Semiconductor Sector of India
Context:
- Course corrections are necessary as incentives for semiconductors falter.
Introduction:
- The Union government has to be much more explicit about what it has accomplished and what it hopes to achieve by continuing to spend billions of rupees on expanding semiconductor fabrication capabilities in India, since funding for production-linked incentives (PLI) for semiconductor manufacturing are underutilised by up to 80%.
Chips made of semiconductors:
- These are the substances that exhibit conductivity between insulators and conductors. They could be compounds made of gallium, arsenide, cadmium selenide, silicon, or germanium, or they could be pure elements.
- Nearly every industry, including aerospace, automotive, communications, clean energy, information technology, and medical devices, depends on them.
- These chips are the fundamental components that act as the brains and hearts of all contemporary information and communications technologies and electronics goods.
- India is now the centre of semiconductor design, producing around 2,000 chips annually and employing over 20,000 experts to work on different facets of chip design and verification.
India’s goal related to semiconductors:
- Within Digital India Corporation, India Semiconductor Mission (ISM) has been established as an independent business division.
- ISM is in charge of driving the India Semiconductor ecosystem in terms of manufacturing, packaging, and design. It possesses full administrative and financial authority.
- Several of the top authorities on semiconductors worldwide make up the advisory board of ISM.
- ISM is acting as the focal point for the effective, cogent, and seamless execution of the initiative to expand India’s semiconductor and manufacturing sectors.
Current initiatives and their domestic ramifications:
- The PLI programme for semiconductors and displays has a ₹38,601 crore allocation, while the one for IT hardware has a ₹17,000 crore investment. The current programmes alone show little promise in terms of employment and meaningful value addition: manufacturing facilities employ few people despite the fact that chips are essential for the majority of hardware and appliances and their production requires sophisticated and automated systems.
- Import-heavy defence spending demonstrates that not all large-scale expenditure in the national interest results in employment within the country. However, the main bet made by these programmes, which come at a significant financial expense to the government, is to draw in a “ecosystem” that will raise the value addition of India’s electronics manufacturing industry.
- Even if PLI benefits are utilised to their fullest potential, this is by no means a guaranteed result. The bet also depends on multinational manufacturing behemoths accepting other advantages of a globally dispersed supply chain, including as accessible and affordable international chip transportation.
Additional incentives are required:
- Other initiatives aimed at strengthening India’s position, such as fostering the growth of homegrown semiconductor design expertise, must complement the array of PLI schemes. Promising initiatives include the design-linked incentive programme.
- However, the majority of capital is still allocated to the construction and funding of massive manufacturing facilities, with a significant portion of raw and even intermediate materials still coming from imports.
- Furthermore, despite incentives, multinational chipmakers are avoiding making significant commitments due to the narrow range of activities that the PLI funds are encouraging. Private capital is also changing rapidly, as new developments in semiconductors and artificial intelligence leave governments unsure of how best to deploy resources to strengthen their position in technology over the next ten years.
Problems encountered:
- Furthermore, despite incentives, multinational chipmakers are avoiding making significant commitments due to the narrow range of activities that the PLI funds are encouraging. Private capital is also changing rapidly, as new developments in semiconductors and artificial intelligence leave governments unsure of how best to deploy resources to strengthen their position in technology over the next ten years.
- India continues to lag behind more competitive nations like China and Vietnam in the creation of semiconductor wafer fabrication (FAB) units because of a poor ecosystem and resource scarcity.
What actions are necessary?
- Thus, these expenditures need to be linked to a concrete result: is it a question of defending cyber sovereignty to keep India safe from another supply chain shock akin to the pandemic, boosting the homegrown electronics sector to lower the cost of electronics for Indian consumers, or establishing India as a hub for the production of electronics globally? If goals were more clear, it would be simpler to identify failures. Additionally, it would allow for a course correction before significant PLI expenditures have already occurred with little return on investment.
