25-January-2024-Special-Article

THE NEED TO OVERHAUL A SEMICONDUCTOR SCHEME

The mid-term evaluation of the Design-Linked Incentive (DLI) scheme, a key component of India’s Semiconductor Mission, is on the horizon.

With a goal to support 100 startups over five years, the scheme has approved only seven, prompting a call for reassessment and potential revamping.

As India aspires to become a global semiconductor hub, challenges like the semiconductor chip shortage underscore the need for enhancing domestic manufacturing capacity.

Semiconductors:

• Definition: Crystalline solids with intermediate electrical conductivity, between conductors and insulators.
• Used in electronic devices like diodes, transistors, and Integrated Circuits (ICs) for their compactness, reliability, efficiency, and low cost.

Common Elemental Semiconductors:

• Silicon and germanium, both crystalline solids with four valence electrons.

India Semiconductor Mission (ISM):

• Launched in 2021 with a financial outlay of Rs. 76,000 crore under the Ministry of Electronics and IT (MeitY).
• Aims to develop a sustainable semiconductor and display ecosystem in India.

Components:

• Schemes for setting up Semiconductor Fabs, Display Fabs, and Compound Semiconductors facilities.
• Design-Linked Incentive (DLI) Scheme.

DLI Scheme:

• Objective: Offers financial incentives and design infrastructure support for semiconductor design.
• Nodal Agency: Centre for Development of Advanced Computing (C-DAC) under MeitY.
• Components:
• Chip Design Infrastructure Support.
• Product Design Linked Incentive.
• Deployment Linked Incentive.
• Vision: Build a vibrant semiconductor and display design ecosystem for India’s emergence as a global electronics manufacturing hub.

Overall Semiconductor Market Scenario:

Global Scenario:

• Dominated by Taiwan, South Korea, and the U.S.
• Global semiconductor industry valued at USD 500-600 billion.

Indian Scenario:

• Valued at USD 23.2 billion, projected to reach USD 150 billion by 2029.
• Initiatives like Semicon India Program and Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS).

Challenges in the Semiconductor Industry in India:

• Data Latency: Issues in managing co-products from the same wafer, triggering data latency.
• Customer-Specific Needs: Varied demands based on customer-specific material, site, shipment size, and quality manufacturing.
• Front-End (FE) and Back-End (BE) Challenges: FE outputs like wafers require additional manufacturing steps, posing complexities in the supply chain.
• Restricted End-to-End Supply Chain Visibility: Challenges in managing abundant materials, in-house and contractual manufacturing sites, leading to excess inventory growth.
• High Investments and Expensive Fab Setup: Setting up semiconductor fabs involves substantial capital, with costs running into billions of dollars.

Issues in the Implementation of DLI Scheme:

• Low Uptake: Lack of interest and uptake by startups, despite the scheme’s financial incentives.
• Ownership Barriers: Restrictions on ownership, limiting foreign capital, and a less mature startup ecosystem hinder participation.
• Global Competition: India competes with established players like the U.S., South Korea, Taiwan, and China in the highly competitive semiconductor industry.
• Intellectual Property Challenges: Access to intellectual property, patents, and licenses for advanced chip technologies poses hurdles.

Suggestions for Overhauling ISM and DLI Scheme:

• Integration of Semiconductor Strategy Goals: Integrate Semicon India Program’s goals to reduce dependence, build resilience, and leverage design capabilities.
• Prioritizing Investment: Focus on maximizing benefits, with emphasis on stimulating the design ecosystem for strong forward linkages.
• Delinking Ownership from Development: Delink ownership from semiconductor design development to attract more startups.
• Broadening the Focus of DLI Scheme: Shift focus to facilitate design capabilities for various chips, with increased financial support.
• Establishing a Capable Institution: Implement a recalibrated policy led by a capable institution tolerant of some failure.
• Utilizing Existing Facilities: Leverage Public Sector Enterprises (PSEs) for semiconductor fab foundry setup.
• Collaboration: Explore collaborations with other technologically advanced nations to promote domestic manufacturing.

Conclusion:

The semiconductor industry’s growth in India depends on a recalibrated policy, collaborative efforts, and a focus on cultivating design capabilities. With strategic revisions, India can position itself as a key player in the high-tech semiconductor sector, advancing towards its goal of becoming a global hub for electronics manufacturing and design.

Mains Question:

1. Discuss the challenges and suggested policy measures to promote the expansion of India’s semiconductor sector, with a specific emphasis on the Design-Linked Incentive scheme and potential reform initiatives. (150 WORDS)