates a unique opportunity to establish India as a significant player in the global semiconductor ecosystem.
The legal framework established through the India Semiconductor Mission provides a solid foundation but requires continuous refinement to address the industry’s unique challenges. The early investment commitments from companies like Micron and Tata-PSMC demonstrate market confidence, but the sustained effort will be needed to develop a complete semiconductor manufacturing ecosystem.
India’s success will ultimately depend on its ability to execute across multiple dimensions simultaneously: developing technical capabilities, building human capital, creating appropriate financing mechanisms, and forging strategic international partnerships. The path forward requires patience and persistence, as semiconductor capabilities develop over decades rather than years.
With continued policy support, strategic investments, and ecosystem development, India has the potential to transform from a semiconductor consumer to a significant producer, enhancing both economic competitiveness and technological sovereignty. The semiconductor journey represents not just an industrial opportunity but a fundamental transformation of India’s technological capabilities for the 21st century.
References:
- Semiconductor Integrated Circuits Layout-Design Act, 2000 – Government of India.: https://ipindia.gov.in/writereaddata/Portal/IPOAct/1_57_1_semiconductor-act2000.pdf
- India Semiconductor Mission (ISM) Policy, 2021 – Ministry of Electronics & IT. (2021). India Semiconductor Mission Policy. MeitY.: https://www.meity.gov.in/ism
- Production-Linked Incentive (PLI) Scheme for Semiconductors –MeitY: https://www.meity.gov.in/esdm/pli
- Design-Linked Incentive(DLI) Scheme –MeitY: https://www.meity.gov.in/sites/default/files/DLI_Scheme_Guidelines.pdf
- Foreign Direct Investment (FDI) Policy for Electronics & Semiconductors –DPIIT: https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy
- McKinsey & Company. (2023). Global Semiconductor Industry Outlook2030.: https://www.mckinsey.com/industries/semiconductors
- India’s Semiconductor Ecosystem: Challenges and Opportunities – Deloitte (2022): https://www2.deloitte.com/in/en.html
- Semiconductor Supply Chain Resilience– World Semiconductor Trade Statistics (WSTS, 2023).
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- Semiconductor Manufacturing in India: A Feasibility Study – IIT Bombay & ISRO (2022).
- Reverse Engineering & Fair Use in Semiconductor IP – Harvard Journal of Law & Technology (2020).
- The Economic Times. (2023, June 15). Micron’s $2.75B India Chip Plant: A Game Changer?
- Tata-PSMC JV: India’s First Major Semiconductor Fab – Mint (2023).
- India’s Semiconductor Laboratory (SCL) Modernization – Business Standard (2022).
- EU Chips Act: Lessons for India” – European Commission (2023).
- Unlocking the Power of Semiconductor intellectual property (IP) in India. https://www.linkedin.com/pulse/unlocking-power-semiconductor-intellectual-property-ipindia-28jec
- Kalra, M. (2022, December 5). An introduction to Semiconductor Integrated Circuits Layout Designs Act 2000 – By Raunaq Bali – IPTSE. https://iptse.com/an-introduction-tosemiconductor-integrated-circuits-layout-designs-act-2000-by-raunaq-bali/
