NEW DELHI: The union’s cabinet on Wednesday approved the long-awaited incentive plan to push for the manufacture of semiconductors in the country.
Following the cabinet meeting – which was chaired by Prime Minister Narendra Modi – Union Ministers Anurag Thakur and Ashwani Vaishnav announced the $ 76,000 production-linked incentive scheme (PLI) for the production of semiconductors and display boards in India.
“The government has decided to create a complete semiconductor ecosystem in the country. It will include design, manufacturing, packaging, testing,” Vaishnaw said.
“This will strengthen India’s journey towards Aatmanirbhar Bharat,” he added.
The scheme of DKK 76,000 million Rs will be spread over 6 years.
The center plans to establish 20 semiconductor units in the country over the next 2 years.
Semiconductors and their uses
Semiconductors are silicon chips that address control and memory functions in products ranging from cars, computers and mobile phones to various other electronic objects.
The use of semiconductors in the automotive industry has increased globally in recent times with technological advances and new models coming with more and more electronic features such as bluetooth connection and driver assistance, navigation and hybrid electrical systems, in addition to the engine control unit.
What the government plans to do
The government has set up an attractive incentive support for companies dealing with silicon semiconductor manufacturers, display manufacturers, composite semiconductors, silicon photonics, sensor products, semiconductor packaging and semiconductor designs.
It will work closely with state governments on high-tech clusters with the necessary infrastructure in terms of soil, semiconductor quality water, electricity, logistics and research ecosystems to approve applications for the installation of at least 2 green semiconductor factories and 2 display plants in Land.
The Ministry of Electronics and IT will take the necessary steps to modernize and commercialize semiconductor laboratories (SCL).
The IT ministry will investigate the possibility of a joint venture between SCL with a commercial fab partner to modernize the brownfield factory.
“The plan to set up composite semiconductor / silicon photonics / sensors fabs and semiconductor ATMP / OSAT facilities in India is to extend tax support of 30 per cent of the capital expenditure on approved units,” it said in an official statement.
At least 15 such units of composite semiconductors and semiconductor packaging are expected to be established with state aid under this scheme.
A design-linked incentive (DLI) scheme will offer incentives of up to 50 percent of eligible expenses and product implementation-related incentives of 6-4 percent on net sales for 5 years.
In order to drive the long-term strategies for the development of a sustainable semiconductor and display ecosystem, a specialized and independent ‘India Semiconductor Mission (ISM)’ will also be established.
The mission will be led by global experts in the semiconductor and display industries, and will serve as the hub for the efficient and agile implementation of semiconductor and display ecosystem schemes.
Relief for larger sectors
The decision comes as a major relief, especially at a time when industries across sectors are facing massive production cuts due to global chip shortages.
In the midst of a rapid recovery in demand, companies globally have been under pressure from severe shortages of semiconductors.
This resulted in long wait times across many consumer product categories such as cars, SUVs, appliances and electronics.
Car manufacturers were the worst hit by the shortage with manufacturers like Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hyundai reported a drop in sales.
Tata Motors had said they are witnessing a waiting time of 6 months for electric cars and up to 2 months for most other vehicles due to the shortage.
Apple CEO Tim Cook had also warned that the shortage would hit production of iPhones and iPads. In addition, smaller telephone manufacturers were also affected.
Game consoles like the PlayStation 5 and Xbox Series X have also been in short supply.
India a major importer
India has been a major importer as it imports almost all semiconductors to meet demand which is estimated to reach around $ 100 billion in 2025 from around $ 24 billion now.
Previous efforts to get companies to invest in the semiconductor space have failed, especially as the sophisticated manufacturing processes require large investments, apart from the need to supply uninterrupted clean water and electricity.
While India is seen as strong in chip design, it failed to bring the much talked about fab production into the country, which involves investments of between $ 5 and $ 10 billion.
However, the outbreak of the pandemic in early 2020 and the strategy of many global companies to look at ‘China plus 1’ procurement policy are likely to help gain investment in India.
What led to the shortage
Covid-induced shutdowns were one of the main reasons for the shortage, as it pushed factories to opt for temporary shutdowns.
As factories reopened, manufacturers of electronic goods continued to place orders – creating an ever-increasing backlog of chips, which can be only a fraction of a millimeter long.
However, that is not the only factor. In August last year, the United States banned foreign companies whose chips use US technology from selling to Chinese technology giant Huawei over allegations of espionage.
Huawei began stockpiling semiconductors before the sanctions took effect, and other companies followed in their footsteps, further straining supplies.
(With input from agencies)