Design Linked Incentive (DLI) Scheme

Context (TH): The semiconductor Design-Linked Incentive (DLI) scheme has approved just seven start-ups, far below its five-year target of 100. Policymakers have an opportunity to reassess and enhance the scheme.

Design Linked Incentive (DLI) Scheme

It aims to offer financial incentives as well as design infrastructure support across various stages of development and deployment of semiconductor design(s).
Target Segments: Semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor-linked design.
Nodal agency: C-DAC (Centre for Development of Advanced Computing), operating under MeitY.
Aim: To nurture at least 20 domestic companies involved in semiconductor design and facilitate them to achieve turnover of more than Rs.1500 Crore in 5 years.
Eligibility:
- Domestic companies, startups, and MSMEs involved in semiconductor design or linked design.
- Approved applicants must maintain their domestic status for three years.
- An applicant must meet threshold criteria to be eligible for disbursement of incentive for the year under consideration.
  
  Threshold criteria

Domestic status: More than 50% of the capital in Domestic companies, startups, and MSMEs is beneficially owned by resident Indian citizens and Indian companies, which are ultimately owned and controlled by resident Indian citizens.

In case the Net sales do not meet the threshold amount for any given year, the applicant shall not be eligible for an incentive in that particular year.
However, the applicant will not be restricted from claiming incentive in subsequent years during the tenure of the Scheme, provided threshold criteria are met for such subsequent years.

Components under DLI

The scheme has three components.

Chip Design infrastructure support: Under this, C-DAC will set up the India Chip Centre.
Product Design Linked Incentive.
Deployment Linked Incentive.

Objectives

Nurturing and facilitating the growth of domestic companies, startups and MSMEs.
Achieving significant indigenisation in semiconductor content, thereby facilitating import substitution and value addition in the electronics sector.
Strengthening and facilitating access to semiconductor design infrastructure for startups and MSMEs.

Issues with the Scheme

Domestic Status and Foreign Direct Investment: Beneficiary start-ups must maintain domestic status for at least three years after incentives. This limits the scope of foreign direct investment.
Viable nature of the Semiconductor industry: Start-ups in semiconductor design incur substantial costs with longer-term returns. Further, coupled with the challenges in the funding landscape in India, it reduces investor risk appetite, hindering growth.
The conflicting role of the C-DAC: C-DAC itself is a market player in chip design, and concerns arise about conflict of interest, capacity, and suitability for implementation and regulation.

Way forward

Revise the Domestic status objectives: Allow any entity registered in India to engage in the design process.
The C-DAC as the nodal agency for the DLI scheme necessitates reconsideration: The Karnataka government’s Semiconductor Fabless Accelerator Lab can be made as the implementing agency under the India Semiconductor Mission.

What is a semiconductor?

A semiconductor is any material that has an electrical conductivity between a conductor (such as copper) and an insulator (such as rubber or glass).

semiconductors conductors and insulators

The conductivity of a semiconductor can be controlled and modified by introducing impurities or defects into the crystal structure of the material.
Concern: Many toxic materials, such as arsenic, antimony, and phosphorus, are used in the fabrication process.

semiconductor

Applications of semiconductors in daily life

Diodes allow current to flow in only one direction, commonly used in power supplies and lighting applications.
Transistors act as switches or amplifiers and are a fundamental building block of digital electronics.
Microprocessors are ICs, the brain of many electronic devices (computers, smartphones).
Solar cells are made of semiconductor materials like silicon.
Led lights are semiconductor devices.

India Semiconductor Mission(ISM)

Launched in 2021 with Rs 76,000 crore funding under the Ministry of Electronics and IT (MeitY).
Aims to provide financial support to companies investing in semiconductors, display manufacturing, and design ecosystems.
ISM will serve as the nodal agency for efficient implementation of schemes.

Components of ISM

Scheme for setting up of Semiconductor Fabs in India: Provides fiscal support to attract investments for semiconductor wafer fabrication facilities.
Scheme for setting up of Display Fabs in India: Provides fiscal support to attract investments for TFT LCD / AMOLED-based display fabrication facilities.
Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab and Semiconductor Assembly, Testing, Marking and Packaging (ATMP) / OSAT facilities in India: Provides fiscal support of 30% of the Capital Expenditure to the eligible applicants.
Design Linked Incentive Scheme.

Global Scenario

Taiwan is the world’s top semiconductor manufacturing country followed by South Korea, Japan, China, and the United States. .

India’s History

Despite a promising start, India lost out in the semiconductor revolution of the 1980s, while countries like China and Taiwan raced ahead.
A 100% central government-owned enterprise, Semiconductor Complex Limited (SCL), was set up in the early 1980s with a manufacturing facility in Mohali in Punjab.
India’s dream of becoming a semiconductor manufacturing hub was shattered by a mysterious fire that broke out at the Mohali facility in February 1989.
In 2006, SCL was restructured as a research & development centre within the Department of Space. It was renamed ‘Semiconductor Lab’.

Current status

Despite being the global leader in semiconductor chip design, India imports 100% of its semiconductors.
The current demand for semiconductors in India is around $24 billion, which is met through imports from countries like China, Singapore, Hong Kong, Japan, and the United States.
There is not a single Indian company involved in the fabrication of semiconductor chips.

Progress in semiconductor manufacturing

In September 2022, Vedanta and Foxconn announced a Rs 1.54 lakh crore investment for semiconductor and display plants in Gujarat.
The international consortium (ISMC) (a joint venture between Abu Dhabi-based Next Orbit Ventures and Israel’s Tower Semiconductor) has proposed a $3 billion investment for a chip-making plant in Karnataka.
Micron Technology has announced an $825 million investment for a new assembly and test facility in Gujarat.
Almost all the top international chip design companies have a presence in India.
Today, India has the distinction of designing over 2,000 chips every year.

What is ailing India’s Semiconductor Industry?

Semiconductor manufacturing is difficult and expensive. It requires billions of dollars of investment, top-quality raw materials, and reliable infrastructure.
Shortage of raw materials: Apart from Silicon and metals, germanium and gallium arsenide are rarely found in India.
High maintenance: These plants demand a consistent supply of water, electricity, and protection from the elements.
Semiconductor manufacturing requires a high-skilled STEM labour force. The universities in India currently don’t have state-of-the-art infrastructure labs to do research, which is limiting a lot of students from entering this sector.

Initiatives in India

Production-Linked Incentive (PLI) Scheme.
Design-Led Incubation (DLI) Scheme.
Digital RISC-V (DIR-V) Program.
India Semiconductor Mission.
Semicon India program.
Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS).

Way Forward

India must collaborate with international partners. The chip manufacturing and design supply chain is complex and requires specialisation, materials, and talent that no single country can provide.
India needs to prioritise ease of doing business alongside offering incentives to foster the growth of semiconductor manufacturing.
India should provide long-term stability of policy so that the company can be assured about its return on investment.

For details on the Significance of domestic manufacturing of semiconductors, visit >Significance of domestic manufacturing of semiconductors.