- Semiconductors are the thumbnail-sized building blocks of almost every modern electronic device from smartphones to connected devices in the Internet of Things (IoT).
- They help give computational power to devices.
- Basic component of a semiconductor chip is a sliver of silicon, forming patterns to control the flow of current while following different computational instructions.
- Valuation: Global semiconductor industry is currently valued at $500-$600 billion and caters to the global electronics industry currently valued at about $3 trillion.
- According to the Electronics and IT Ministry, semiconductor demand in India would increase to $70-$80 billion by 2026 with the growing demand for digital devices and electronic products
Semiconductor Industry: Modification to the Scheme
- It seeks to harmonise government incentives for all technology nodes of semiconductors.
- It will provide uniform 50% fiscal support for all nodes.
- While in previous scheme, it fund 30% of the project cost for 45nm to 65nm chip production, 40% for 28nm to 45nm, and 50% or half of the funding for chips 28nm or below.
- It will provide 50% of capital expenditure for other steps of the process as well (chip design and ATMP)
- It emphasised the production of the 45nm chip, which is fairly less time-consuming and economical in terms of production.
- These chips had high demand in automotive, power and telecom applications.
Semiconductor Industry Growth: Proposed Impact
- PLI and DLI schemes had attracted many global semiconductor players for setting up fabs in India and the modified programme would expedite these investments and bring in more applicants.
- It will propel innovation and build domestic capacities to ensure the digital sovereignty of India.
- It will create highly skilled employment opportunities to harness the demographic dividend of the country.
- Semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure.
- It will have a multiplier effect across different sectors of the economy with deeper integration to the global value chain.
Semiconductor Industry: Background
- In December 2021, India announced production-linked incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country.
- It announced fiscal support for a design-linked initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights etc.
- Need For new initiatives:
- Dependency on Few: Chip-making industry is a highly-concentrated one, with the big players being Taiwan, South Korea and the U.S.
- Global Chip Shortage: U.S.-China tensions over Taiwan, and the supply chain blockages owing to the Russia-Ukraine conflict.
- Global Push: U.S. announcement of $52.7 billion in government funding for the CHIPS and Science Act and the EU’s Chips Act that will mobilise €43 billion for public and private investments.
Challenges and Way Forward
- Costly Avenue: Chip production is a resource-intensive and expensive process. Setting up of one semiconductor fab requires an investment of anywhere between $3 and $7 billion.
- Meagre Outlay: Outlay of the scheme remains $10 billion.
- Global Competition: Creating global demand may be difficult as countries Taiwan offer viable cutting-edge chip-tech worldwide.
- Thus, attracting global players to set up here would be beneficial as they come with their customer base.
- Water Requirement: Chip-making requires gallons of ultrapure water in a single day.
- It would be difficult for government to provide it, especially when drought conditions often prevail in large parts of the country.
- Reliable Source of Power Required, as just seconds of fluctuations or spikes could cause millions in losses.
- Demand: Drive up consumer demand in the semiconductor industry to make it a self sustainable business rather than depending on government incentives for their operations.
- Initial funding should focus on areas like design and R&D, for which India already has an established talent pool.
Scheme for Development of Semiconductors and Display Manufacturing Ecosystem
- Aim: To provide attractive incentive support to companies / consortia that are engaged in Silicon Semiconductor Fabs, Display Fabs, Compound Semiconductors / Silicon Photonics / Sensors (including MEMS) Fabs, Semiconductor Packaging (ATMP / OSAT) and Semiconductor Design.
- Program will promote higher domestic value addition in electronics manufacturing and will contribute significantly to achieving a USD 1 Trillion digital economy and a USD 5 Trillion GDP by 2025.
- Semiconductor Fabs and Display Fabs: The Scheme for Setting up of Semiconductor Fabs and Display Fabs in India shall extend fiscal support of up to 50% of project cost.
- Setting up atleast two greenfield Semiconductor Fabs and two Display Fabs in the country.
- Semi-conductor Laboratory (SCL): Take requisite steps for modernization and commercialization of Semi-conductor Laboratory (SCL).
- Compound Semiconductors / Silicon Photonics / Sensors (including MEMS) Fabs and Semiconductor ATMP / OSAT Units: Atleast 15 such units of Compound Semiconductors and Semiconductor Packaging are expected to be established.
- Semiconductor Design Companies: The Design Linked Incentive (DLI) Scheme shall extend product design linked incentive of up to 50% of eligible expenditure and product deployment linked incentive of 6% – 4% on net sales for five years.
- India Semiconductor Mission: It will act as the nodal agency for efficient and smooth implementation of the schemes on Semiconductors and Display ecosystem.