13 February 2024 – The Indian Express

Redesigning the Semiconductor Design Scheme in India

• An important component of India’s Semiconductor Mission is the Design-Linked Incentive (DLI) plan, whose mid-term review is quickly approaching. Only seven of the program’s 100 start-ups have been approved, falling short of its five-year goal. This has led to calls for a review and possible redesign of the programme.
• India hopes to become a worldwide centre for semiconductors, but the scarcity of semiconductor chips has highlighted supply chain flaws and made it imperative to expand home manufacturing capabilities.
• Any member of a class of crystalline solids that falls between an insulator and a conductor in terms of electrical conductivity.
• Semiconductors are used in the production of diodes, transistors, and integrated circuits (ICs), among other types of electronic devices. These gadgets’ affordability, portability, dependability, and power efficiency have led to their widespread adoption.
• They have been used as separate components in solid-state lasers, power devices, and optical sensors and light emitters.
• Typically, semiconductors are crystalline solids made up of four-valence-electron atoms. Two typical elemental semiconductors used in electronic devices are silicon and germanium.

The India Semiconductor Mission (ISM): What is it?

About:

• With a total financial investment of Rs. 76,000 crore, the ISM was introduced in 2021 under the Ministry of Electronics and IT’s (MeitY) auspices.
• It is a component of the all-encompassing plan for the nation’s sustainable semiconductor and display ecosystem growth.
• The program’s objective is to give money to businesses that invest in semiconductor manufacturing, display manufacturing, and the design ecosystem.
• ISM is envisioned as the nodal agency for the effective, cogent, and seamless execution of the programmes, under the direction of international specialists in the Semiconductor and Display industries.

Scheme for Design Linked Incentive (DLI):

• About: It provides financial incentives and design infrastructure support for integrated circuits (ICs), chipsets, systems on chips (SoCs), systems and IP cores, and semiconductor linked design at different phases of development and deployment.
• Nodal Agency: The scientific society C-DAC (Centre for Development of Advanced Computing), which is governed by MeitY, will act as the nodal agency for carrying out the DLI programme.

Three parts make up DLI:

• Support for Chip Design Infrastructure: In order to host the most advanced design infrastructure (such as IP Cores, EDA Tools, and support for MPW (Multi Project Wafer fabrication) & post-silicon validation), C-DAC will establish the India Chip Centre. It will also make it easier for sponsored enterprises to use this infrastructure.
• Product Design Linked Incentive: Under this, qualified candidates who work in semiconductor design would receive financial support in the form of reimbursement for up to 50% of eligible expenses, up to a maximum of Rs. 15 crore per application.
• Deployment Linked Incentive: Under this, approved applicants whose semiconductor design for integrated circuits (ICs), chipsets, systems on chips (SoCs), systems & IP cores, and semiconductor linked design are deployed in electronic products will receive an incentive of 6% to 4% of net sales turnover over five years, subject to a ceiling of Rs. 30 Crore per application.

Vision:

• To establish a thriving ecosystem for semiconductor and display design and innovation in order to facilitate India’s ascent to prominence as a worldwide centre for electronics design and manufacture.

Importance:

• To arrange efforts for marketing the semiconductor and display industries in a more structured, targeted, and all-encompassing way, ISM is crucial.
• It will provide a thorough, long-term plan for the nation’s semiconductor and display production facilities as well as semiconductor design ecosystem.
• Through safe supply chains for semiconductors and displays, which include raw materials, specialty chemicals, gases, and production equipment, it will make it easier for people to embrace trusted electronics.
• By offering the necessary support in the form of Electronic Design Automation (EDA) tools, foundry services, and other appropriate mechanisms for early-stage companies, it will allow the Indian semiconductor design sector to grow multiple times.
• Additionally, it will support and ease the creation of indigenous intellectual property (IP) and encourage, permit, and reward technology transfer (ToT).
• In order to accelerate cooperative research, commercialization, and skill development, ISM will make partnerships and collaborations with national and international organisations, businesses, and agencies possible.

What is the semiconductor market’s overall scenario?

Worldwide Situation:

• The major players in the highly concentrated semiconductor sector include the United States, South Korea, Taiwan, and other countries.
• In fact, Taiwan Semiconductor Manufacturing Company (TSMC) produces 90% of the world’s 5 nm chips in large quantities.
• As a result, there is a fresh push by major nations to enter the chip-making industry due to the global chip shortage, supply chain disruptions caused by the Russia-Ukraine conflict, and tensions between the United States and China over Taiwan.
• The present valuation of the worldwide semiconductor sector is between $500 and $600 billion, and it serves the roughly $3 trillion global electronics market.

Indian Situation:

• With a projected valuation of USD 23.2 billion, the Indian semiconductor market is expected to develop at a compound annual growth rate (CAGR) of 27.10% to reach USD 150 billion by 2029.

However, India has lately started a number of steps to support domestic semiconductor chip manufacturing:

• MeitY recently announced a USD 10 billion investment in the ISM to help with semiconductor research and development (R&D) in India.
• In order to encourage the production of semiconductors and electronic components, India has also introduced the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS).

What Kind of Difficulties Does India’s Semiconductor Industry Face?

• Data Latency: Different co-products can be produced from the same wafer depending on power, efficiency, and task-based binning of the wafer-die. Since the data is held across numerous distinct systems, different jobs with varying planning parameters can cause data latency concerns.
• Customer-specific requirements: Different materials, sites, shipment sizes, and manufacturing quality are frequently found in the same product. Since they are dependent on the particular requirements of the customer, all such needs often differ.
• Front-end (FE) Built Output: Wafers are an example of a FE output that require additional production processes like assembly and testing in addition to a blended model. This leads to supply chain complexity, which makes effective capacity planning more challenging.
• Back-End (BE) Cycle Times Shorter than FE: BE cycle times are only 1-2 weeks, while FE cycle processing normally takes 6-8 weeks. In practice, this implies postponing inventory till later in the manufacturing cycle, which necessitates more planning.
• Restricted End-to-End Supply Chain Visibility and Planning: The supply chain is difficult to understand, leading to excess inventory growth and ineffective customer service, because of the abundance of direct and indirect materials required for manufacturing as well as unrelated in-house and contracted manufacturing sites and distribution centres.
• Very Expensive Fab Setup: Even on a relatively small scale, the setup costs for a semiconductor fab can exceed $1 billion, and they lag behind the newest technological advancements by one or two generations.
• High Investments Needed: The semiconductor and display manufacturing industries are highly technologically sophisticated, requiring large capital investments, high risk, lengthy payback and gestation periods, and rapid technological advancements. As a result, these industries demand large and ongoing investments.
• What Problems Are There With the DLI Scheme’s Implementation?
• There isn’t much use of the DLI plan, despite its goal of giving access to financial subsidies and design infrastructure.
• One major obstacle is the requirement for startups to retain their domestic status and the restriction of outside finance. The lack of a developed start-up ecosystem in India and the funding environment lower investor risk appetite for hardware items.
• The semiconductor market is dominated by established firms and is extremely competitive.
• India would have to contend with nations that have developed chip manufacturing sectors, such as the US, South Korea, Taiwan, and China.
• In the face of such competition, gaining a competitive edge and luring in international capital is a major problem.
• In the semiconductor sector, intellectual property rights and licencing contracts are essential.
• India’s efforts to manufacture chips may face obstacles if it cannot get intellectual property, patents, or licences for cutting-edge semiconductor technologies.
• Given the extremely low R&D expenditure in relation to GDP, negotiating partnerships, licencing agreements, or establishing local intellectual property can be difficult processes.
• How may the DLI Scheme and ISM be redesigned?
• Goals of Including India’s Semiconductor Strategy:
• With the USD 10 billion Semicon India Programme, India hopes to strengthen its supply chain, take use of its comparative advantage in chip design, and lessen its reliance on imported semiconductors.
• The three objectives are to capitalise on India’s current design strengths, integrate global value chains, and focus on strategic areas.
• Setting Investment Priorities for Maximum Benefit:
• Priorities for industrial strategy should concentrate on maximising benefits in light of resource constraints. Compared to the foundry and assembly stages, the design ecosystem requires less resources to stimulate, which means that India’s semiconductor industry will benefit greatly.
• The discrepancy in revisions between the Production-Linked Incentive (PLI) schemes and the DLI scheme should be investigated in policy.
• Disentangling Development from Ownership:
• The DLI scheme’s comparatively low incentives might not be a desirable compromise for startups dealing with ownership constraints.
• Financial stability and worldwide exposure could be improved by separating ownership from semiconductor design research and implementing more start-up-friendly investment criteria.
• Extending the DLI Scheme’s Scope:
• The DLI scheme’s main goal should be to develop India’s capacity for semiconductor design, eventually leading to the growth of indigenous businesses.
• With a significant boost in funding, the programme must reorient itself to enable design skills for different chips across the nation, independent of the entity’s registration.
• Creating an Institution That Is Able to Implement Policies:
• A redesigned policy centred on chip design, overseen by a qualified organisation, is able to accept a certain amount of failure and regard beneficiary start-ups as experimental risk-taking platforms.
• Redesigned DLI programme under ISM, modelled after SFAL’s methodology, may draw a wider spectrum of semiconductor design startups and assist them in overcoming early obstacles.
• Making Use of Current Facilities:
• The next stage of the digital transition under Industry 4.0 is being driven by semiconductors and displays, which form the basis of contemporary electronics.
• With the assistance of a multinational corporation, India’s Public Sector Enterprises (PSEs), such as Bharat Electronics Ltd or Hindustan Aeronautics Ltd, can establish a semiconductor fab foundry.
• Working together:
• Even if India is first concentrating on “lagging-edge” technology nodes to supply the automotive and appliance industries, it might be challenging to create demand globally because major competitors like Taiwan offer competitive cutting-edge chip technology globally.
• In addition to the United States and Japan, India ought to investigate comparable prospects for cooperation with other nations, including Taiwan, South Korea, and other friendly, technologically advanced states, in order to foster domestic production and lessen reliance on imports in this area.
• In summary
• Due to obstacles including stringent ownership requirements, high expenses, and little incentives, the DLI scheme must now prioritise developing semiconductor design skills. Revisions ought to focus on strengthening financial assistance, reevaluating the function of the nodal agency, and severing the ownership and development links. Recalibrating policy under the direction of a capable institution may afford some degree of failure in order to secure India’s place in the high-tech semiconductor industry.