India Semiconductor Industry

Why in news?

Recently, at Semicon India Summit, the Government has made a fresh bid to attract major global chip manufacturers into the country.

What steps were taken by the government to promote the sector?

Gujarat will become the first state in India to have a large-scale semiconductor manufacturing facility.

• India Semiconductor Mission- It is an independent business division within Digital India Corporation having administrative and financial autonomy.
• It aims to formulate and drive India’s long term strategies for developing semiconductors and display manufacturing facilities and semiconductor design ecosystem.
• ISM has been working as nodal agency for the schemes approved under Semicon India Programme.
• There are 4 subcomponent schemes announced under India Semiconductor Mission.
  • Scheme for setting up of semiconductor fabs in India-It provides fiscal support for setting up semiconductor wafer fabrication facilities in the country.
  • Scheme for setting up of display fabs in India- It provides fiscal support to eligible applicants for setting up of display fabs which is aimed at attracting large investments.
  • Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor Assembly, Testing, Marking and Packaging (ATMP) / OSAT facilities in India - Extends a fiscal support of 50% of the capital expenditure
  • Semicon India Future Design-Design linked incentive (DLI) scheme - Offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design.
  • The scheme provides
    • Product design linked incentive - up to 50% of the eligible expenditure subject to a ceiling of ₹15 crore per application.
    • Deployment linked incentive - of 6% to 4% of net sales turnover over 5 years subject to a ceiling of ₹30 crore per application

• SPECS scheme- It is the scheme for promotion of manufacturing of electronic components and semiconductors and provides financial incentive of 25%.
• Program for Development of Semiconductors and Display Manufacturing Ecosystem- The modified programme offers fiscal support of 50% of project cost.
• Semicon India Conclave 2023- India will emerge as global hub of semiconductor and chip-making industry.

What are the challenges?

• Weak intellectual property- India holds a small portion of IP in design though it has thriving manpower.
• Broader industry dynamics- Policies for semiconductor industry require long term strategy as the sector is capital intensive.
• Low annual revenue- The cumulative annual revenue of domestic semiconductor design companies is meagre at ₹150 crore.
• Long gestation periods- The returns from the investment are not immediate as setting up of design and fabrication units require long duration.
• This implies that the design firms are not able to attract potential investors and venture capitalists as software companies have.
• Higher valuation by foreign buyers- The Government plan to become a venture capital firm for chip design companies is ineffective as companies would pick foreign buyers.
• Dependence on import- In 2021, India is the 9^th largest importer of semiconductor devices in the world valued 2.17 billion dollar.

What lies ahead?

• Adopt best practices of China- India focuses on building new logic fab, whereas China backed by massive financial support of the Government acquired loss making fabs and then set up its own.
• Advantages of acquiring existing fabs- Reasonable price, stabilised technology, supply chain ecosystem, established product line and market.
• Improve value chain- India must leverage value added activites to enable the ecosystem in a positive direction.
• Robust mechanism- There should be an independent investment committee and a framework for governance to mitigate the moral hazard posed by politically driven equity investments.
• Link investments-It must be linked to drive more innovation and employment generation in the chip sector.
• Improve intellectual property- Realignment towards equity from the government requires consideration of the IP, this would foster the domestic chip companies to keep the IP.
• Government as a stakeholder- It has the potential to create a state-of-the-art design ecosystem which will serve the national interest and also be a supplier to the rest of the world.

References

1. The Hindu| Explained Chip tactics on India
2. The Hindu| Mapping India’s chip ecosystem
3. PIB| India semiconductor mission