Programme for Development of Semiconductors and Display Manufacturing Ecosystem

• 18 Dec 2021

For Prelims: Production Linked Incentives, Self Reliance, Scheme for Promotion of Manufacturing of electronic Components and semiconductors, semiconductors and its use.

For mains: Significance of semiconducting device in Indian economy, Need of promoting electronic and semiconductor industry, role of electronic industry in making India self-reliant.

Why in News

Recently, the Ministry of Electronics and Information Technology (MeitY) has approved a comprehensive Program for the Development of Semiconductors and Display Manufacturing Ecosystems in the country.

• The government proposes to provide incentives worth Rs 76,000 crore for the development of semiconductors and display manufacturing ecosystems over the next six years.

Semiconductors

• Any of a class of crystalline solids intermediate in electrical conductivity between a conductor and an insulator.
• Semiconductors are employed in the manufacture of various kinds of electronic devices, including diodes, transistors, and integrated circuits. Such devices have found wide application because of their compactness, reliability, power efficiency, and low cost.
• As discrete components, they have found use in power devices, optical sensors, and light emitters, including solid-state lasers.

Key Points

• Incentives Under the Programme
  • Semiconductor Fabs and Display Fabs:
    • It would provide fiscal support of up to 50% of the project cost for setting up semiconductor and display fabrication units.
    • The Union government will work with the States to set up high-tech clusters with the required infrastructure such as land and semiconductor-grade water.
  • Semi-conductor Laboratory (SCL):
    • MeitY will take requisite steps for modernization and commercialization of Semi-conductor Laboratory (SCL).
    • MeitY will explore the possibility for the Joint Venture of SCL with a commercial fab partner to modernise the brownfield fab facility.
  • Compound Semiconductors:
    • It will support fiscal support of 30% of capital expenditure to approved units.
    • At Least 15 such units of Compound Semiconductors and Semiconductor Packaging are expected to be established with Government support under this scheme.
  • Semiconductor Design Companies:
    • 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.
    • Support will be provided to 100 domestic companies of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
  • India Semiconductor Mission:
    • In order to drive the long-term strategies for developing a sustainable semiconductors and display ecosystem, a specialised and independent India Semiconductor Mission (ISM) will be set up.
    • ISM will be led by global experts in the semiconductor and display industry. It will act as the nodal agency for efficient and smooth implementation of the schemes on Semiconductors and Display ecosystem.
  • Production Linked Incentives:
    • Incentive support to the tune of Rs.55,392 crore (7.5 billion USD) have been approved under PLI for Largest Scale Electronics Manufacturing, PLI for IT Hardware, SPECS Scheme and Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme.
    • In addition, PLI incentives to the quantum of Rs.98,000 crore (USD 13 billion) are approved for allied sectors comprising ACC battery, auto components, telecom & networking products, solar PV modules and white goods.
• Significance:
  • Strategic Importance: In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure.
  • Employment: It will also create highly skilled employment opportunities to harness the demographic dividend of the country.
  • Multiplier Effect: Development of the semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy with deeper integration to the global value chain.
  • Boost to Electronic Sector: The program will usher in a new era in electronics manufacturing by providing a globally competitive incentive package to companies in semiconductors and display manufacturing as well as design.
  • Self Reliance: This shall pave the way for India’s technological leadership in these areas of strategic importance and economic self-reliance.

Indian Electronic Sector

• About:
  • The Indian electronics sector is tremendously growing with the demand expected to cross USD 400 billion by 2023-24.
  • Domestic production has grown from USD 29 billion in 2014-15 to nearly USD 70 billion in 2019-20 (Compounded Annual Growth Rate of 25%).
  • Most of this production takes place in the final assembly units (last-mile industries) located in India and focussing on them will help develop deep backward linkages, thus inducing industrialisation.
• Need:
  • National Security Considerations:
    • Most of the chips, as well as components used in Indian communication and critical systems, are imported.
    • This could hamper national security and sovereignty as backdoors could be programmed in chips during manufacturing, which could compromise networks and cyber-security.
  • Increasing Imports:
    • It is expected that electronics imports will soon overtake crude oil as India’s largest import commodity which will result in assembly units ending up as little more than mere packaging units.
  • Increased Demand and Shortage Amid Covid:
    • The Covid-19 pandemic and the subsequent lockdowns across the world that forced shut crucial chip-making facilities in countries including Japan, South Korea, China and the US.
    • Its shortage causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.
  • Profiting from Anti-Chinese Sentiments:
    • Due to the USA’s allegations on China for worsening Covid-19 and India-China conflict and recent developments as a result of it, numerous multinational companies (MNCs) are shifting their production out of China.
  • Pushing Make in India:
    • There is a need to promote semiconductor manufacturing alongside assembly units in India.
    • This will induce greater local production of components and also fuel the growth of the industry as a whole, making Make in India successful.
    • In 2019, the Union Cabinet gave its approval to the National Policy on Electronics 2019 which envisions positioning India as a global hub for Electronics System Design and Manufacturing.
• Challenges:
  • Missing Profits:
    • Despite the impressive growth of electronic production in India, the net value added by production units is very low.
    • The net value addition ranges between 5% and 15%, as most components are imported rather than locally sourced.
    • It implies that local value addition is a mere USD 7-10 billion out of a global market of USD 2.1 trillion.
  • Limited Indigenous Capability in Upstream Industries:
    • In the era of global supply chains, the value addition at the final stages of production is very low, especially in electronics because the more complicated processes, involving greater value addition, occur prior to assembly, in ‘upstream’ industries.
    • These include the production of processors, display panels, memory chips, cameras, etc.
  • Absence of Foundries:
    • In the absence of foundries (semiconductor fabrication plants where microchips are produced), India has to rely on foreign contractors to produce microchips.
    • Set-up of Foundries requires massive capital expenditure to the tune of USD 2 billion and more.
      • Foundries are also required to adopt newer technologies and processes almost every 18 months to ensure competitiveness which means high capital depreciation and often accounts for 50-60% of the production cost.

Way Forward

• Semiconductors and displays are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0.
• The new mission should focus fiscal support, at least for now, on other parts of the chip-making chain including design centres, testing facilities, packaging etc.
  • The total outlay of Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) must be increased from the current Rs. 3300 crore, to attract the microchip giants.
• India’s PSEs such as Bharat Electronics Ltd or Hindustan Aeronautics Ltd can be used to set up a semiconductor fab foundry with the help of a global major.
• India needs to drop the dream of swadeshi semiconductors. Instead, it should aim to become a key player in a trusted, plurilateral semiconductor ecosystem that keeps key adversaries out.
  • Favourable trade policies are critical for building a plurilateral semiconductor ecosystem.

Source: PIB