The DLI scheme and the chip making industry in India

Syllabus: General Studies Paper 3

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.
• Along with it the IT ministry has sought proposals from academia, start-ups and MSMEs to train 85,000 qualified engineers on semiconductor design and manufacturing.

About Design-linked incentive (DLI) scheme:

• Aim: to provide financial and infrastructural support to companies setting up fabs or semiconductor making plants in India.
• It will offerfiscal support of up to 50% of the total cost to eligible participants who can set up these fabs in the country.
• It will also offerfiscal support of 30% of the capital expenditure to participants for building compound semiconductors, silicon photonics and sensors fabrication plants in India.
• Anincentive 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.

Importance of Semiconductor manufacturing:

• The sudden surge in demand of chips and semiconductor components has underpinned the need to establish a robust semiconductor ecosystem in India.
• Several sectors, including auto, telecom, and medical technology suffered due to the unexpected surge leading to the scarcity of chips manufactured by only a few countries.

Importance of such a scheme:

• Economic progress: 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, according to MeitY.
• Reduce dependencies on few countries or companies.
• Help in Meeting demand & supply gap: The inception of new companies will help in meeting the demand and supply and encourage innovation in India, NXP, a Dutch semiconductor multinational.
• Attracting existing and global players: as it will support their expenditures related to design software, IP rights, development, testing and deployment.
• Boost domestic manufacturing capacities: It will boost the domestic companies, start-ups, and MSMEs to develop and deploy the semiconductor design.
• It will also help global investors to choose India as their preferred investment destination.

Similar steps taken by other countries:

• Currently, semiconductor manufacturing is dominated by companies in the S., Japan, South Korea, Taiwan, Israel and the Netherlands.They are also making efforts in solving the chip shortage problem.
• S President Joe Biden wants to bring manufacturing back to Americaand reduce the country’s reliance on a small number of chipmakers based largely in Taiwan and South Korea.
• These chipmakers produce up to70% of the world’s semiconductors, according to estimates by NXP semiconductors.
• TheEuropean Commission has also announced a public-private semiconductor alliance with the goal of increasing Europe’s chip production share to 20% by 2030.
• South Koreahas offered various incentives to attract $450 billion in investments by 2030.

The Present scenario 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.

Challenges in making semiconductors in India:

• Setting up fabs is capital intensiveand needs investment in the range of $5 billion to $10 billion.
• Lack of investments and supportive government policies.
• Government clearance: New fabs use sub 5 nano meter technologythat requires clearance from both the technology provider and the Government.
• Geopolitical situationcomes into play to build new fabs.
• Infrastructure needslike connectivity to airports, seaports and availability of gallons of pure water as challenges to set up fabs in India.

Potential in India:

• Back-end supply chains: several gases and minerals which are a part of the global semiconductor supply chain are produced in India.
• Human resources: We also have excellent colleges which can produce highly skilled engineers for semiconductor manufacturing.
• Pace of growth: 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.
• Domestic manufacturing has picked up already: Mobiles, wearables, IT and industrial components are the leading segments in the Indian semiconductor industry contributing around 80% of the revenues in 2021.

Conclusion: the 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.

The Hindu link

https://www.thehindu.com/business/Industry/the-dli-scheme-and-the-chip-making-industry-in-india/article38352883.ece

Question- Electronics manufacturing will prove to be a crucial sector to realise $5 trillion economy goal. In this regard how Design-linked incentive (DLI) scheme can help in boosting semiconductor manufacturing?