NEW DELHI: The Union Cabinet on Wednesday approved the much-awaited incentive plan to push manufacturing of semiconductors in the country.
After the Cabinet meeting -- which was headed by Prime Minister Narendra Modi -- Union ministers Anurag Thakur and Ashwani Vaishnav announced the production linked incentive (PLI) scheme worth Rs 76,000 crore for semiconductor and display board production in India.
"The government has decided to set up a complete ecosystem for semiconductors in the country. It will include design, fabrication, packaging, testing," Vaishnaw said.
"This will strengthen India's journey towards Aatmanirbhar Bharat," he added.
The Rs 76,000 crore scheme will be spread across 6 years.
The Centre plans to establish 20 semiconductor units in the country over the next 2 years.
Semiconductors and their uses
Semiconductors are silicon chips that cater to control and memory functions in products ranging from automobiles, computers and cellphones to various other electronic items.
The usage of semiconductors in the auto industry has gone up globally in recent times with technological advancements and new models coming with more and more electronic features such as bluetooth connectivity and driver-assist, navigation and hybrid-electric systems, besides the engine control unit.
What govt plans to do
The government has lined up an attractive incentive support for companies engaged in silicon semiconductor fabs, display fabs, compound semiconductors, silicon photonics, sensors fabs, semiconductor packaging and semiconductor design.
It will work closely with the state governments on high-tech clusters with requisite infrastructure in terms of land, semiconductor grade water, power, logistics and research ecosystem, to approve applications for setting up at least 2 greenfield semiconductor fabs and 2 display fabs in the country.
The ministry of electronics and IT will take requisite steps for modernisation and commercialisation of semi-conductor laboratory (SCL).
The IT ministry will explore the possibility for the joint venture of SCL with a commercial fab partner to modernise the brownfield fab facility.
"The scheme for setting up of compound semiconductors / silicon photonics / sensors fabs and semiconductor ATMP / OSAT facilities in India shall extend fiscal support of 30 per cent of capital expenditure, to approved units," an official release said.
At least 15 such units of compound semiconductors and semiconductor packaging are expected to be established with government support under this scheme.
A design-linked incentive (DLI) scheme will offer incentive of up to 50 per cent of eligible expenditure and product deployment linked incentive of 6-4 per cent on net sales for 5 years.
With a view to driving the long-term strategies for developing a sustainable semiconductors and display ecosystem, a specialized and independent 'India Semiconductor Mission (ISM)' will also be established.
The mission will be led by global experts in semiconductor and display industry and it will act as the nodal agency for efficient and smooth implementation of the schemes on semiconductors and display ecosystem.
Relief for major 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 shortage.
Amid a swift rebound in demand, globally businesses having been reeling under the pressure of severe shortage of semiconductors.
This resulted in long waiting period across many consumer product categories like cars, SUVs, appliances and electronics.
Auto makers were the worst affected by the shortage with manufacturers like Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hyundai reporting a decline in sales.
Tata Motors had said that they are witnessing a waiting period 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 shortages will hit the production of iPhones and iPads. Besides, smaller phone-makers were also affected.
Games 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 by 2025 from about $24 billion now.
Previous efforts to get companies to invest in the semiconductor space have failed, especially as the sophisticated manufacturing processes requires heavy investments, apart from need for supply of uninterrupted clean water and electricity.
While India is seen as strong in the area of chip design, it failed to get the much-touted fab manufacturing into the country which involves investments ranging between $5 billion and $10 billion.
However, the break-out of pandemic in early 2020 and strategy of many global companies to look at ‘China plus 1’ policy for procurements is likely to help get investments in India.
What led to the shortage
Covid-induced lockdowns were one of the major reasons for the shortage as it pushed factories to opt for temporary shutdowns.
As plants reopened, electronic goods producers continued to place orders -- creating an ever-increasing backlog for the chips, which can be just a fraction of a millimetre long.
However, it is not the only factor. Last August, the US banned foreign companies whose chips use American technology from selling to Chinese tech giant Huawei, over espionage allegations.
Huawei began stockpiling semiconductors ahead of the sanctions coming into effect, and other companies followed their lead, further straining supplies.
(With inputs from agencies)
