SEMICONDUCTOR
INDUSTRY – ECONOMY
News:
Government mulls
partnerships to make semiconductor chips
What's
in the news?
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Six working groups, which had been formed
to mull the Indian government’s artificial intelligence (AI) roadmap, have
submitted the first edition of their report, Minister of State for Electronics
and Information Technology Rajeev Chandrasekhar said, adding that the report’s
recommendations included public-private partnerships to make semiconductors for
AI applications.
Reasons
for the need of India’s semiconductor independence:
1. Fourth Industrial Revolution: Semiconductor integrated circuits
that are fit to be a part of practically all electronic hardware in the world
and it is going to act as a core component in the fourth Industrial revolution.
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Independence in the semiconductor
manufacturing ecosystem is necessary for
India to actively participate in Industry 4.0.
2. China's dominance: China is dominating the semiconductor fabs in
the world and it acts as a core in the semiconductor supply chain; It accounts for around 40% of the total
semiconductor manufacturing in the world.
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Reducing the dependence of China is a
major priority for India to establish its own semiconductor manufacturing
industries.
3. Employment creation: India is an important destination for global
semiconductor companies primarily because of its highly-skilled talent pool of
semiconductor design engineers.
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The creation of forward and backward
linkages in the semiconductor manufacturing system will give more employment
opportunities.
4. Own supply chain in semiconductor: The pandemic has brought to the
fore the fragility of the global supply chain of semiconductor manufacturing.
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Building your own semiconductor
manufacturing system is useful in the times of major global semiconductor
supply chain issues.
5. Development of ancillary industries: Developing domestic
semiconductor manufacturing ecosystem will give a fillip to the Indian gas,
materials and mines industry and also expand opportunities for semiconductor
equipment, spares and service industry.
6. Global market: The development of the semiconductor industries
domestically will be a great thing to access the future global market as the market volume will be US$818.60bn by
2027.
Issues
in the Semiconductor industry:
1. High input cost: Any policy directed towards the semiconductor
industry, be it manufacturing, or design, requires a long-term strategy.
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Because the sector is capital-intensive and involves sizable
costs in setting up fabrication units, upscaling manufacturing capabilities
and equipment.
2. Poor
investor confidence: Supply chain disruptions, like what happened during
the COVID-related lockdowns in China, could dampen potential investor
confidence in the sector.
3. Higher gestation period: Returns from the investment are not
immediate as setting up design and fabrication units involves long gestation
periods.
4. Issues in the raw material: Rare earth metals are required to
produce semiconductors as India has poor rare earth metals reserves and it
depends on China for almost 90% of its raw material supply.
Government
measures in this regard:
1. SemiconIndia future DESIGN initiative: It was started with an aim
to encourage startups, next-generation innovators and business leaders to
invest in the semiconductor sector in India.
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Over
30 semiconductor design startups have been established
in India following the initiative with five already having received government
support.
2. Design Linked Incentive scheme: 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.
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Support will be provided to 100 domestic
companies of semiconductor design for Integrated Circuits (ICs), Chipsets,
System on Chips (SoCs).
3. Equity stake by the government: As part of the second phase of the
design-linked incentive (DLI) scheme for the domestic semiconductor industry,
the Indian government is considering
a proposal to pick an equity stake in
domestic chip design-making companies.
4. Production Linked Incentive Scheme: Incentive support to the tune
of Rs.55,392 crore have been provided under Production Linked Incentive (PLI) for
Largest Scale Electronics
Manufacturing, PLI for IT
Hardware.
5. India Semiconductor Mission: Semiconductor Mission was launched by
India in December 2021, with an incentive outlet of Rs 76,000 crore.
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The mission has been set up as a dedicated
institution for the Semicon India Programme.
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The primary aim of this mission is to attract investment in the strategic
Semiconductor sector and to facilitate
in building digital infrastructure.
6. Modified Special incentive Package scheme: It was launched in 2012 to attract investments and boost
production in the electronics goods industry.
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The purpose of the initiative was not only
to encourage investments but also to generate employment opportunities.
7. SPECS Scheme: This scheme provides financial incentive of 25% on capital expenditure for the identified list of
electronic goods that comprise downstream value chain of electronic
products, i.e., electronic components, semiconductor / display fabrication
units, ATMP units.
8. ChipIN Centre: MeitY has set up ChipIN Centre at C-DAC Bangalore to
dedicate its services to the semiconductor design community of the country.
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The facility acts as a one-stop center to
provide semiconductor design tools, fab access, virtual prototyping hardware
lab access to fabless chip designers from Startups and Academia.
WAY
FORWARD:
1. Formation of a high powered committee: The government should put in
place an investment committee and a framework for target evaluation and
governance to mitigate the moral hazard posed by politically driven equity
investments.
2. Supporting Premier Research Institutions for Chip industry: 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.
3. Fostering Indian Manufacturers & Start-ups in R&D: encouraging
Indian manufacturers and start-ups to enter and master complex Research and
Development verticals.
4. Incentivise the Indian-Origin Design Start-ups: Government must
encourage the highly skilled Indian origin to set up their design start-ups
with handsome government grants and tax incentives.
5. China's Fab Acquisition Model for Chip Industry: China model
Initiative of acquiring existing fabs has many advantages:
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They are reasonably priced, have
stabilized technology, a supply chain ecosystem, an established product line,
and market.