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PLI Scheme for Semiconductors
Context:
Launched in December 2021 with an allocation of ₹76,000 crore (~US$ 10 billion), the Production Linked Incentive (PLI) scheme for semiconductors is India’s most ambitious effort to date to establish a strategic foothold in this critical industry.
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- This initiative underscores the government’s intent to boost domestic manufacturing capabilities by providing performance-linked financial incentives.
- Applied across 14 economic sectors, the semiconductor PLI scheme represents the largest investment among them, outpacing allocations for the automobile (₹25,938 crore) and advanced chemistry cell (₹18,100 crore) sectors.
- The scheme has attracted major investments and initiated five projects, marking significant progress.
Key Features of the Scheme
- The semiconductor PLI scheme aims to enhance manufacturing capabilities in semiconductor foundries, Assembly, Testing, Marking, and Packaging (ATMP)/Outsourced Semiconductor Assembly and Test (OSAT) facilities, and display fabrication plants.
- It provides fiscal support covering up to 50% of the project cost, with some states offering additional incentives.
- Projects are selected based on criteria such as investment size, revenue potential, technological capabilities, and capacity.
- Once approved, subsidies are disbursed on a pari-passu basis, where funds are deposited into a designated “No-Lien Account” (NLA) to prevent misuse.
- Disbursements are made in instalments, contingent upon the submission of progress reports and compliance with timelines.
- Beneficiaries must commit to maintaining production for at least three years post-commercial operations and ensure the project is operational within six years of approval.
Challenges and Recommendations
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- Limited Focus on Research and Development (R&D): While the scheme allocates 2.5% of its budget to R&D, this investment is insufficient given the semiconductor industry’s reliance on continuous innovation.
- Recommendations:
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- Establish clear R&D priorities, such as advanced packaging, testing technologies, and workforce development.
- Increase funding and foster partnerships with academic and research institutions.
- Create a national research hub akin to the U.S. National Semiconductor Technology Center to centralise and strengthen R&D efforts.
- Strategic Gaps in Manufacturing Focus: The scheme equally incentivises various stages of semiconductor manufacturing, despite differences in feasibility and strategic importance.
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- Recommendations:
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- Prioritise ATMP/OSAT facilities, which offer lower entry barriers and align with India’s cost advantages.
- Explore advanced packaging opportunities within ATMP/OSAT to add higher value and compete globally.
- Follow examples from South Korea and Taiwan, which transitioned to complex value chains after mastering ATMP processes.
- Capacity Constraints of the India Semiconductor Mission (ISM): The ISM, a small team of 18 members, is tasked with extensive responsibilities, including project assessments, claim verifications, monitoring, and liaising with stakeholders.
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- Recommendations:
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- Expand the ISM team to meet operational demands.
- Engage external experts for technical evaluations and compliance audits.
- Streamline responsibilities to focus on critical tasks and reduce bottlenecks.
- Absence of Time-Bound Goals and Milestones: While the PLI scheme outlines broad objectives, it lacks specific, measurable milestones to track progress.
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- Recommendations:
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- Introduce clear, time-bound, and quantitative milestones for every phase of the scheme.
- Enhance transparency and accountability through regular progress reports and public disclosures.
- Establish mechanisms to evaluate and adapt strategies based on milestone performance.
Conclusion
The PLI scheme for semiconductors represents a transformative step in positioning India as a global manufacturing hub. Addressing its current shortcomings—by strengthening R&D, refining manufacturing priorities, increasing ISM’s capacity, and incorporating measurable goals—will be critical to its success.
