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 upfabs 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.
