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Introduction:
Semiconductors are essential to almost all sectors of the economy including aerospace, automobiles, communications, clean energy, information technology and medical devices etc. Demand for these critical components has outstripped supply, creating a global chip shortage and resulting in lost growth and jobs in the economy. The shortage has exposed vulnerabilities in the semiconductor supply chain and highlighted the need for increasing domestic manufacturing capacity. India is aiming to become the global hub for Semiconductor Design, Manufacturing and Technology Development. Most global semiconductor design companies have already set up design and R&D innovation centers in India owing to exceptional semiconductor design talent pool. In December 2021 the centre govt sanctioned ₹76,000 crore under the production-linked incentive (PLI) scheme to encourage the manufacturing of various semiconductor goods within India.
Semiconductors:
- Semiconductors are materials which have a conductivity between conductors and insulators. They can be pure elements, silicon or germanium or compounds; gallium, arsenide or cadmium selenide.
- They are the basic building blocks that serve as the heart and brain of all modern electronics and information and communications technology products.
- These chips are now an integral part of contemporary automobiles, household gadgets and essential medical devices such as ECG machines.
- It is timely, therefore, that India has approved a $10 billion package to incentivise the manufacturing of semiconductors in the country.
- The government has drawn out a list of incentives to get leading international manufacturers to set up their manufacturing unit in India either by themselves or with the help of a local partner.
- Considering the current geopolitical dynamics and the fact that semiconductorsare at the core of fourth industrial revolution technologies, this is a welcome first step.
Importance of Semiconductors:
- Semiconductor chips play a critical part in making life easier, stimulating digital disruption, and advancing economy.
- Semiconductors are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0.
- The ubiquitous chips are now an integral part of contemporary automobiles, household gadgets such as refrigerators, and essential medical devices such as ECG machines.
- Scarcity of chips can cause production to suffer in almost every industry, underlining the necessity to diversify chip supply.
Ways to create a thriving domestic semiconductor industry
- India Semiconductor Mission:
- In order to drive the long-term strategies for developing a sustainable semiconductors and display ecosystem, a specialised and independent India Semiconductor Mission (ISM) will be set up.
- ISM will be led by global experts in the semiconductor and display industry. It will act as the nodal agency for efficient and smooth implementation of the schemes on Semiconductors and Display ecosystem.
- Production Linked Incentives:
- Incentive support to the tune of Rs.55,392 crore (7.5 billion USD) have been approved under PLI for Largest Scale Electronics Manufacturing, PLI for IT Hardware, SPECS Scheme and Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme.
- In addition, PLI incentives to the quantum of Rs.98,000 crore (USD 13 billion) are approved for allied sectors comprising ACC battery, auto components, telecom & networking products, solar PV modules and white goods.
- Semiconductor Fabs and Display Fabs:
- It would provide fiscal support of up to 50% of the project cost for setting up semiconductor and display fabrication units.
- The Union government will work with the States to set up high-tech clusters with the required infrastructure such as land and semiconductor-grade water.
- Semi-conductor Laboratory (SCL):
- MeitY will take requisite steps for modernization and commercialization of Semi-conductor Laboratory (SCL).
- MeitY will explore the possibility for the Joint Venture of SCL with a commercial fab partner to modernise the brownfield fab facility.
- Compound Semiconductors:
- It will support fiscal support of 30% of capital expenditure to approved units.
- At Least 15 such units of Compound Semiconductors and Semiconductor Packaging are expected to be established with Government support under this scheme.
- 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.
- Support will be provided to 100 domestic companies of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
- Given the long gestation periods and rapid technology changes, India must out-strategize on design and functionality as the end product will be out only after three-four years from the moment work begins, by which point the prevailing chip shortage would have been resolved, while technology would have advanced further.
- Apart from incentivising more FDI in electronics to deepen our supply chains through incentive schemes, we need to focus on encouraging Indian manufacturers and start-ups to enter and master complex R&D and manufacturing verticals.
- We can then ensure that valuable Intellectual Property is created and owned by Indian companies.
- The semiconductor industry is changing fast as new-age technologies require innovation at the design, material, and process levels.
- Indian engineers have contributed immensely to this area in multinational companies. We must encourage them to set up their design start-ups with handsome government grants and tax incentives.
- Premier research institutions such as the Indian Institute of Science should also be asked to work aggressively on R&D in chip designing and manufacturing.
- Further, the government must focus on emerging technologies like LiDAR and Phased Array in which incumbents do not have a disproportionate advantage and the entry barrier is low.
- By working aggressively in new cutting-edge technologies, India can ensure that it becomes Aatmanirbhar.
- India needs to push for a Quad Supply Chain Resilience Fund to immunise the supply chain from geopolitical and geographic risks
- India and Taiwan have started negotiations for a free-trade agreement and setting up a semiconductor manufacturing hub in an Indian city, signalling their resolve to further expand the two-way economic engagement.
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