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Mahesh

24/01/24 07:44 AM IST

The need to overhaul a semiconductor scheme

In News
  • An overhauled Semiconductor Design-Linked Incentive scheme would fortify India’s comparative advantage and augment its forays into other stages of the semiconductor global value chain.
India's semi-conductor market
  • India’s $10 billion Semicon India Program has had mixed results, at best.
  • There are three goals of India’s semiconductor strategy.
  • The first is to reduce dependence on semiconductor imports, particularly from China, and especially in strategic and emerging sectors, ranging from defence applications to Artificial Intelligence development.
  • The second is to build supply chain resilience by integrating into the semiconductor global value chain (GVC).
  • The third is to double down on India’s comparative advantage: India already plays host to the design houses of every major global semiconductor industry player and Indian chip design engineers are an indispensable part of the semiconductor GVC.
  • Stimulating the design ecosystem is less capital-intensive than the foundry and assembly stages of the semiconductor GVC.
  • Bolstering this stage can help establish strong forward linkages to an up-and-coming fabrication and assembly industry in India.
Issues with the scheme
  • The DLI scheme fares well with its focus on providing access to design infrastructure, such as electronic design automation (EDA) tools, alongside financial subsidies for different steps of the chip design process.
  • But there has been lacklustre uptake of the scheme. First, the scheme mandates that beneficiary start-ups maintain their domestic status for at least three years after receiving incentives, and for this they cannot raise more than 50% of their requisite capital via foreign direct investment. This is a significant barrier.
  • Costs for semiconductor design startups are also significant. Semiconductor R&D usually only pays off in the longer term, and the funding landscape for chip start-ups in India continues to be challenging despite promising IP and business potential.
  • Such capital requirements, combined with the lack of success stories caused by the absence of a mature start-up funding ecosystem for hardware products in India, reduce the risk appetite of domestic investors.
  • The relatively modest incentives under the DLI scheme (capped at ₹15 Crore for Product DLI and ₹30 Crore for Deployment Linked Incentive, per application) would not make for a worthwhile trade-off for start-ups standing to lose out on access to crucial long-term funding.
  • It is therefore crucial to delink ownership from the development of semiconductor design and adopt more start-up-friendly investment guidelines. This would also boost their financial stability and provide them global exposure.
  • The primary aim of the DLI scheme should be to cultivate semiconductor design capabilities in India, with the understanding that home-grown IP will organically evolve as local talent fosters the creation of indigenous companies over time.
  • The scheme needs to be revised to focus on the broader objective of facilitating design capabilities for a wide array of chips within the country, so long as the entity engaging in the design development process is registered in India.
Way forward
  • A recalibrated policy focused on chip design steered by a capable institution can tolerate a certain failure rate and treat beneficiary start-ups as exploratory risk-taking vehicles to establish India’s foothold in this high-tech sector.
Source- The Hindu

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