DLI scheme and the chip making industry

ECONOMY/ GOVERNANCE

• 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. 

Conclusion

• 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:

• Semiconductors and Industry 4.0
• Semiconductor Shortage