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Modified PLI for Semiconductors

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September 27, 2022

Why in news?

The Union Cabinet has recently approved modifications in the Production-Linked Incentive (PLI) Scheme for manufacturing of semiconductor and display manufacturing ecosystem.

What is a semiconductor?

  • Semiconductor is made of silicon and gives computational power to devices.
  • They are building blocks of almost every modern electronic device.
  • Semiconductors having higher nanometre value are applied in automobiles, consumer electronics, etc.
  • Semiconductors having lower values are used in devices such as smartphones and laptops.

How is the Semiconductor industry so far?

  • The chip-making process is complex and has multi-step supply chain.
  • It involves chip-designing, development, software designing, patenting, making chip-fabrication machines; setting up fabs or factories; and ATMP (assembly, testing, marking and packaging).
  • The big players in semiconductor industry are Taiwan, South Korea and the U.S.

90% of 5nm (nanometre) chips are produced in Taiwan

What is the need for strong semiconductor ecosystem in India?

  • Several sectors, including auto, telecom, and medical technology suffered due to the scarcity of chips manufactured by only a few countries.
  • The sudden surge in demand of chips and semiconductor components has underpinned the need to establish a robust semiconductor ecosystem in India.
  • Other factors that led major economies to enter the chip-making sector with a renewed push includes:
    • The global chip shortage
    • U.S.-China tensions over Taiwan
    • The supply chain blockages owing to the Russia-Ukraine conflict

What are the changes to India’s chip-making scheme?

PLI and DLI scheme

  • In December 2021, India announced its roughly $10 billion dollar Production-Linked Incentive (PLI) scheme to encourage semiconductor and display manufacturing in the country.
  • It also announced fiscal support for a Design-Linked Initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights etc.

Modified scheme

  • The new scheme encourages all areas of chip-making to create an integrated ecosystem in India.

Chip size

Previous version

Modified version

45nm to 65nm

30% funding

Uniform 50% fiscal support for all nodes

28nm to 45nm

40% funding

28nm and below

50% funding

 

 

Provides 50% of capital expenditure for other steps of the process.

  • The PLI and DLI schemes had attracted many global semiconductor players for setting up fabs in India.
  • The modified scheme also emphasised the production of the 45nm chip, which is fairly less time-consuming and economical in terms of production.
  • The technology nodes of 45nm and above have high demand, driven primarily by automotive, power and telecom applications and constitutes about 50% of the total semiconductor market.

What are the challenges?

  • Expensive - Chip production is a resource-intensive and expensive process.
  • Shortage of funds – The industry requires more funding than the scheme provides sufficient enough to cover all steps of the process.
  • For example, setting up of one semiconductor fab requires an investment of anywhere between $3 and $7 billion and the scheme outlay remains $10 billion.
  • The initial funding – It should focus on areas like design and R&D, for which India already has an established talent pool.
  • Water intensive - Chip-making requires gallons of ultrapure water in a single day.
  • Stable power supply - An uninterrupted supply of power is central to the process, with just seconds of fluctuations or spikes causing millions in losses.

 

References

  1. https://www.thehindu.com/sci-tech/technology/explained-a-push-for-the-semiconductor-industry/article6593923ece?homepage=true
  2. https://www.thehindu.com/business/Industry/the-dli-scheme-and-the-chip-making-industry-in-india/article38352883.ece
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