- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
DLI scheme and the chip making industry
Context: India has invited applications from 100 domestic companies, startups and small and medium enterprises to become a part of the design-linked incentive (DLI) scheme.
- Also, IT ministry has sought proposals from academia, start-ups and MSMEs to train 85,000 qualified engineers on semiconductor design and manufacturing.
Do You Know?
- It is estimated that the semiconductor industry is growing fast and can reach $1 trillion dollar in this decade. India can grow fast and reach $64 billion by 2026 from $27 billion today.
- Mobiles, wearables, IT and industrial components are the leading segments in the Indian semiconductor industry contributing around 80% of the revenues in 2021. The mobile and wearables segment is valued at $13.8 billion and is expected to reach $31.5 billion in 2026
What is the DLI scheme?
- The DLI scheme aims to provide financial and infrastructural support to companies setting up fabs or semiconductor making plants in India.
- It will offer fiscal support of up to 50% of the total cost to eligible participants who can set up these fabs in the country.
- It will also offer fiscal support of 30% of the capital expenditure to participants for building compound semiconductors, silicon photonics and sensors fabrication plants in India, under this scheme.
- An incentive of 4% to 6% on net sales will be provided for five years to companies of semiconductor design for integrated circuits, chipsets, system on chips, systems and IP cores.
- It is expected to facilitate the growth of at least 20 such companies which can achieve a turnover of more than ₹1500 crore in the coming five years.
How can the scheme make a difference in the semiconductor manufacturing industry in India?
- The sudden increase in demand of chips and semiconductor components has enhanced the need to establish a robust semiconductor ecosystem in India.
- Several sectors, including auto, telecom, and medical technology suffered due to the scarcity of chips manufactured by only a few countries.
- Schemes like the DLI are crucial to avoid high dependencies on a few countries or companies.
- The inception of new companies will help in meeting the domestic demand and encourage innovation in India.
- The DLI scheme aims to attract existing and global players as it will support their expenditures related to design software, IP rights, development, testing and deployment.
- It is a big step to bring India on the world map for semiconductor manufacturing.
What are other countries doing to be dominant in the race of chip making?
- Currently, semiconductor manufacturing is dominated by companies in the U.S., Japan, South Korea, Taiwan, Israel and the Netherlands. They are also making efforts in solving the chip shortage problem.
- U.S President Joe Biden wants to bring manufacturing back to America and reduce the country’s reliance on a small number of chipmakers based largely in Taiwan and South Korea. These chipmakers produce up to 70% of the world’s semiconductors.
- The European Commission has also announced a public-private semiconductor alliance with the goal of increasing Europe’s chip production share to 20% by 2030.
- South Korea has offered various incentives to attract $450 billion in investments by 2030.
What are the challenges in making semiconductors in India?
- In India, more than 90% of global companies already have their R&D and design centres for semiconductors but never established their fabrication units,
- Although India has semiconductor fabs in Mohali and Bangalore, they are purely strategic for defence and space applications only.
- Setting up fabs is capital intensive and needs investment in the range of $5 billion to $10 billion.
- Lack of investments and supportive government policies are some of the challenges to set up fabs in India.
- Infrastructure like connectivity to airports, seaports and availability of gallons of pure water are some other challenges to set up fabs in India.
- Design Linked Incentive (DLI) scheme along with the recent Production-Linked Incentive (PLI) scheme have become crucial in shaping India as an efficient, equitable, and resilient design and manufacturing hub.
Connecting the dots: