25th January 2024 (7 Topics)

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India's Semiconductor Design-Linked Incentive Scheme for Strategic Advantage

Context: The mid-term appraisal of the Semiconductor Design-Linked Incentive (DLI) scheme prompts a reassessment to fortify India's semiconductor industry and global standing.

1. Goals of Semicon India Program:

- Reduce Semiconductor Imports: Aim to decrease reliance on semiconductor imports, particularly from China, in strategic sectors like defense and Artificial Intelligence.

- Build Supply Chain Resilience: Integrate into the semiconductor global value chain (GVC) for enhanced supply chain resilience.

- Leverage Comparative Advantage: Capitalize on India's comparative advantage, hosting design houses of major global semiconductor players and skilled chip design engineers.

2. Challenges and Priorities:

- Limited Resources: Recognizing resource constraints, industrial policy priorities should ensure maximum benefits, focusing on stimulating the less capital-intensive design ecosystem. Semiconductor R&D's long-term payoff and challenges in the hardware product start-up funding ecosystem contribute to reduced domestic investors' risk appetite.

- Lack of Scrutiny: Despite Production-Linked Incentive schemes for foundries and assembly stages receiving quick revisions, the DLI scheme's lack of results has not undergone adequate policy scrutiny.

- Uptake Challenges: Despite its focus on providing design infrastructure access and financial subsidies, the DLI scheme faces lacklustre uptake. Beneficiary start-ups face barriers, such as maintaining domestic status and limited foreign direct investment (FDI), hindering access to capital.

3. Refocusing DLI Scheme:

- Broader Design Objectives and Financial Support: Revise the DLI scheme to focus on cultivating semiconductor design capabilities within India, emphasizing India-designed chips. Enhance the scheme's financial outlay substantially to support the shift in policy and encourage the development of indigenous companies.

- Conflict of Interest: Reevaluate the role of the Centre for Development of Advanced Computing as the nodal agency, considering potential conflicts of interest as a market player in the chip design sector.

- Karnataka's Model: Consider the Semiconductor Fabless Accelerator Lab (SFAL) under the Karnataka government as a blueprint for an implementing agency, fostering partnerships and providing access to mentors and financial institutions.

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