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Semiconductor Industry in India

Semiconductor Industry

  • 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 Growth
Semiconductor Industry Growth

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.

Broad Incentives:

  • 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.


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