The Future of India's Semiconductor Industry: A Call for Revamping the DLI Scheme

Dr. SK Sharma

Geopolitical factors and a stable political environment position India as an attractive destination for foreign investment in the semiconductor industry. The Design Linked Incentive (DLI) Scheme under the National Policy on Electronics 2019 is pivotal for the sector's growth, emphasizing the importance of semiconductor design alongside manufacturing capacity. Challenges like restrictive ownership conditions and high costs necessitate reforms in the DLI scheme, focusing on decoupling ownership from development, enhancing financial support, and reevaluating the role of the nodal agency to foster innovation and attract investments.

By prioritizing semiconductor design capabilities and strengthening supply chain resilience, India can reduce reliance on foreign suppliers, create jobs, boost exports, foster innovation, and catalyze technological advancements. The revamping of the DLI scheme will be a significant step towards establishing India as a global semiconductor design hub with promising prospects for growth and development.

India's aspiration to emerge as a prominent global semiconductor hub is no secret and India’s $10 billion India Semicon Mission Program is on its way with four projects sanctioned by the GOI. With its competitive cost structures, abundant talent availability and industry capabilities, India stands poised to carve out a significant niche for itself in the global semiconductor market with many more units being sanctioned.

The semiconductor industry lies at the core of modern technology, powering devices from smartphones, automotive, EVs to computers. In India, the semiconductor sector is poised for growth, driven by the Design Linked Incentive (DLI) Scheme under the National Policy on Electronics 2019. This scheme aims to position India as a global hub for Electronics System Design and Manufacturing (ESDM) by fostering a vibrant semiconductor chip design ecosystem.

Importance of Semiconductor Design

Addressing the growing demand for semiconductors requires not just increased manufacturing capacity but also a focus on semiconductor design capabilities. Design is the cradle of innovation, where the future of semiconductor technology takes shape, pushing the boundaries of what is achievable in the tech realm. Moreover, a robust design sector can attract investments, create jobs, and stimulate economic growth, presenting a mutually beneficial scenario.

Challenges and the Need for Revamp

There is an urgent need for reforms to the Design Linked Incentive (DLI) scheme to make it transformative as till date the DLI scheme with the nodal agency, C-DAC (Centre for Development of Advanced Computing), has only approved nine startups so far, indicating a need for reassessment. Restrictive ownership conditions and high costs pose barriers to entry for many potential startups. There is a pressing need for reassessment and potential revamping to address existing challenges, hindering the growth of the semiconductor research labs in India. By decoupling ownership from development and providing increased financial support, this revamped scheme has the potential to ignite innovation and growth among startups in the semiconductor sector.

In the quest to bolster India's standing in the semiconductor industry, a series of policy reforms are needed to revolutionize the landscape of the country's tech sector. Let's delve into these transformative suggestions that hold the promise of reshaping the industry.

Delinking Ownership from Development: One key proposal is to detach ownership from development in the semiconductor domain. This shift would redirect focus from ownership of technology to its effective utilization and advancement. By adopting this approach, a broader range of participants, including startups and smaller enterprises, could enter the arena, contributing innovative ideas without the constraints of ownership limitations.

Enhanced Financial Support: Another crucial aspect is for increased financial backing. The current scenario highlights that the costs associated with semiconductor production can be daunting, particularly for startups. By amplifying financial support, the government could diminish these barriers to entry, fostering a more competitive environment and encouraging a greater number of initiatives.

Rethinking the Role of Nodal Agency: There is a need to reconsider the role of the nodal agency responsible for overseeing and coordinating the sector. Empowering this agency to play a more proactive role could involve facilitating collaborations among different entities, streamlining processes, and driving research and development efforts.

These reforms signify more than just minor adjustments; they have the potential to be game-changers, signifying a shift towards a more flexible, inclusive, and dynamic approach, moving away from rigid structures. Implementation of these changes could position India as a hub of semiconductor innovation, attracting global investments and talent. With a recalibrated policy guided by a capable institution, India could establish a robust foothold in the high-tech semiconductor sector.

Future Prospects

The recent spotlight on the semiconductor chip shortage has underscored the critical need for a robust domestic manufacturing capacity. By prioritizing the development of semiconductor design capabilities, India could potentially lessen its reliance on foreign suppliers, thereby fortifying its supply chain resilience.

Geopolitical dynamics are also poised to influence the trajectory of India's semiconductor industry. As companies seek to diversify their operations in response to supply chain disruptions elsewhere, India's stable political environment and strategic location could position it as an appealing destination for foreign direct investment. Major electronics manufacturers and OSAT/ATMP companies have already shown interest and are in the process of investing in India, and a revised DLI scheme could incentivize more such investments.

The ripple effects of a strong semiconductor industry could extend to sectors like electronics, automotive, defense, and even accelerate technological advancements such as the adoption of artificial intelligence. Furthermore, the growth of the semiconductor industry has the potential to catalyze technological advancements in other sectors. For instance, the proliferation of artificial intelligence in India could gain momentum, particularly with the prospect of increased smartphone adoption among the vast population currently without access.

Conclusion

While India's semiconductor industry faces challenges, there are significant opportunities for growth and development. By addressing existing barriers and enhancing support mechanisms, India can position itself as a key player in the global semiconductor market. The overhaul of the DLI scheme would represent a significant stride towards realizing India's vision of establishing itself as a global semiconductor hub. Only time will unveil the fruits borne by these changes and their impact on India's semiconductor industry landscape.