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Semiconductor PLI: 50% of Project Cost Cleared

Context

  • Changes to the Rs 76,000-crore semiconductor Production Linked Incentive (PLI) scheme were recently approved by the Union Cabinet.
    • The PLI scheme incentivizes businesses to improve their domestic manufacturing.
    • The PLI schemes are carried out by the relevant Ministries/Departments.
    • PLI Schemes for 13 industries were announced in the Union Budget 2021-22. Later, the textile industry was added.
  • This now allows for consistent fiscal support of 50% of project costs for semiconductor fabs across technology nodes and display manufacturing.

Relevance

GS Paper – 2: Government Policies & Interventions, GS Paper – 3:, Growth & Development, Indigenization of Technology, Industrial Policy, Scientific Innovations & Discoveries

Mains Question

“It is not a wise policy to rely entirely on global supply chains for something as critical as semiconductor chips, which are the heart and brain of all modern electronics.” India must become self-sufficient in this sector.” Analyse. (150 Words)


Background:

  • Semiconductors and displays are at the heart of the modern electronics industry.
  • Semiconductors are essential components that power electronics ranging from computers and smartphones to brake sensors in automobiles
  • Semiconductor and display manufacturing is a highly complex and technologically advanced industry.
  • It entails large capital investments, high risk, long gestation and payback periods, and rapid technological changes that necessitate significant and sustained investments.

The Need for Domestic Semiconductor Manufacturing:

  • Because India does not produce semiconductors, the country’s needs are met through imports.
  • According to reports, the demand for semiconductors in India will reach around USD 100 billion by 2025, up from the current demand of USD 24 billion.
  • Additionally, the lack of local manufacturing harmed India the most during the Covid-19 pandemic lockdown.
    • There was a global surge in demand for electronics during this time period.
  • In today’s geopolitical environment, trusted sources of semiconductors and displays are critical to the security of critical information infrastructure.
  • The Cabinet has approved the following major incentives for the sector:
  • The Central Government approved a comprehensive programme for the development of a sustainable semiconductor and display ecosystem in the country in December 2021. This includes the following:
  • The India Semiconductor Mission
    • It will be established as the nodal agency for the efficient and smooth implementation of the Semiconductor and Display ecosystem schemes.
    • It will be the driving force behind long-term strategies for developing a sustainable semiconductor and display ecosystem.
    • The Mission will be led by global semiconductor and display industry experts.
  • Semiconductor Design Firms –
    • Assistance will be provided to 100 domestic semiconductor design companies for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), and other products.
    • The scheme aims to help not less than 20 such businesses grow to a turnover of more than Rs. 1500 crore in the next five years.
  • Semiconductor and display fabrication plants –
    • The Scheme for Establishing Semiconductor and Display Fabs in India will provide fiscal assistance of up to 50% of project cost.
    • The Central Government will collaborate closely with the State Governments to approve applications for at least two greenfield semiconductor fabs and two display fabs in the country.
  • Financial Assistance –
    • The Central Government has announced incentives for all components of the supply chain, including electronic components, sub-assemblies, and finished goods.
    • The government has pledged Rs. 2,30,000 crore (USD 30 billion) in support of positioning India as a global hub for electronics manufacturing, with semiconductors serving as the foundational building block.

So far, performance:

  • So far, three applicants have been approved for the establishment of semiconductor fabs: a Vedanta-Foxconn joint venture, the international consortium ISMC, and Singapore-based IGSS Ventures.
    • The Vedanta-Foxconn joint venture recently signed a USD 20 billion agreement with the Gujarat government to establish a semiconductor and display manufacturing plant in the state.
  • ISMC, backed by Abu Dhabi-based Next Orbit and Israel’s Tower Semiconductor, and Singapore-based IGSS Ventures, respectively, are establishing operations in Karnataka and Tamil Nadu.
  • Vedanta and Elest have applied to establish display manufacturing facilities.

Other reservations:

  • Previously, incentives for semiconductor fabs were based on node size.
    • For example, higher end nodes were given a 30% discount on the project cost.
  • As a result of recent PLI changes for semiconductors, all fab plants will receive 50% fiscal support, regardless of node size.
  • The following are the reasons for this policy change:
  • Higher-end nodes are typically used for applications such as automotive, telecommunications, and low-end laptops and desktops.
  • According to the government, this segment accounts for approximately 50% of the total semiconductor market, which is one of the primary reasons for increasing support for these legacy nodes.
  • These changes to the semiconductor policy will pique the interest of investors in the scheme and generate new proposals.

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September 2022
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