Semiconductor PLI: Support for 50% of project cost cleared

Sept. 22, 2022

In News:

The Union Cabinet recently approved changes to the Rs 76,000-crore semiconductor Production Linked Incentive (PLI) scheme.
- PLI scheme provides incentives to companies for enhancing their domestic manufacturing.
- The PLI schemes are implemented by the concerned Ministries/ Departments.
- PLI Schemes for 13 sectors was announced during the Union Budget 2021-22. Later, textile sector was also added.
This will now allow for a uniform fiscal support of 50 per cent of project cost for semiconductor fabs across technology nodes and display manufacturing.

What’s in today’s article:

Background:

Semiconductors and displays are the foundation of modern electronics industry.

Semiconductors are critical components that power electronics from computers and smartphones to the brake sensors in cars.

Semiconductors and display manufacturing is a very complex and technology-intensive sector.
It involves huge capital investments, high risk, long gestation and payback periods, and rapid changes in technology, which require significant and sustained investments.

Need for Domestic Manufacturing of Semiconductors:

As India does not produce any semiconductors, the country’s demands are met with imports.
The demand for semiconductors in India will reportedly reach around USD 100 billion by 2025, up from the current demand of USD 24 billion.
Also, absence of local manufacturing affected India the most during the lockdown imposed due to the Covid-19 pandemic.

In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure.

Major Incentives approved by the Cabinet for the Sector:

In December 2021, the Central government had approved the comprehensive program for the development of sustainable semiconductor and display ecosystem in the country. This includes:
India Semiconductor Mission –

It will be set up as the nodal agency for efficient and smooth implementation of the schemes on Semiconductors and Display ecosystem.
It will drive the long-term strategies for developing a sustainable semiconductors and display ecosystem.
The Mission will be led by global experts in semiconductor and display industry.

Support will be provided to 100 domestic companies of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), etc.
The scheme intends to facilitate the growth of not less than 20 such companies which can achieve turnover of more than Rs. 1500 crore in the coming five years.

The Scheme for Setting up of Semiconductor Fabs and Display Fabs in India shall extend fiscal support of up to 50% of project cost.
Central Government will work closely with State Governments to approve applications for setting up at least two greenfield semiconductor fabs and two display fabs in the country.

The Central Government has announced incentives for every part of supply chain including electronic components, sub-assemblies, and finished goods.
The Government has committed support of Rs. 2,30,000 crore (USD 30 billion) to position India as global hub for electronics manufacturing with semiconductors as the foundational building block.

Performance so far:

So far, three applicants — a Vedanta-Foxconn joint venture, international consortium ISMC and Singapore-based IGSS Ventures — have been approved for setting up semiconductor fabs.
- The Vedanta-Foxconn joint venture recently signed an agreement with the Gujarat government for setting up a USD 20 billion 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 are setting up in Karnataka and Tamil Nadu, respectively.
Vedanta and Elest have submitted applications for setting up display manufacturing.

News Summary:

Earlier, incentives for semiconductor fabs were based on the size of the node.
- For example, higher end nodes were given an incentive of 30 per cent of the project cost.
With recent changes approved to the PLI for semiconductors, all fab plants will receive fiscal support of 50 per cent, irrespective of node size.

Reason behind this policy change:

The higher end nodes are typically used for applications ranging from automotive, telecom, and lower-end laptops and desktops.
According to the government, this segment constitutes around 50 per cent of the total semiconductor market, which is among the key reasons why it was increasing support for these legacy nodes.
These changes to the semiconductor policy will increase investors’ interest in the scheme and create additional proposals.

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