The DLI scheme and the chip making industry in India - An update
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Design-linked incentive (DLI) scheme - An analysis
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- The story: As part of the recently launched Design-linked incentive (DLI) scheme for semi-conductor design, the Ministry of Electronics and Information (MeitY) sought applications from 100 domestic companies, start-ups and small and medium enterprises to become a part of the scheme.
- About the Scheme: The DLI Scheme is related to provide financial incentives and design infrastructure support to domestic companies, start-ups and MSMEs across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems and IP Cores and semiconductor linked design for over a period of 5 years.
- It is part of a package that the government announced to nurture at least 20 domestic companies involved in semiconductor design and facilitate them to achieve turnover of more than ₹1500 Crore in the next 5 years.
- The C-DAC (Centre for Development of Advanced Computing), a scientific society operating under MeitY, will serve as the nodal agency for implementation of the DLI scheme.
- The scheme has three components – Chip Design infrastructure support, Product Design Linked Incentive and Deployment Linked Incentive.
- Benefits: The C-DAC will setup the India Chip Centre to host the state-of-the-art design infrastructure and facilitate its access to supported companies. Fiscal support of up to 50% of the total cost to eligible participants who are engaged in semiconductor design in India as well as the offer of fiscal support of 30% of the capital expenditure to participants building compound semiconductors, silicon photonics and sensors fabrication plants in India. Incentives of 4% to 6% on net sales for five years will be paid, to companies of semiconductor design for integrated circuits, chipsets, system on chips, systems and IP cores.
- Opportunities abroad in chip-making business for India: The US aims to reduce its reliance on a small number of chipmakers based largely in Taiwan and South Korea. As part of its America Competes Act, 2022, there are provisions for providing $52 billion to encourage more semiconductor production in the US. The European Commission has 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.
- Importance of the scheme: It is expected to facilitate the growth of at least 20 related companies which can achieve a turnover of more than ₹1500 crore in the coming five years. The semiconductor industry is growing fast and it can reach $1 trillion dollar by 2030. India can grow fast and reach $64 billion by 2026 from the current $27 billion. The scheme can help overcome the global shortage of chips and semiconductor components. The inception of new companies in India will help in ramping up supplies in the global market. This can have a moderating influence on the prices. Several sectors in India, including auto, telecom, and medical technology had suffered due to the unexpected global surge in demand leading to the scarcity of chips.
- The scheme can go a long way in establishing a robust semiconductor ecosystem in India which can help it avoid high dependencies on a few countries or companies
- Presently semiconductor manufacturing is dominated by companies in the U.S., Japan, South Korea, Taiwan, Israel and the Netherlands. Taiwan and South Korea chipmakers alone produce up to 70% of the world’s semiconductors.
- Existing global players will be attracted to choose India as their preferred investment destination bringing investments as-well-as their leading-edge expertise in the domain.
- Vibrant domestic ecosystem for Semiconductor Chip Design and manufacturing could be build.
- Prospects for India: Several gases and minerals which are a part of the global semiconductor supply chain are produced in India which could be crucial to setting up of the fabrication units. The presence of elite academic institutions would help ensure the availability of required manpower for this sector. India because of its large market can become an important destination for electronics design and manufacturing for the global companies.
- Challenges: The setting up of fabrication units need investment in the range of $5 billion to $10 billion. India has Lack of such high investments and adequate supportive government policies. The use of "sub 5 nanometer technology" in new fabrication units requires clearance from the technology provider. The major companies holding rights to this technology have been reluctant in sharing the technology owing to both commercial as well as geopolitical reasons. Infrastructure connectivity to airports, seaports and availability of large volumes of pure water is not good in India.
- Summary: Increasing adoption of electronics in multiple domains has raised the importance of the electronic design and manufacturing sector. India will need to work towards establishing a robust domestic ecosystem for Semiconductor Chip Design and manufacturing to not only reap the economic potential in the sector but also to reduce the dependency on foreign nations and companies.
- EXAM QUESTIONSL: (1) “Investment in infrastructure is necessary for sustainable economic growth.” Discuss with reference to India’s case in semi-conductors. (2) Discuss the opportunities and challenges for electronic sector in India. Why is the government keen to push it hard now? Analyse.
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