In a recent interview with Analytics India Magazine, Dr Sarita Ahlawat, the co-founder of BotLab Dynamics, said one of the major challenges that the drone industry faces in India is the high costs of Development. She attributed it to the fact that since India does not have a semiconductor industry of its own, the most critical components have to be imported, which increases the overall cost of production. This severely limits not just the drone industry but many other domains and sectors.
However, the Indian government, in 2021, approved the production linked incentive (PLI) scheme for semiconductor and display board production in the country. This programme will support companies engaged in silicon semiconductor fabs, display fabs, compound semiconductors/silicon photonics/sensors fabs, semiconductor packaging, and semiconductor design through attractive incentive support. The government has allotted a budget of Rs 76,000 crore in semiconductor production to be utilised over the course of the next five years.
The Ministry of Electronics and Information Technology (MeitY) said in a statement that it had received five proposals for semiconductor and display fabs for the first round that closed on February 15, receiving Rs 1.53 lakh crore. The top contenders are Vedanta Foxconn JV, IGSS Ventures, and ISMC, which have proposed to set up electronic chip manufacturing plants under the Rs 76,000 crore Semicon India programme.
India’s semiconductor industry
The 1960s was the beginning of the silicon revolution. US company Fairchild Semiconductor reportedly was considering setting up shop in India; however, it decided to shift base to Malaysia because of bureaucratic hurdles. Eventually, PSUs like BEL and BHEL took up the mantle but failed to deliver as they lacked support.
As per government figures, the Indian semiconductor market is worth $15 billion (as of 2020). By 2026, it is expected to reach $63 billion. The semiconductor manufacturing process is highly complex, capital and resource-intensive. Currently, India is heavily dependent on East and Southeast Asia facilities to make its chips, even for critical industries like defence, space, finance, and railways. The major problem with this is that once the chips are sent out for fab, designs have to be shared with these facilities, which poses a great IP and security risk.
With the new scheme, the government would offer financial incentives to companies looking at manufacturing semiconductor goods in India. Such subsidy is expected to drastically bring down the cost of production and encourage others to set up factories and related facilities.
Apart from the obvious boost to the semiconductor industry, the scheme is also aimed heavily towards job creation. Unofficial estimates predict over 1 lakh direct and indirect jobs, a huge relief in the aftermath of COVID-19, which robbed many of livelihoods. The ultimate agenda is to project India as the global hub for electronics goods, a post tightly held by China for now.
A government statement read, “Development of semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy with deeper integration to the global value chain.” The notice further read that the program will help significantly in achieving $1 trillion digital economy and $5 trillion GDP by 2025.
Notably, MeitY also recently announced that it would be hiring to fill the CEO, CTO and CFO posts, among others, for the India Semiconductor Mission.
Devil in the details
While the PLI scheme is largely received positively, a few hiccups remain. For example, last month, representatives from the electronics and semiconductor industry sought greater clarity on the scheme. One of the aspects they brought up was whether the Rs 76,000 crore incentive is pure cash or may be offered in the form of land subsidy, duty subsidy, and similar incentives. Stakeholders also asked if states could offer incentives to the ecosystem above the central government’s funds.
Other than that, a section of critics have questioned whether the use of subsidies to encourage any industry is a good move. They argue that the burden of the subsidies eventually falls on the taxpayers, and it may also lead to the misallocation of resources. They suggest that instead of offering subsidies, the government could promote ease of doing business, especially in the semiconductor industry.
