Debraj is a Strategy and Digital consultant, primarily working with Consumer Goods, Retail domains. He has worked with leading clients in US and APAC, and holds an MBA from IIM-Ahmedabad
In a landmark move, on December 15, the government of India cleared a Rs 76,000 crore (approximately $10 billion) PLI (Production-Linked Incentive) scheme for the development of sustainable semiconductor and display ecosystem in India. This aims to provide attractive incentive support to companies or consortia that are engaged in manufacture of semiconductor fabs, display fabs, silicon photonics and sensors, as also semiconductor packaging and semiconductor design. The India Semiconductor Mission (ISM) aims to make India a global electronics production hub, in line with the principle of Atmanirbhar Bharat (self-reliant India) as espoused by Prime Minister Narendra Modi. While launching this scheme, Ashwini Vaishnaw, minister for communications, electronics and IT mentioned, “Any country that does not learn to make wafers (semiconductors) will lag behind others in the days to come. Any economy that does not have control over semiconductors, quality, and design, will not be able to move forward”.
The global chip shortage
A lack of semiconductors and chips has plagued industries around the world starting end of 2020. While capacity in the industry always had its ups and downs, the severity of this shortage has been like never before. The global chip shortage was a fallout of Covid-19, as many organisations switched to work-from-home, with laptops getting dispatched to individuals, and schools turning to virtual modes of imparting classes, taking demand to new highs. Whereas worldwide semiconductor sales declined between 2018 and 2019, it grew by 6.5 percent in 2020 and continued in 2021. For instance, in May 2021, sales were 26 percent higher Y-o-Y. Manufacturers were left grappling to catch up with the surge in demand.
The shortage affected an array of business sectors. While shipments of Sony’s new PS5 games console got delayed, supply of TVs and other OLED displays got impacted too. The automotive sector, particularly, was hit hard. Jaguar Land Rover halved its sales expectations for 2021; Ford and General Motors announced prolonged shutdowns of plants across North America. Back home, firms such as Maruti Suzuki cut production by 60 percent in September 2021. In September, Indian automotive sales excluding commercial vehicles fell by 20 percent, with dealers reporting order books in excess of 500,000 units.
Overcoming chip shortage
India’s semiconductor demand stands at $24 billion, and it currently imports 100 percent of it. The demand is expected to reach $100 billion by 2025. Presently, Taiwan contributes to 60 percent of the total global foundry revenue, with Taiwan Semiconductor Manufacturing Company (TSMC) contributing to 54 percent of global revenue from chip industry.
There is an increasing recognition that chip supply chains must be diversified to decrease reliance on Taiwan and South Korea. US President Joe Biden, as part of his ‘Build Back Better’ plan, announced an outlay of $52 billion for US chip production. European Union nations have agreed to grow chip building capacity across the bloc. In this backdrop, the nod for a $10 billion outlay by the Indian government to aid the semiconductor ecosystem, from design to fabrication, packing, and testing, is well-timed and a much-needed boost towards solving the chip shortage over the short term, and build indigenous capacity over medium to long term.
Chip manufacturing in India
Semiconductor consumption in India is pacing at the rate of 15 percent, driven by a growing electronics manufacturing sector. With the introduction of 5G, this demand is all set to notch up. Presently, India imports 100 percent of its demand. India has been trying to attract chip manufacturers, but large capital investments, lack of infrastructure, and insufficient prior experience have acted as deterrents. Previous attempts to lure companies have failed, despite the government providing capital subsidy of as much as 40 percent. On the other hand, countries like the US have been going all out to lure foundries to set shop there. The CHIPS for America Act was enacted in the FY 2021 National Defense Authorization Act (NDAA), recognising the critical role of the semiconductor industry for the US. Congress is set to introduce a FABS Act that would provide semiconductor investment tax credit. Samsung recently announced plans to set up a $17 billion semiconductor factory outside of Austin, Texas.
India is aiming to provide similar incentives now to big foundries to invest here and ISM will be a key enabler to that.
Incentives under the scheme
Associated fiscal support
The GoI has also announced incentives for every part of the electronic supply chain, including components, sub-assemblies, and finished goods.
A total outlay of Rs 230,000 crore ($30 billion) has thereby been earmarked to position India as a global electronics manufacturing hub, with semiconductors as the basic foundational block. Development of a holistic semiconductor and display ecosystem will be key to the security of critical information infrastructure. It will also be a major employment generator for the economy. Reports suggest that the government is already in active discussions with the likes of TSMC, Intel, AMD, and others. The PLI scheme will go a long way to forge the charter for India as a global electronics manufacturing hub that in turn will be a cornerstone to achieving $1 trillion digital economy and a $5 trillion GDP by 2025.
The writer is a Strategy and Digital consultant, primarily working with Consumer Goods, Retail domains. He has worked with leading clients in US and APAC, and holds an MBA from IIM-Ahmedabad.
The thoughts and opinions shared here are of the author.
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