India plans to tide over chip shortage with domestic production

Last year in November, a worldwide shortage in semiconductor chips took a toll on global production of cars. The shortage of chips prevented car and various other electronic manufacturers from increasing production. On the one hand, where the shortage of chips caused huge losses for the automobile sector, the short supply – on the other – increased the selling prices significantly, and contributed more to the profit of chip manufacturers.

Now, a preliminary result reported by Gartner has revealed that revenue of semiconductors companies worldwide increased by more than a quarter (25.1%) in 2021, making to a total of USD 583.47 billion.

Chip makers gain from the short supply
The result by Gartner shows that because of the situation, Samsung’s profits shot up by USD 1.8 billion, an increase of 32 percent on 2020 figure. According to the company’s last year data, Samsung recorded a total profit of USD 7.6 billion. But one particular chip maker that saw a ludicrous growth of 64 percent in profits last year was US-based AMD. Revenue of the semiconductor chip maker for both business and consumer markets hit USD 1.6 billion, compared to USD 0.8 billion in 2020.

However, though 2021 had been such a remarkable year for most semiconductor manufacturers, a chip maker that could not capitalize on a high demand situation was Intel because it could not make a laptop with Intel chips alone. Yet, it did not stop the company from enjoying its best year on record.

India focusing on domestic production to counter shrinkage
Taking lesson from the short supply and price rise, Indian government also simultaneously announced a semiconductor policy in December. The announcement is being seen as a part of the government’s agenda of pushing its GDP to reach a USD 5-trillion-dollar mark. The objective of this project is to set up greenfield semiconductor fabs and display fabs, developing R&D and design capabilities, in order to reduce India’s import dependencies and watertight the depleting foreign currency.

As a part of the policy, the government has launched a lot of new incentives for semiconductor manufacturers and research and development firms as well as product design and product deployment-linked incentives. These incentives will be in addition to the support for supply chain segments benefiting from the existing production-linked incentive (PLI) schemes and electronics manufacturing schemes.

According to the notification, the government will bear up to 50 percent of the project cost, which will roughly come to USD 10 billion for two semiconductors and two display fabs. The government believes that this will help India create a sustainable domestic electronic manufacturing ecosystem and reduce its dependency on import of display products.

For the same, the government had opened proposals from January 1, 2022, which will remain open till February 15. Ashwini Vaishnaw, the Minister of Electronics and Information Technology (MeitY), had said, “All the schemes have been notified, uploaded on the website, and a portal has been prepared for receiving the applications. So, January 1, 2022 onwards, we will start receiving the applications.”

Recently, MeitY announced that it is seeking applications from 100 domestic companies, startups, and MSMEs under its Design-Linked Incentive (DLI) Scheme, which is part of the Program for Development of Semiconductors and Display Manufacturing Ecosystem in India.

What’s the actual picture?
With this scheme, the government aims to attract large global chip makers to setup their production bases in India, and give jobs to its youth. Additionally, India wants to achieve technological leadership in areas of strategic importance, which is also a key to the security of the India’s critical information infrastructure. The project also feeds the government’s vision for an Atmanirbhar Bharat (a self-reliant India).

According to Vaishnaw, this funding of USD 10 billion will be provided over a period of six years and is expected to bring in investments of up to Rs 1700 billion (USD 22.5 billion). Overall, the program will provide attractive incentives and support companies engaged in the manufacturing of silicon semiconductor fabs and display fabs, amongst other sensor fabs.

Rapid digitization, coupled with technological advancements in the capacity for intelligent computing and growth of AI, has led to the unprecedented demand for semiconductors and chipsets across the world, including India, for manufacturing tech-enabled products.

What’s on the cards?
Once that happens, the central government will work closely with the state governments to establish high-tech clusters with requisite infrastructure in terms of land, semiconductor-grade water, high-quality power, logistics, and a research ecosystem. These clusters will be responsible for granting approvals to applications for setting up of the production facilities.

The Ministry of Electronics and Information Technology will explore possibilities for a joint venture between the Semi-Conductor Laboratory (SCL) at Mohali and a commercial fab partner to modernize SCL’s brownfield fab facility.

The scheme for setting up these facilities in India shall extend fiscal support of 30 percent of capital expenditure to approved units. It is expected that a minimum of 15 such units of compound semiconductors and semiconductor packaging will be established under this scheme.

So far, more than 20 companies have shown interest that include IBM and Tata. The project is expected to bring in a USD 22.5-billion foreign direct investment into India.