Context:
Recently, experts have opined that overhauling and strengthening India’s Semiconductor Design-Linked Incentive scheme would enhance the country’s competitive edge and support its expansion into other segments of the global semiconductor value chain.
About the Scheme:
Objective: The DLI scheme is a Central Sector Scheme under the Ministry of Electronics and Information Technology (MeitY) which aims to provide financial and infrastructural support to companies establishing fabs or semiconductor manufacturing plants in India.
Financial Support:
- Fiscal support of up to 50% of the total cost for eligible participants setting up fabs in India.
- 30% fiscal support of the capital expenditure for building compound semiconductors, silicon photonics, and sensors fabrication plants in the country.
Incentives for Semiconductor Design Companies:
- Companies engaged in semiconductor design for integrated circuits, chipsets, system on chips, systems, and IP cores are eligible.
- Incentive of 4% to 6% on net sales for a duration of five years.
Expected Impact:
- Anticipated growth of a minimum of 20 indigenous semiconductor design companies with a turnover exceeding ₹1500 crore in the next five years.
Semiconductor
- Definition: Semiconductors are materials with electrical conductivity between conductors (like metals) and insulators (like non-metals). The conductivity can be controlled and modified, making them essential for electronic devices.
- Example: Silicon (Si), Germanium (Ge), Gallium (Ga)
• Types:
- Intrinsic Semiconductors: Pure semiconductors without impurities.
- Extrinsic Semiconductors: Doped semiconductors with added impurities to enhance conductivity.
- N-type: Doped with elements that provide extra electrons.
- P-type: Doped with elements that create electron “holes” or vacancies.
• Used in Transistors, Integrated Circuits (ICs), Diodes, Light-Emitting Diodes (LEDs), Solar Cells, Memory Devices, Microprocessors, Sensors
• The global semiconductor sales reached 618 billion U.S. dollars in 2022, a rise of more than 30 percent in just two years The industry’s global market revenue is expected to reach $1.2 trillion by 2030.
Why the need for an Overhaul:
Restrictions on Domestic Status:
- Requirement for beneficiary start-ups to maintain domestic status for at least three years after receiving incentives.
- Limitation on raising more than 50% of requisite capital via foreign direct investment, serving as a significant barrier.
Challenges in Funding Landscape:
- Semiconductor R&D typically yields results in the long term, posing funding viability challenges for start-ups.
- Lack of a mature start-up funding ecosystem for hardware products in India contributes to difficulty in securing capital.
- Capital requirements, coupled with the absence of successful chip start-up stories in India, reduce the risk appetite of domestic investors.
Modest Incentives:
- The DLI scheme offers relatively modest incentives, capped at ₹15 Crore for Product DLI and ₹30 Crore for Deployment Linked Incentive per application.
- Inadequate incentives may not be perceived as a worthwhile trade-off for start-ups, especially considering potential limitations on long-term funding.
Concerns about Nodal Agency:
- The role of the Centre for Development of Advanced Computing (CDAC) as the nodal agency may pose conflicts of interest, as it is also a market player in the Indian chip design sector.
Other Government Initiatives:
The market value of the Indian semiconductor industry, estimated at around $23.2 billion, is anticipated to expand significantly, reaching $80.3 billion by the year 2028. This growth is expected to occur at a compound annual growth rate (CAGR) of 17.10% throughout the forecast period. To support the industry, the Government has taken several initiatives:
- India Semiconductor Mission (ISM), to build a vibrant semiconductor ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design.
- Union Cabinet approved a financial outlay of Rs 76,000 crore for the development of the semiconductor manufacturing ecosystem in India.
- In 2021, the Government unveiled a Production-Linked Incentive (PLI) scheme of $10 billion, aimed at promoting semiconductor and display manufacturing in the country.
- Modernization and commercialization of the Semiconductor Laboratory (SCL) at Mohali.
Way Forward:
- The financial outlay of the scheme needs substantial enhancement to support the shift in policy toward promoting indigenous chip design capabilities in India.
- Delinking ownership from semiconductor design development and adopting more start-up-friendly investment guidelines is suggested.
- Setting up an independent and impartial implementing agency, such as the Semiconductor Fabless Accelerator Lab (SFAL) in Karnataka, is suggested.
| Aspect | Central Sector Schemes | Centrally Sponsored Schemes (CSS) |
| Implementation | Central Government machinery | State/UT Governments |
| Funding Ratio | 100% central funding | 60:40 (default), 80:20 (some cases), 90:10 (North-Eastern states) between the Centre and the states |
| Example Scheme | PM Kisan Samman Nidhi, PM Kisan Urja Suraksha Evam Utthan Mahabhiyan, PM Shram Yogi Mandhan, Khelo India – National Programme for Development of Sports | Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Pradhan Mantri Krishi Sinchai Yojana (PMKSY), Pradhan Mantri Gram Sadak Yojna, Pradhan Mantri Awas Yojna (PMAY), Rural Drinking Water Mission, Swachch Bharat Mission (SBM) |