Note4Students
From UPSC perspective, the following things are important:
Prelims level: Shakti Partnership, QUAD
Why in the News?
India and the US have entered into an agreement to establish a semiconductor fabrication plant aimed at producing chips for national security, next-generation telecommunications, and green energy applications.
Key Features of the Semiconductor Fabrication Plant
- The semiconductor fab will focus on advanced sensing, communication, and power electronics.
- The India Semiconductor Mission will support the project and involves a strategic partnership between Bharat Semi, 3rdiTech, and the US Space Force.
- The plant will manufacture infrared, gallium nitride, and silicon carbide semiconductors, critical components for national security and commercial sectors.
Shakti Partnership
- The fab, titled “Shakti” (meaning power), is the first-ever technology partnership between Indian businesses and the US Space Force, and the first of its kind in the Quad, a strategic forum comprising India, the US, Japan, and Australia.
- The project will focus on three key areas essential for modern warfare:
- Advanced sensing
- Advanced communications
- High-voltage power electronics
- These areas also have significant applications in commercial sectors such as railways, telecom infrastructure, data centers, and green energy.
|
About India’s Semiconductor Mission (ISM):
|
Details |
| Launch Year |
2021 |
| Financial Outlay |
₹76,000 crore under the Ministry of Electronics and IT (MeitY) |
| Objective |
• Develop a sustainable semiconductor and display ecosystem in India
• Reduce reliance on imports
• Position India as a global leader in semiconductor manufacturing |
| Core Focus |
Financial support for investments in:
– Semiconductor fabs
– Display fabs
– Semiconductor design
– Assembly, Testing, Marking, and Packaging (ATMP) facilities |
| Components of ISM |
| Scheme for Semiconductor Fabs |
• Provides fiscal support for setting up semiconductor wafer fabrication (fabs) facilities
• Aims to attract large investments for semiconductor fabs in India |
| Scheme for Display Fabs |
• Offers fiscal support for setting up TFT LCD/AMOLED display fabs
• Encourages investments in display fabrication technologies |
| Scheme for Compound Semiconductors |
• Provides 30% capital expenditure support for setting up Compound Semiconductors, Silicon Photonics, Sensors, and ATMP/OSAT facilities |
| Design Linked Incentive (DLI) Scheme |
• Offers financial incentives and design infrastructure support for semiconductor design |
Significance of Next-Generation Telecom
- Next-gen telecom (5G and beyond) will revolutionize industries with high-speed internet, IoT, AI, and smart infrastructure.
- It is crucial for national security, economic competitiveness, and advancing green energy and sustainable development.
- India’s adoption of 5G will drive innovation across sectors, promoting technological self-reliance and global leadership in telecommunications.
Note4Students
From UPSC perspective, the following things are important:
Prelims level: India Semiconductor Mission
Why in the News?
The Union Cabinet has approved the proposal by Kaynes Semicon Pvt Ltd to establish a semiconductor unit in Sanand, Gujarat. This is the 5th semiconductor unit to be approved under the India Semiconductor Mission (ISM).
About India’s Semiconductor Mission (ISM):
|
Details |
| Launch Year |
2021 |
| Financial Outlay |
₹76,000 crore |
| Backing by |
Ministry of Electronics and IT (MeitY) |
| Objective |
Develop a sustainable semiconductor and display ecosystem in India. |
| Primary Goal |
Provide financial support to companies investing in semiconductor and display manufacturing and design ecosystem. |
| Leadership |
Envisioned to be led by global experts in the Semiconductor and Display industry. |
| Components |
- Scheme for Semiconductor Fabs: Fiscal support to set up semiconductor wafer fabrication facilities.
- Scheme for Display Fabs: Fiscal support for setting up TFT LCD/AMOLED display fabrication facilities.
- Scheme for Compound Semiconductors / Silicon Photonics / Sensors Fab and ATMP/OSAT: 30% fiscal support for setting up compound semiconductors, silicon photonics, sensors fabs, and ATMP/OSAT facilities.
- Design Linked Incentive (DLI) Scheme: Financial incentives and design infrastructure support for semiconductor design for ICs, chipsets, SoCs, systems & IP cores.
|
| Vision |
To develop India into a global hub for semiconductor and display manufacturing and design. |
Note4Students
From UPSC perspective, the following things are important:
Prelims level: Critical Infrastructure Sectors;
Mains level: Resilience Mechanism
Why in the News?
The unprecedented surge in electricity demand offers a glimpse into the kind of stress that critical infrastructure endures during extreme weather events and resulting disasters.
Present Challenges in India -> High Temperatures and Electricity Demand:
- Record-breaking Electricity Demand: Delhi experienced record-breaking electricity demand due to persistently high temperatures.
- Frequent Power Cuts: The high demand led to frequent power cuts in Delhi and neighbouring areas.
- Worsening Conditions: Other regions in central and eastern India faced similar or worse situations, with high night temperatures exacerbating the situation.
- Heat-related Deaths: The lack of electricity and high temperatures likely contributed to several heat-related deaths.
Mounting Losses:
- Increased Economic Losses: Despite early warnings and quick responses reducing human casualties, economic and other losses from extreme weather events and disasters have been rising due to their increasing frequency and intensity.
- Government Expenditure: States spent over Rs 1.5 lakh crore between 2018 and 2023 on disaster and natural calamity aftermaths.
- Long-term Costs: Long-term costs include livelihood losses and reduced agricultural land fertility, which are projected to worsen over time.
- Job Losses: A 2022 World Bank report projected that heat-related stress could result in a loss of around 34 million jobs in India by 2030.
- Food Wastage: Food wastage due to non-air-conditioned transportation is estimated at about $9 billion annually.
- Uncounted Infrastructure Damage: Damage to critical infrastructure like transportation, telecommunications, and power supply is often uncounted in government figures, particularly for privately owned services, causing massive disruptions.
Incorporating Resilience:
- Disaster Management Plans: Infrastructure sectors have disaster management plans to prepare and respond to events, such as backup power supplies for hospitals, waterlogging prevention for airports and railways, and underground telecommunication lines.
- Slow Progress: Despite plans, much of India’s infrastructure remains extremely vulnerable to disasters.
- Future Infrastructure: India is still developing much of its infrastructure, and it is more cost-effective to incorporate disaster resilience during construction than to retrofit later. Upcoming projects need to be climate-smart, sustainable, energy-efficient, and disaster-resilient.
| A case study of Odisha:
The Coalition for Disaster Resilient Infrastructure (CDRI) studied Odisha’s electricity transmission and distribution infrastructure, revealing its extreme fragility. Over 30% of distribution substations are within 20 km of the coastline; 80% of electricity poles are susceptible to high wind speeds; over 75% of distribution lines are over 30 years old and not cyclone-resistant. |
Note: CDRI’s Created in 2019, CDRI aims to make critical infrastructure resilient to natural disasters. It serves as a knowledge hub and collaborates with over 30 countries, but only a few Indian states have engaged with CDRI.
Way Forward:
- Proactive Infrastructure Planning and Investment: Future infrastructure projects in India must integrate disaster resilience at the planning and construction stages. This approach ensures that new developments are sustainable, energy-efficient, and capable of withstanding extreme weather events, reducing the need for costly retrofits later.
- Collaboration with Expert Bodies and Adoption of Best Practices: States and infrastructure sectors should actively seek expertise and collaboration from organisations like the Coalition for Disaster Resilient Infrastructure (CDRI).
Mains question for practice:
Q Discuss the implications of extreme weather events on critical infrastructure in India, citing recent examples. What measures can be taken to enhance the resilience of infrastructure against such events? 15M
Mains PYQ:
Q Describe the benefits of deriving electric energy from sunlight in contrast to conventional energy generation. What are the initiatives offered by our government for this purpose? (UPSC IAS/2020)
Note4Students
From UPSC perspective, the following things are important:
Prelims level: Science and Technology; Semiconductor, wafer and Transistor;
Mains level: India’s semiconductor ecosystem;
Why in the News?
The Union Cabinet has sanctioned the setup of three semiconductor facilities as part of the initiative to develop semiconductor and display manufacturing ecosystems in the country. One is in Assam and the other two are in Gujarat.
Need for Semiconductor hub in India:
- Right now, only a few countries in the world make computer chips. Due to the issues like COVID-19 pandemic and geopolitical tensions between countries, it’s become clear that we need more countries to manufacture these chips instead of Depending on the single country (Taiwan issue).
- For example, the TATA Group, working with a company from Taiwan called Powerchip Semiconductor Manufacturing Corporation (PSMC), is building a factory in Gujarat to make chips.
BACK2BASICS:
What is a Semiconductor chip? How is it manufactured?
It is a tiny electronic device made of semiconductor material (usually silicon or germanium) that serves as the basic building block of most electronic circuits. These chips can perform various functions, such as processing data, storing information, or controlling electronic devices.
What is a transistor?
A transistor is a semiconductor device used to amplify or switch electronic signals and electrical power. It is a fundamental building block of modern electronic devices and circuits. Transistors can be thought of as electronic switches that can be turned on or off, or can be used to amplify electrical signals.
What is fabrication technology?
Fabrication technology, often referred to as semiconductor fabrication technology or semiconductor manufacturing, is the process of creating electronic devices and integrated circuits (ICs) on semiconductor materials such as silicon. It involves a series of complex steps to build electronic components, including transistors, diodes, and resistors, as well as connecting them to create functional electronic circuits.
What is known as a wafer?
A wafer refers to a thin, flat slice of semiconductor material, typically made of silicon. Silicon wafers are the primary substrate used in the fabrication of integrated circuits (ICs) and other semiconductor devices. |
Efforts made by the Indian Government to build Semiconductor Ecosystem:
- India Semiconductor Mission (ISM): The Indian government is actively promoting semiconductor industry growth through initiatives and incentives, including the establishment of the India Semiconductor Mission (ISM) and a significant financial package to boost semiconductor and display manufacturing.
- Effort to boost Domestic manufacturing: India is also working to attract international investments to bolster domestic manufacturing. An example of this is Micron Technology’s planned Assembly, Test, Mark, and Pack (ATMP) facility in Gujarat, with a total investment of $2.75 billion, set to produce the first “Made in India” chip by the end of 2024
- International Partnership: The US Semiconductor Industry Association (SIA) and the India Electronics and Semiconductor Association (IESA) have decided to establish a partnership, with the US presently having a ‘Chip 4’ alliance with the world’s top semiconductor makers – Taiwan, Japan
Conclusion: India’s semiconductor ecosystem is proliferating, backed by government initiatives like the India Semiconductor Mission and partnerships with global players. Efforts to boost domestic manufacturing and international collaborations signify India’s emergence as a key player in the semiconductor industry.
Note4Students
From UPSC perspective, the following things are important:
Prelims level: district Kancheepuram, trend in export of electronic goods
Mains level: Trend in export of electronic goods
Why in the news?
Nearly 40% of India’s smartphone shipments over the past two fiscal years originated from a single district Kancheepuram.
Context
- In FY23, Tamil Nadu emerged as India’s foremost exporter of electronic goods, contributing 30% to the country’s total electronic goods exports in FY24.
- Historically, the state lagged behind Uttar Pradesh and Karnataka in this sector until FY22.
- However, in recent years, Tamil Nadu has experienced consistent growth in electronic goods exports, unlike other states where figures have either declined or remained static.
Chart 1 shows the electronic goods exported from Tamil Nadu in $ billion, year-wise.
- Between April 2023 and January 2024, Tamil Nadu exported electronic goods valued at over $7.4 billion.
Chart 2 shows the exports of electronic goods of the top five States in India in $ billion, year-wise
- In FY24, Tamil Nadu’s exports exceeded the combined exports of Uttar Pradesh and Karnataka, which totaled $6.7 billion during that period.
- Uttar Pradesh and Karnataka were ranked second and third, respectively, in terms of electronic goods exports.
- Gujarat and Maharashtra, also among the top five exporting states, have experienced stagnant growth in recent years.
Chart 3 shows the commodity wise share in total exports from India for FY24 (till February) in $ billion
- Engineering goods were the dominant category of exports from India during the specified period, with a total value of $98 billion.
- Petroleum products followed closely behind, with exports valued at $78 billion.
- Gems and jewellery constituted another significant export category, with a total export value of $30 billion.
- Electronics goods were also notable, although they ranked lower compared to other categories, with exports totaling $25 billion. In FY18, electronics goods were not among the top 10 most exported commodities from India.
Biggest markets
- Top most importor of India’s Electronic goods: The United States and the United Arab Emirates (UAE) are the largest markets for India’s electronic goods export. In FY24 (up to February), the U.S. accounted for approximately 35% of India’s electronic goods exports, amounting to $8.7 billion, while the UAE accounted for 12% with $3 billion.
- Other countries share:The Netherlands and the United Kingdom (U.K.) each held a share of about 5% in India’s electronic goods exports.
- The primary destination : Since FY21, the United States has consistently been the primary destination for India’s electronics exports, with its share increasing significantly in recent years.
Conclusion
Tamil Nadu’s emergence as a key electronics exporter, with 30% of India’s exports, is highlighted. Kancheepuram district’s significant role, alongside Tamil Nadu’s surpassing of Uttar Pradesh and Karnataka, underscores its growth in electronic goods exports.
Mains PYQ
Q Can the strategy of regional-resource based manufacturing help in promoting employment in India? (UPSC IAS/2019)
Q Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports.(UPSC IAS/2017)
Note4Students
From UPSC perspective, the following things are important:
Prelims level: LK-99 Superconductors
Mains level: Not Much
Central Idea
- Researchers in South Korea have recently unveiled a potential room-temperature superconductor named LK-99, a discovery that could revolutionize industrial and medical applications due to its ability to conduct heavy currents with zero resistance.
- This article delves into the key characteristics that define a superconductor and the significance of LK-99’s potential discovery.
Understanding Superconductors
A superconductor is a material that, under specific conditions, displays four distinct changes indicating its transition to the superconducting state.
(1) Electronic Effect:
- A genuine superconductor demonstrates zero resistance when conducting electric current.
- Verifying this property requires advanced equipment and testing on a sufficiently large sample.
(2) Magnetic Effect:
- Different types of superconductors exhibit unique responses to magnetic fields.
- A type I superconductor expels a magnetic field below a critical value, creating the Meissner Effect.
- A type II superconductor, undergoing a mixed superconducting and non-superconducting phase, prevents magnetic fields from penetrating its bulk, known as flux pinning.
(3) Thermodynamic Effect:
- The electronic-specific heat, representing the heat required to raise electron temperature by 1 degree Celsius, changes significantly during the superconducting transition.
- As the material shifts to its superconducting state, the electronic-specific heat decreases.
- Upon re-warming the material to the critical temperature, the specific heat reverts to its non-superconducting value.
(4) Spectroscopic Effect:
- A distinctive feature of superconductors is the presence of energy level gaps that restrict electrons from certain energy states.
- Mapping energy levels in a superconductor reveals these gaps, serving as an indicator of its superconducting nature.
Conventional vs. Unconventional Superconductors:
- Conventional Superconductors: These materials adhere to the Bardeen-Cooper-Schrieffer theory of superconductivity. They display predictable behaviors explained by established scientific principles.
- Unconventional Superconductors: In contrast, unconventional superconductors exhibit superconductivity that defies current theoretical explanations. Their unique properties challenge researchers to unravel the mysterious origins of their superconducting abilities.
About Material LK-99
- Apatite Structure: The Korean group utilized copper-substituted lead apatite, a phosphate mineral with unique tetrahedral motifs, to create LK-99.
- Superconducting Behavior: LK-99 displayed essential superconducting properties, with almost zero resistance to current flow and sudden emergence of resistance above a critical current threshold.
- Magnetic Resilience: LK-99 retained superconductivity even under the presence of a magnetic field until reaching a critical threshold.
Implications of the LK-99 Discovery
- The potential room-temperature superconductor LK-99 carries the promise of transforming various industries and medical applications.
- However, thorough validation by independent researchers is necessary to establish its authenticity and potential impact.
- If confirmed, LK-99 could reshape the way we harness and utilize electrical currents in a multitude of fields.
Note4Students
From UPSC perspective, the following things are important:
Prelims level: Semiconductors and its applications
Mains level: India's semiconductor industry and challenges and its potential advantages
Central Idea
- The recent visit of Prime Minister Narendra Modi to Washington DC has solidified the US-India technology partnership, marking technology as the new frontier in geopolitics. One crucial aspect of this partnership is the joint commitment to diversify the global semiconductor supply chain, which lies at the heart of the rivalry between the United States and China. This op-ed examines the significance of this collaboration and its potential implications for India’s semiconductor industry.
*Relevance of the topic
*India Semiconductor Mission (ISM) builds a vibrant semiconductor and display ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design
Semiconductors: The New Strategic Resource
- Technological Dependence: Semiconductors are essential components in various advanced technologies, including smartphones, computers, artificial intelligence, and defence systems. Countries heavily rely on these technologies for economic growth, national security, and global competitiveness.
- Critical Infrastructure: Semiconductors are considered critical infrastructure due to their role in powering and enabling essential sectors such as telecommunications, energy, transportation, healthcare, and finance. Disruptions in semiconductor supply chains can have far-reaching consequences.
- Limited Manufacturing Capability: Only a few countries possess the advanced manufacturing capabilities required to produce semiconductors. These manufacturing processes involve complex fabrication plants and specialized equipment, making it difficult for new entrants to establish a foothold in the industry.
- Global Supply Chain: The semiconductor industry relies on a global supply chain, with various stages of production taking place in different countries. Certain regions, such as Taiwan, South Korea, and the United States, play a dominant role in semiconductor fabrication, assembly, and testing.
- National Security Concerns: The control and security of semiconductor supply chains have become matters of national security for many countries. Dependence on foreign sources for critical technologies raises concerns about vulnerabilities, potential disruptions, and the risk of compromising sensitive information.
- Economic Competitiveness: Semiconductors contribute significantly to a country’s economic competitiveness. Advanced semiconductor industries can attract high-value investments, foster innovation, and create skilled job opportunities, contributing to economic growth and technological leadership.
- Technological Sovereignty: Countries view the development of indigenous semiconductor capabilities as crucial for technological sovereignty and reducing dependence on external sources. Achieving self-sufficiency in semiconductor manufacturing enables greater control over technological advancements and mitigates potential risks.
India-US iCET Initiative
- Announcement: The India-US Initiative on Critical and Emerging Technologies (iCET) was announced during the Quad summit held in Tokyo in 2022. It reflects the shared commitment of India and the United States to enhance cooperation in critical and emerging technologies.
- Areas of Cooperation: The iCET initiative focuses on fostering collaboration between India and the United States in various domains, including semiconductor technology, resilient supply chains, cybersecurity, artificial intelligence, and other critical and emerging technologies.
- Bilateral Engagement: The iCET initiative involves regular bilateral engagements between India and the United States to discuss and advance cooperation in the identified areas. High-level officials, including National Security Advisers and counterparts from relevant ministries, participate in these discussions.
- Semiconductor Collaboration: Within the iCET framework, India and the United States have expressed a commitment to collaborate in the development of a semiconductor design, manufacturing, and fabrication ecosystem in India. The aim is to enhance India’s capabilities in the semiconductor sector and promote the growth of a skilled workforce.
- Skill Development and Workforce: The iCET initiative also emphasizes the importance of skill development and workforce training in critical and emerging technologies. India and the United States seek to promote the development of a skilled talent pool capable of driving innovation and contributing to the growth of these sectors.
US-China rivalry in the context of semiconductor chips
- Technological Leadership: Both the US and China recognize the strategic importance of semiconductor chips in driving innovation and economic growth. The United States has long been a leader in semiconductor design and manufacturing, while China has made significant efforts to catch up and become more self-sufficient in chip production.
- Intellectual Property Concerns: Intellectual property theft and forced technology transfer have been areas of concern in the US-China rivalry regarding semiconductor chips. The US accuses China of engaging in unfair practices to acquire advanced chip technologies and intellectual property, undermining the competitiveness of American semiconductor companies.
- Trade Tensions: The US-China trade tensions have had a significant impact on the semiconductor industry. The US government-imposed restrictions on Chinese technology companies like Huawei, limiting their access to American-made chips and semiconductor equipment. This has had implications for China’s domestic chip manufacturing capabilities.
- Export Controls: The United States has tightened export controls on semiconductor-related technologies to prevent their transfer to China, citing national security concerns. These controls have restricted Chinese access to advanced chip-making equipment and technologies, impacting China’s ability to develop its semiconductor industry.
- Self-Sufficiency Goals: Both the US and China have set goals to enhance their self-sufficiency in semiconductor chips. The US has aimed to bolster domestic chip manufacturing capabilities, reduce reliance on foreign suppliers, and secure its supply chain. China’s Made in China 2025 plan emphasizes developing indigenous semiconductor technologies to become a global leader in chip production.
- Geopolitical Implications: The semiconductor industry’s geopolitical implications are significant. Control over chip technologies and supply chains can provide a country with economic advantages, technological superiority, and potential leverage in trade disputes or geopolitical conflicts. The US and China view the semiconductor industry as crucial for maintaining their global influence and national security.
India’s Semiconductor Challenge
- Lack of Domestic Manufacturing: India has limited domestic semiconductor manufacturing capabilities. The country heavily relies on imports to meet its demand for semiconductors, which poses challenges in terms of supply chain vulnerabilities, dependence on foreign suppliers, and potential risks to national security.
- Absence of Chip Ecosystem: Building a complete chip ecosystem involves not only semiconductor manufacturing but also the development of ancillary industries, specialized infrastructure, and a skilled workforce. India currently lacks a comprehensive chip ecosystem, which is crucial for attracting investments and fostering innovation in the semiconductor industry.
- Power and Water Supply: Semiconductor manufacturing requires uninterrupted and uninterruptible power supply, as well as a steady and ample supply of pure water. India faces challenges in providing 24×7 power and water supply, which are critical infrastructure requirements for establishing semiconductor fabrication plants (fabs).
- Skill Gap: Developing a skilled workforce for the semiconductor industry is essential but poses a challenge in India. The complex nature of chip manufacturing requires specialized expertise, and India needs to bridge the skill gap by investing in training programs, educational institutions, and research and development initiatives.
- Investment and Collaboration: Attracting major international chip makers to establish fabrication plants in India has proven to be challenging. While the government has allocated funds for the semiconductor industry and incentivized investments, India needs to enhance its value proposition to attract big players and forge international collaborations.
- Regulatory Framework: Creating a favorable regulatory environment, including policies, intellectual property rights protection, and ease of doing business, is crucial for the growth of the semiconductor industry. India needs to address regulatory challenges and provide a supportive framework to encourage investments and foster innovation.
- Free Trade Agreements: India’s reluctance to enter into free trade agreements, such as with Taiwan, has hindered its efforts to attract major chip manufacturers. Such agreements can provide advantages in terms of technology transfer, market access, and attracting investments from established players
Way ahead
- Strengthen Domestic Manufacturing: India should continue to invest in semiconductor fabrication plants (fabs) and create a conducive environment for both domestic and foreign companies to establish semiconductor manufacturing facilities. This requires robust infrastructure, reliable power supply, access to advanced equipment, and a favorable regulatory framework.
- Skill Development and Research: The focus on skill development should continue, with emphasis on nurturing a skilled workforce specialized in chip design, manufacturing, and fabrication. Collaborations between industry and academia can play a crucial role in promoting research and development, knowledge sharing, and fostering innovation in the semiconductor field.
- Strategic Partnerships: India should actively pursue strategic partnerships and collaborations with global semiconductor companies, industry associations, and research institutions. These partnerships can facilitate technology transfer, access to advanced manufacturing processes, and market opportunities. Government incentives and support can further encourage international players to invest in India’s semiconductor ecosystem.
- Enable Ancillary Industries: To create a comprehensive chip ecosystem, India needs to develop ancillary industries that support the semiconductor sector. This includes nurturing electronics manufacturing capabilities, promoting indigenous demand for chips, and fostering a supportive environment for related industries, such as packaging, testing, and materials.
- Policy Reforms: The Indian government should continue to focus on policy reforms that promote a favorable business environment for the semiconductor industry. This includes streamlining regulatory processes, protecting intellectual property rights, improving ease of doing business, and providing incentives for research, development, and investment in the semiconductor sector.
- International Collaborations: Strengthening collaborations within the Quad framework, particularly with the United States, Japan, and Australia, can provide access to expertise, technology, and market opportunities. Engaging with other semiconductor-rich countries, such as Taiwan, South Korea, and Israel, can also open avenues for knowledge sharing, partnerships, and technology transfer.
Conclusion
- The US-India technology partnership, with a focus on diversifying the semiconductor supply chain, holds immense potential for India’s growth in the industry. While India faces challenges in establishing a robust chip ecosystem, investments from companies like Micron Technology, along with collaborative initiatives, can pave the way for a more self-reliant and technologically advanced India. By positioning itself in the global chip war, India has embarked on a journey that promises to shape its technological landscape and strengthen its ties with the United States.
Also read:
Note4Students
From UPSC perspective, the following things are important:
Prelims level: PLI scheme
Mains level: Read the attached story
Central idea
- The Indian government has given ₹1,645 crore in PLI incentives to electronics manufacturers to bring more of the supply chain to India.
- There is a growing need for semiconductors as they are used in almost all modern electronics.
- Many countries are moving away from China’s dominance in the sector due to supply chain vulnerabilities and geopolitical pressures.
Semiconductor manufacturing in India
- Invest India agency estimates electronics manufacturing to be worth $300 billion by 2025-26.
- While finished product facilities have been growing, fabs for chipsets and displays are rarer.
- Ministry of Electronics and Information Technology is set to announce the first semiconductor manufacturing fab soon.
- Semiconductor Industry Association (SIA) suggests India to leverage its strength in the electronics manufacturing value chain.
- Foundry companies require high investments while OSAT generate better margins.
- Outsourced Semiconductor Assembly and Test (OSAT) set-ups take care of less capital-intensive parts of chipmaking and run specialized tests.
- Many chip facilities tend to be captive units of large companies.
Importance of semiconductor manufacturing
- Semiconductor fabrication units turn raw elements like silicon into integrated circuits used in practically all electronic hardware.
- Fabs are highly capital-intensive undertakings costing billions of dollars for large facilities.
- Fabs require a highly reliable and high-quality supply of water, electricity, and insulation from the elements, reflecting the high degree of precision, cost, and capital needed to make sophisticated circuits.
- Countries have spotted strategic value in cornering segments of the value chain for fabs.
- China has pulled ahead of Taiwan last year in terms of global sales from fabs.
- The US passed the CHIPS Act to provide subsidies and investments to manufacturers opening fabs and making semiconductors in the US.
- US also pushed some restrictions and sanctions on the Chinese semiconductor industry.
India’s advantages in semiconductor manufacturing
- India has an advantage in semiconductor manufacturing as a large portion of semiconductor design engineers globally are either Indian or Indian-origin.
- Chipmaking firms such as Intel and NVIDIA have large facilities in India that are already flush with Indian talent working on design problems.
- China is losing control over this advantage in the face of sanctions and an ageing population.
- Experts believes that without a sustainable pipeline of high calibre talent, China’s goals for the semiconductor sector will not be achievable.
Various challenges
- Huge Investments involved: Semiconductor Fabrication facility requires many expensive devices to function. Complex tools and equipment are required to test quality and move silicon from location to location within the ultra-clean confines of the plant.
- Economy of scale: In semiconductor fabrication, a high volume of production is required to be maintain so as to meet the increasing demand of the marketplace, at the same time, a strong financial backing as Indian market is very much uncertain about financial fluctuations.
- Requirement highly skilled labour: Semiconductor fabrication is a multiple-step sequence of photolithographic and chemical processing steps during which electronic circuits are gradually created on a wafer made of pure semiconducting material. This actually requires high skills.
- Scarcity of raw materials: From a value-chain perspective, it needs silicon, Germanium & Gallium arsenide and Silicon carbide which are not available in India and needs to be imported.
- Uncertain Indian market: A semiconductor fabrication facility in India cannot independently rely on Indian customers for their entire sales structure. They have to maintain overseas customer base to balance inflections from Indian market due to market trends, government policies etc.
- Disposal of hazardous waste: Many toxic materials are used in the fabrication process such as arsenic, antimony, and phosphorus. Hazardous impact on the environment by the industry may act as an impediment to India’s commitment to mitigate climate change.
Policy initiatives in India
- Make in India:This aims to transform India into a global hub for Electronic System Design and Manufacturing (ESDM).
- PLI scheme:In December 2021 the Centre sanctioned ₹76,000 crore under the production-linked incentive (PLI) scheme to encourage the manufacturing of various semiconductor goods within India.
- DLI scheme:It offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
- Digital RISC-V (DIR-V) program: It intends to enable the production of microprocessors in India in the upcoming days achieving industry-grade silicon and design wins by December 2023.
- India Semiconductor Mission (ISM):The vision is to build a vibrant semiconductor and display design and innovation ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design
Way forward
To ensure greater resilience in a volatile world, India needs to undertake the following measures to sustain the domestic and global semiconductor demand:
- Policy framework: As foundry setup is highly Capital intensive, it must be supported with a solid long term plan and financial backing. This backing is required from the entrepreneur & the government both.
- Fiscal sustenance: In text of Indian Government as tax holiday, subsidy, zero duty, financial investment etc. will play an important role in promoting the Fab along with the semiconductor industry in India; this will put further pressure on already large Fiscal Deficit.
- Support Infrastructure: World class, sustainable infrastructure, as required by a modern Fab be provided, with swift transportation, large quantity of pure water, uninterrupted electricity, communication, pollutant free environment etc.
Conclusion
- India’s electronic manufacturing incentive programs are geared towards breaking new ground in ambitious plans connected to popular brands such as Apple.
- The Indian government is working to create an ecosystem that will facilitate sustainable growth and fiscal feasibility in the semiconductor industry.
- The electronics value chain must be an international undertaking among like-minded nations with common values to be effective.
Note4Students
From UPSC perspective, the following things are important:
Prelims level: Programme for Development of Semiconductors and Display Manufacturing Ecosystem
Mains level: Read the attached story
The Union Cabinet has approved a uniform incentive of 50% of the project cost for setting up semiconductor, display and compound semiconductor fabrication units.
Why in news?
- Maharashtra is witnessing a political firestorm.
- The Vedanta Limited shifted its decision to set up a $20 billion Vedanta-Foxconn semiconductor manufacturing facility in neighbouring Gujarat, despite finalising its location near Pune (Mh).
- Foxconn is a major chip supplier to Apple. It has suspended its operations in the Chinese tech hub of Shenzhen and is now shifting to India.
- Bigger companies, such as Intel, TSMC, Samsung, etc., have announced such plans.
Spats between states over the location of critical industries display the grim picture of competitive bidding in India. This portrays India’s negative image as against ease of doing business.
About the Incentive Scheme
- The scheme has been named the “Programme for Development of Semiconductors and Display Manufacturing Ecosystem.”
- Previously, the three schemes had an incentive range of 30-50%.
- While incentives for setting up semiconductor fabrication were based on the size of the chip, for display fabrication and compound semiconductor fabs, the incentives were largely 30% of the total cost of the project.
- This scheme aims to project India’s position as global hub for electronics manufacturing with semiconductors as the foundational building block.
Why need such an incentive?
- Huge Investments involved: Semiconductor Fabrication facility requires many expensive devices to function. Complex tools and equipment are required to test quality and move silicon from location to location within the ultra-clean confines of the plant.
- Economy of scale: In semiconductor fabrication, a high volume production is required to be maintain so as to meet the increasing demand of the marketplace, at the same time, a strong financial backing as Indian market is very much uncertain about financial fluctuations.
- Requirement highly skilled labour: Semiconductor fabrication is a multiple-step sequence of photolithographic and chemical processing steps during which electronic circuits are gradually created on a wafer made of pure semiconducting material. This actually requires high skills.
- Scarcity of raw materials: From a value-chain perspective, it needs silicon, Germanium & Gallium arsenide and Silicon carbide which are not available in India and needs to be imported.
- Uncertain Indian market: A semiconductor fabrication facility in India cannot independently rely on Indian customers for their entire sales structure. They have to maintain overseas customer base to balance inflections from Indian market due to market trends, government policies etc.
- Disposal of hazardous waste: Many toxic materials are used in the fabrication process such as arsenic, antimony, and phosphorus. Hazardous impact on the environment by the industry may act as an impediment to India’s commitment to mitigate climate change.
Other supportive initiatives in India
- India Semiconductor Mission (ISM): It was announced with the aim to attract large-scale investments for manufacturing facilities in the midst of a global chip crisis.
- Make in India: This aims to transform India into a global hub for Electronic System Design and Manufacturing (ESDM).
- PLI scheme: In December 2021 the Centre sanctioned ₹76,000 crore under the production-linked incentive (PLI) scheme to encourage the manufacturing of various semiconductor goods within India.
- DLI scheme: It offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
- Digital RISC-V (DIR-V) program: It intends to enable the production of microprocessors in India in the upcoming days achieving industry-grade silicon and design wins by December 2023.
- India Semiconductor Mission (ISM): The vision is to build a vibrant semiconductor and display design and innovation ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design
Way forward
- Policy framework: As foundry setup is highly Capital intensive, it must be supported with a solid long term plan and financial backing. This backing is required from the entrepreneur & the government both.
- Fiscal sustenance: In text of Indian Government as tax holiday, subsidy, zero duty, financial investment etc. will play an important role in promoting the Fab along with the semiconductor industry in India; this will put further pressure on already large Fiscal Deficit.
- Support Infrastructure: World class, sustainable infrastructure, as required by a modern Fab be provided, with swift transportation, large quantity of pure water, uninterrupted electricity, communication, pollutant free environment etc.
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Note4Students
From UPSC perspective, the following things are important:
Prelims level: PLI scheme
Mains level: sectors of economy
Context
- Manufacturing can create higher productivity jobs.
What is service sector?
- The service sector, also known as the tertiary sector, is the third tier in the three-sector economy. Instead of product production, this sector produces services maintenance and repairs, training, or consulting. Examples of service sector jobs include housekeeping, tours, nursing, and teaching.
What is called manufacturing sector?
- Manufacturing is the making of goods by hand or by machine that upon completion the business sells to a customer. Items used in manufacture may be raw materials or component parts of a larger product. The manufacturing usually happens on a large-scale production line of machinery and skilled labor.
Should India focus on manufacturing over services?
- Services sector failed to create more jobs: So far, in services, we have certainly developed some advantage and we are doing rather well. Services’ share of the economy has gone up to over 50% of the GDP. However, this sector has not been able to create enough jobs in a commensurate manner. The result is that agriculture still continues to sustain nearly half of India’s workforce, which means that 15% of GDP is supporting some 45% of the workforce.
- Manufacturing can provide productive jobs: We need more productive job opportunities for the workforce to shift away from agriculture. We need to focus attention on the manufacturing sector because of the direct and indirect jobs that it can create.
- Empirical fact: It is an empirical fact that manufacturing of all productive sectors has the highest backward and forward linkages.
- Significant potential: So, all together, there is significant potential for the manufacturing sector to create higher productivity jobs for people stuck in agricultural activities. That is the future for India.
What is PLI Scheme?
- As the name suggests, the scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.
- PLI scheme offers incentives on incremental sales for products manufactured in India.
- The scheme for respective sectors has to be implemented by the concerned ministries and departments.
Criteria laid for the scheme
- Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme.
- For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
- The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
- Under food processing, SMEs and others must hold over 50 per cent of the stock of their subsidiaries, if any.
- On the other hand, for businesses under pharmaceuticals, the project has to be a green-field project while the net worth of the company should not be less than 30 per cent of the total committed investment.
What are the incentives offered?
- An incentive of 4-6 per cent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc.
- Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry.
- For white goods too, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.
Benefits of PLI
- The scheme has a direct employment generation potential of over 2,00,000 jobs over 5 years.
- It would lead to large scale electronics manufacturing in the country and open tremendous employment opportunities. Indirect employment will be about 3 times of direct employment as per industry estimates.
- Thus, the total employment potential of the scheme is approximately 8,00,000.
Conclusion
- In order to integrate India as a pivotal part of this modern economy, there is a strong need to step up our manufacturing capabilities.
Mains question
Q.Should India focus on manufacturing over services for job creation? Discuss the role Production Linked Incentive Scheme could play in boosting manufacturing in India.
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Note4Students
From UPSC perspective, the following things are important:
Prelims level: DLI scheme
Mains level: Electronic manufacturing in India
India has invited applications from 100 domestic companies, startups, and small and medium enterprises to become a part of the design-linked incentive (DLI) scheme.
What is the DLI scheme?
- Aims to provide financial and infrastructural support to companies setting up fabs or semiconductor making plants in India.
- It aims to attract existing and global players as it will support their expenditures related to design software, IP rights, development, testing, and deployment.
- Centre for Development of Advanced Computing (CDAC), a scientific society operating under MeitY, will serve as the nodal agency for the implementation of the DLI scheme.
Components of the scheme
It has three components which are
- Chip Design infrastructure support: C-DAC will set up the India Chip Centre to host the state-of-the-art design infrastructure (viz. EDA Tools, IP Cores, and support for MPW (Multi Project Wafer fabrication) & post-silicon validation) and facilitate its access to supported companies.
- Product Design Linked Incentive: Reimbursement of up to 50% of the eligible expenditure subject to a ceiling of Rs. 15 Crore per application will be provided as financial support to the approved applicants who are engaged in semiconductor design.
- Deployment Linked Incentive: An incentive of 6% to 4% of net sales turnover over 5 years subject to a ceiling of Rs. 30 Crore per application will be provided to approved applicants whose semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design are deployed in electronic products.
Why need such a scheme?
Ans. Growing semiconductor demand in India
- The semiconductor industry is growing fast and can reach $1 trillion dollars in this decade. India can grow fast and reach $64 billion by 2026 from $27 billion today.
- Mobiles, wearables, IT, and industrial components are the leading segments in the Indian semiconductor industry contributing around 80% of the revenues in 2021.
- The mobile and wearables segment is valued at $13.8 billion and is expected to reach $31.5 billion in 2026.
A boost to semiconductor manufacturing
- The sudden surge in demand for chips and semiconductor components has underpinned the need to establish a robust semiconductor ecosystem in India.
- Several sectors, including auto, telecom, and medical technology suffered due to the unexpected surge leading to the scarcity of chips manufactured by only a few countries.
- The inception of new companies will help in meeting the demand and supply and encourage innovation in India.
What are other countries doing to be dominant in the race of chip-making?
- Currently, semiconductor manufacturing is dominated by companies in the U.S., Japan, South Korea, Taiwan, Israel, and the Netherlands.
- They are also making efforts in solving the chip shortage problem.
- The US wants to bring manufacturing back to America and reduce the country’s reliance on a small number of chipmakers based largely in Taiwan and South Korea.
- These chipmakers produce up to 70% of the world’s semiconductors.
Challenges in India
- No incubation: In India, more than 90% of global companies already have their R&D and design centers for semiconductors but never established their fabrication units.
- Strategic sector: Although India has semiconductor fabs in Mohali and Bangalore, they are purely strategic for defense and space applications only
- Capital requirement: Setting up fabs is capital intensive and needs investment in the range of $5 billion to $10 billion.
- Lack of supportive policies: Lack of investments and supportive government policies are some of the challenges to setting up fabs in India.
- Geopolitical limitations: A combination of capital and the geopolitical situation comes into play to build new fabs.
Way forward
- Further incentivization: Schemes like the DLI are crucial to avoid high dependencies on a few countries or companies.
- Raw material supply: Several gases and minerals which are a part of the global semiconductor supply chain are produced in India.
- Large talent pool: Availability of highly-skilled engineers for semiconductor manufacturing.
Conclusion
- The 21st century will be an era of Digital revolution signifying an increased use of mobile phones and computer devices. This enhanced usage can be met only with a robust availability of semiconductor chips that sustains their functioning. Therefore India needs to focus on the indigenous development of semiconductors in order to realize its digital potential and emerge as a strong power in the present era.
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Note4Students
From UPSC perspective, the following things are important:
Prelims level: Read the attached story
Mains level: Semiconductor industry in India
The Union Cabinet has approved a ₹76,000 crore scheme to boost semiconductor and display manufacturing in the country.
About the Program
- The scheme would provide financial support of up to 50% of the project cost for setting up semiconductor and display fabrication units.
- The scheme was aimed at making India a global hub of electronic system design and manufacturing, the statement noted.
- In addition, the Centre would work with the States to set up high-tech clusters with the necessary infrastructure such as land and semiconductor-grade water.
Components of the mission
[1] Semiconductor Fabs and Display Fabs
- This shall extend fiscal support of up to 50% of project cost to eligible applicants.
- The govt will work closely with the states establish High-Tech Clusters with requisite infrastructure in terms of land, semiconductor grade water, high quality power, logistics and research.
[2] Semi-conductor Laboratory (SCL):
- The Ministry of Electronics and Information Technology will take requisite steps for the modernization and commercialization of the Semi-conductor Laboratory (SCL).
- MeitY will explore the possibility for the Joint Venture of SCL with a commercial fab partner to modernize the brownfield fab facility.
[3] Semiconductor Design Companies:
- The Design Linked Incentive (DLI) Scheme shall extend product design linked incentive of up to 50% of eligible expenditure and product deployment linked incentive of 6% – 4% on net sales for five years.
- Support will be provided to 100 domestic companies of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores.
[4] India Semiconductor Mission:
- In order to drive the long-term strategies for developing sustainable semiconductors and display ecosystem, a specialized and independent ISM will be set up.
- The ISM will be led by global experts in the semiconductor and display industry.
- It will act as the nodal agency for efficient and smooth implementation of the schemes on Semiconductors and Display ecosystem.
[5] Chips to start-ups Program
- This program would develop 85,000 well-trained engineers, he claimed. Semiconductor designers would be given the opportunity to launch start-ups.
- The government would bear 50% of the expense under the design-linked incentive scheme.
- The entire programme would lead to 35,000 high-quality direct jobs and 1 lakh indirect employment.
Significance of the scheme
- In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure.
- The approved program will propel innovation and build domestic capacities to ensure the digital sovereignty of India.
- It will also create highly skilled employment opportunities to harness the demographic dividend of the country.
- Development of semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy with deeper integration to the global value chain.
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Note4Students
From UPSC perspective, the following things are important:
Prelims level: Not much
Mains level: Paper 3- Semiconductor chip manufacturing in India
Context
India is aiming to manufacture silicon semiconductor chips.
Efforts to set up chip fabrication plant
- India has intensified efforts to set up a semiconductor fabrication plant with the help of Taiwan, the market leader.
- For this the government is investing over $7.5 billion.
- The Tata Group is in talks with three States — Tamil Nadu, Telangana and Karnataka — to invest over $300 million to set up a semiconductor manufacturing facility.
- In 2014, NASSCOM wanted to promote a National Technology Corridor along coastal A.P. stretching through the Visakhapatnam, Rajahmundry and Vijayawada region.
- Given the abundance of water, sand (raw material for making silicon ingots), road, rail, ports and airport connectivity, the industry body wanted to push and promote the design and manufacturing of electronic chips.
Challenges
- IP and design: While welcoming such moves by the government and technology experts, local players in the segment say that chip making itself will not be enough.
- Other aspects such as designing and Intellectual Property are required to make a mark.
- Designing is what brings value to the chips.
- If the Intellectual Property lies with the foreign entity, we end up manufacturing the basic material which does not serve the purpose.
- Need to promote SoCs: Rather, we need an ecosystem to promote SoCs (System on a Chip) which makes more sense.”
- There are several firms in India which are now making SoCs, which is a good sign.
- Connect related industries: The bigger challenge and immediate need for the Indian government is to connect related industries in India to create the ecosystem, industry players say.
Consider the question “What are the challenges India may face as it aims to manufacture silicon semiconductor chips?”
Conclusion
The initiative is an uphill task as many factors need to come together for India to make a mark in the niche chip making and designing industry. Also, upcoming firms should be able to sustain themselves in the market when subsidies from the government are withdrawn.
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Note4Students
From UPSC perspective, the following things are important:
Prelims level: Semiconductor, Rare earth elements
Mains level: Semiconductor industry
Chips or processors power every possible product on the market from high-end cars to washing machines. There is a worldwide shortage of semiconductor chips.
What are Semiconductors?
- A semiconductor sits between a conductor and an insulator and is commonly used in the development of electronic chips, computing components, and devices.
- It’s generally created using silicon, germanium, or other pure elements.
- Semiconductors are created by adding impurities to the element.
Giants of global chip industry
- Semiconductor manufacturing is now dominated by Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan and Samsung Electronics in South Korea.
- American chipmaker Intel now plans to spend $20 billion to build two new chip factories in Chandler, Arizona.
- These new fabs will also manufacture chips designed by Amazon, Qualcomm, and other customers.
Why is there a semiconductor shortage?
- During the pandemic, manufacturing came to a standstill impacting the supply chains of products that need one or more of these.
- As the automotive sector almost shut down last year, chip makers shifted capacity to cater to increased demand for electronics items such as cell phones and laptops.
- Since orders for advanced chips are placed well in advance, manufacturers have not yet been able to come back to pre-pandemic production schedules to cater to all sectors.
- The automotive chips are of medium-level complexity, compared to the really small and extremely complicated ones on smartphones and personal computers.
- Building something this small, featuring billions of transistors is an expensive process.
Has India missed the bus in setting up chip factories?
- There is a lot of risks involved in setting up a chip plant.
- Past initiatives to set up chip manufacturing units in the country never took off due to lack of long-term vision, lack of government incentives, and poor planning.
- Now the government is keen to promote manufacturing and has even proposed tax incentives under Production Linked Incentive Scheme.
- Things are progressing slowly, but the recent announcement of Tata Group entering semiconductor manufacturing is being seen positively.
How is the chip crisis playing out in geopolitics?
- The global chip crisis and geopolitical tensions with China have shifted focus back on semiconductors.
- The US, which was once a leader in chip manufacturing, wants the crown back.
- The protectionist US is looking to bring manufacturing back to America and reduce its dependency on a handful of chipmakers mostly concentrated in Taiwan and South Korea.
- China’s renewed aggression on Taiwan is also being seen in light of the chip crisis.
Impact
- The crisis is expected to cost the global automotive industry $210 billion in revenue in 2021.
- The global semiconductor shortage has affected many industries for more than a year and because of that, they are either forced to pay more for products or being asked to wait a little more.
- The consumption of integrated circuits in products is ever increasing and a large manufacturing sector for these kinds of integrated circuits are a part of the supply chain.
- The shortage has affected smartphones, personal computers, game consoles, automobiles, and medical devices.
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Note4Students
From UPSC perspective, the following things are important:
Prelims level: Chip famine
Mains level: Not Much
A shortage of inputs, especially semiconductor chips, has made India-based car manufactures and premium bike makers curtail production across categories.
Do you know?
Electronic parts and components today account for 40% of the cost of a new internal combustion engine car, up from less than 20% two decades ago.
Chip famine
- The trigger point was the beginning of the Covid-19 pandemic and the subsequent lockdowns across the world that forced shut crucial chip-making facilities in countries including Japan, South Korea, China and the US.
- A key feature in a chip shortage is that it almost always causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.
Why such famine?
- The COVID-19 pandemic caused disruptions in supply chains and logistics.
- This is coupled with a 13% increase in global demand for PCs owing to some countries’ shift to a stay-at-home economy.
- This has impacted the availability of key chips necessary for the manufacturing of a broad range of electronics being a necessary component of every industry.
What is the impact of the chip famine?
- Consumers of semiconductor chips, which are mainly car manufacturers and consumer electronics manufactures, have not been receiving enough of this crucial input to continue production.
- There were two reasons for this: a steady decline in input prices and improvements in the processing power of chips.
- The number of transistors mounted in IC circuit chips has doubled every two years.
- Notably, the increase in chip consumption over the last decade is also partly attributable to the rising contribution of electronic components in a car’s bill of materials.
How have vehicle makers responded?
- Supply constraints are learned to have caused some output issues at notable Indian auto firms.
- In addition to delaying vehicle deliveries, some companies have reportedly started discarding features and high-end electronic capabilities on a temporary basis.
Note4Students
From UPSC perspective, the following things are important:
Prelims level: PMP and PLI Scheme
Mains level: Paper 3- Issues with Phased Manufacturing Policy
The Production Linked Incentive Scheme, though ambitious in its goal suffers from several fundamental issues. The article discuses such issues.
Background of the Phased Manufacturing Policy
- The Phased Manufacturing Programme (PMP) incentivised the manufacture of low value accessories initially, and then moved on to the manufacture of higher value components.
- This was done by increasing the basic customs duty on the imports of these accessories or components.
- The PMP was implemented with an aim to improve value addition in the country.
- Recently, 16 firms in the mobile manufacturing sector were approved for the Production Linked Incentive (PLI) scheme to transform India into a major mobile manufacturing hub.
- The PLI comes on the back of a phased manufacturing programme (PMP) that began in 2016-17.
Issues to consider
1) More imports and less value addition in India
- Firms such as Apple, Xiaomi, Oppo, and OnePlus have invested in India, but mostly through their contract manufacturers.
- As a result, production increased from $13.4 billion in 2016-17 to $31.7 billion in 2019-20.
- But factory-level production data from the Annual Survey of Industries (ASI) shows that more than 85% of the inputs were imported.
- UN data for India, China, Vietnam, Korea and Singapore (2017-2019), show that except for India, all countries exported more mobile phone parts than imports.
- More export than import by these countries indicate the presence of facilities that add value to these parts before exporting them.
- India, on the other hand, imported more than it exported.
- Therefore, while the PMP policy increased the value of domestic production, improvement in local value addition remains low.
- The new PLI policy offers an incentive subject to thresholds of incremental investment and sales of manufactured goods.
- Thus, focus remains on increasing value of domestic production, and not local value addition.
2) Shift from China unlikely
- India produced around 29 crore units of mobile phones for the year 2018-19; 94% of these were sold in the domestic market.
- This implies that much of the incremental production and sales under the PLI policy will have to be for the export market.
- Recently, a study by Ernst & Young showed that if the cost of production of a mobile phone is say 100 (without subsidies), then the effective cost (with subsidies and other benefits) of manufacturing mobile phone in China is 79.55, Vietnam, 89.05, and India (including PLI), 92.51.
- So, it may be premature to expect a major chunk of mobile manufacturing to shift from China to India.
3) PLI doesn’t strengthen the current export competitiveness
- India’s mobile phone exports grew from $1.6 billion in 2018-19 to $3.8 billion in 2019-20, but per unit value declined from $91.1 to $87, respectively.
- This shows that our export competitiveness seems to be in mobiles with lower selling price.
- However, for foreign firms chosen under the PLI policy, the incentive will be at and above ₹15,000 ($204.65).
- So, it is clear that the PLI policy does not strengthen our current export competitiveness in mobile phones.
4) Absence of domestic firms
- Domestic firms have been nearly wiped out from the Indian market.
- So, their ability to take advantage of the PLI policy and grab a sizeable domestic market share seems difficult.
- Domestic firms may have the route of exporting cheaper mobile phones to other low-income countries.
- However, their performance in the last couple of years has not been promising.
5) Importance of supply chain colocation
- The six component firms that have been given approval under the ‘specified electronic components segment’do not complete the mobile manufacturing ecosystem.
- For example, when Samsung set up shop in Vietnam, it relied heavily on its Korean suppliers which co-located with it to produce intermediate inputs, so much so that 63 among Samsung’s 67 suppliers then were foreign.
- Though Samsung is invested hugely in India, it has not colocated its supply chain in the country.
- So, the foreign firms chosen under the PLI policy should be encouraged to colocate their supply ecosystems in the country.
6) Complaint at WTO against PMP
- In September 2019, Chinese Taipei contested the raise in tariffs under the PMP.
- If the PMP is found to be World Trade Organization (WTO) non-compliant, then we may be flooded with imports of mobile phones.
- This might make the local assembly of mobile phones unattractive.
- This will affect the operations of the mobile investments done under the PMP.
Conclusion
The PMP policy, since 2016-17 has barely been helpful in raising domestic value addition in the industry even though value of production expanded considerably.
B2BASICS
Note4Students
From UPSC perspective, the following things are important:
Prelims level: Production Linked Incentive Scheme (PLI)
Mains level: Electronic manufacturing promotion under Make in India
Global electronics giants are set to expand their presence in India under the Production Linked Incentive (PLI) Scheme for making mobile phones and certain other specified electronic components.
Try this question for mains:
Q. What is the Production Linked Incentive (PLI) Scheme? Describe its various features and benefits.
What is the PLI scheme?
- As a part of the National Policy on Electronics, the IT ministry had notified the PLI scheme on April 1 this year.
- The scheme will, on one hand, attract big foreign investment in the sector, while also encouraging domestic mobile phone makers to expand their units and presence in India.
- It would give incentives of 4-6 per cent to electronics companies which manufacture mobile phones and other electronic components.
- A/c to the scheme, companies that make mobile phones which sell for Rs 15,000 or more will get an incentive of up to 6 per cent on incremental sales of all such mobile phones made in India.
- In the same category, companies which are owned by Indian nationals and make such mobile phones, the incentive has been kept at Rs 200 crore for the next four years.
Tenure of the scheme
- The PLI scheme will be active for five years with financial year (FY) 2019-20 considered as the base year for calculation of incentives.
- This means that all investments and incremental sales registered after FY20 shall be taken into account while computing the incentive to be given to each company.
Which companies and what kind of investments will be considered?
- All electronic manufacturing companies which are either Indian or have a registered unit in India will be eligible to apply for the scheme.
- These companies can either create a new unit or seek incentives for their existing units from one or more locations in India.
- Any additional expenditure incurred on the plant, machinery, equipment, research and development and transfer of technology for the manufacture of mobile phones and related electronic items will be eligible for the incentive.
- However, all investment done by companies on land and buildings for the project will not be considered for any incentives or determine the eligibility of the scheme.
Note4Students
From UPSC perspective, the following things are important:
Prelims level: SPECS
Mains level: Not Much
The Union Cabinet has approved Scheme for Promotion of manufacturing of Electronic Components and Semiconductors.
About SPECS
- The scheme aims to offer the financial incentive of 25% of capital expenditure for the manufacturing of goods that constitute the supply chain of electronic products.
- The scheme will help offset the disability for domestic manufacturing of electronic components and semiconductors in order to strengthen the electronic manufacturing ecosystem in the country.
Benefits
The proposal, when implemented, will lead to the development of electronic components manufacturing ecosystem in the country. Following are the expected outputs/outcomes in terms of measurable indicators for the scheme:
- Development of electronic components manufacturing ecosystem in the country and deepening of Electronics value chain
- New investments in Electronics Sector to the tune of at least Rs. 20,000 crore
- Total employment potential of the scheme is approximately 6,00,000
- Reducing dependence on import of components by large scale domestic manufacturing that will also enhance the digital security of the nation
Note4Students
From UPSC perspective, the following things are important:
Prelims level: Production Incentive Scheme (PLI)
Mains level: Various schemes for Industrial promotion
The Union Cabinet has approved the Production Incentive Scheme (PLI) for Large Scale Electronics Manufacturing.
Production Incentive Scheme (PLI)
- The scheme proposes production linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units.
- The scheme shall extend an incentive of 4% to 6% on incremental sales (over a base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five (5) years subsequent to the base year as defined.
- The proposed scheme is likely to benefit 5-6 major global players and few domestic champions, in the field of mobile manufacturing and Specified Electronics Components and bring in large scale electronics manufacturing in India.
Benefits
- The scheme has a direct employment generation potential of over 2,00,000 jobs over 5 years.
- It would lead to large scale electronics manufacturing in the country and open tremendous employment opportunities. Indirect employment will be about 3 times of direct employment as per industry estimates.
- Thus, the total employment potential of the scheme is approximately 8,00,000.
Note4Students
From UPSC perspective, the following things are important:
Prelims level: EMC 2.0 Scheme
Mains level: Not Much
The Union Cabinet has approved financial assistance to the Modified Electronics Manufacturing Clusters (EMC2.0) Scheme
Background
- To build and create requisite infrastructure ecosystem for electronics manufacturing; Ministry of Electronics and Information Technology notified Electronics Manufacturing Clusters (EMC) Scheme which was open for receipt of applications upto October, 2017.
- A period of 5 years is available for disbursement of funds for the approved projects.
- There was a need for continuation of such scheme in modified form for further strengthening the infrastructure base for electronics industry in the country and deepening the electronics value chain.
EMC 2.0 Scheme
- The Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme would support setting up of both Electronics Manufacturing Clusters (EMCs) and Common Facility Centers (CFCs).
- For the purpose of this Scheme an EMC would set up in geographical areas of certain minimum extent, preferably contiguous, where the focus is on development of basic infrastructure, amenities and other common facilities for the ESDM units.
- For Common Facility Centre (CFC) there should be a significant number of existing ESDM units located in the area and the focus is on upgrading common technical infrastructure and providing common facilities for the ESDM units in such EMCs, Industrial Areas/Parks/industrial corridors.
Aims and objectives
- The scheme aims for development of world class infrastructure along with common facilities and amenities through Electronics Manufacturing Clusters (EMCs).
- It is expected that these EMCs would aid the growth of the ESDM sector, help development of entrepreneurial ecosystem, drive innovation and catalyze the economic growth of the region by attracting investments in the sector, increasing employment opportunities and tax revenues.
Benefits
The Scheme will create a robust infrastructure base for electronic industry to attract flow of investment in ESDM sector and lead to greater employment opportunities. Following are the expected outputs/outcomes for the Scheme:
- Availability of ready infrastructure and Plug & Play facility for attracting investment in the electronics sector:
- New investment in electronics sector
- Jobs created by the manufacturing units;
- Revenue in the form of taxes paid by the manufacturing units
