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Semiconductors PLI Scheme Gets Cabinet Nod; A Better Late Than Never Move for India


On Wednesday, 15th December, the Union Cabinet approved the Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India.

“An ambitious project to establish a semiconductor and display manufacturing ecosystem has been approved. The government will spend 76,000 crore INR (About 10 billion USD) on this project over the next six years,” says Anurag Thakur, Union Information and Broadcasting Minister (1).

As per the Indian government, the project will have many benefits across a cohort of sectors and help India forge deeper integration into the global value chain.

The move is also a big push towards establishing the country as an electronic production hub worldwide.

In addition, it would also make significant distribution towards the nation’s goal to be a 5 trillion USD economy by 2025, currently at over 3 trillion USD.

The scheme will steer in a new era in electronic manufacturing by offering a competitive incentive package to companies in semiconductors, display manufacturing, and design, says the government.

“Our honorable Prime Minister Shri Narendra Modi has taken a historic decision to help develop a complete semiconductor ecosystem in the country; from the design of semiconductor chips to their fabrication, testing, and packaging,” said Ashwini Vaishnaw, Union Telecom and IT Minister (2).

According to Reuters report (3), quoting sources, companies including Tower Semiconductor from Israel, Foxconn, a contract manufacturer of Apple, and a consortium based in Singapore have already shown their interest in setting up semiconductor fabrication plants in India. Also, the Vedanta Group is keen to set up a display fabrication unit in India, added the report.

It is also worth highlighting that the cabinet decision comes when tech and automaker companies grapple with a worldwide shortage of semiconductors.

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Understanding a Semiconductor

It is a material product that is generally made up of silicon. It conducts electricity more than an insulator like glass but less than a puter conductor like aluminum or copper (that’s why the name semiconductor).

One can alter its conductivity and other properties with the introduction of impurities, called doping, to meet the specific requirements of the electronic component.

These semiconductors, also known as chips or semis, are part of almost every electronic product. It includes our computers, smartphones, gaming hardware, other appliances, and even medical equipment.

They have a range of useful properties like:

  • Showing variable resistance
  • passing current more easily in one direction
  • Reacting to heat and light
  • Signal amplification
  • Switching
  • Energy conversion

Semiconductors have four main product categories: memory chips, microprocessors, commodity integrated circuits (standard chips), and Complex SOC – systems on a chip.

Since semiconductors have widespread use in almost all industries, companies that make them and test them serve as an excellent indicator of the overall economy’s health (4, 5).

The Semiconductor Industry

According to Statista (6), semiconductor sales will reach over 552.96 billion USD worldwide with a 25.6% year-on-year growth rate.


Semiconductors are among the most critical components of any electric device, and the industry is also competitive to a great extent.

The most notable semiconductor chip manufacturers include Intel and Samsung Electronics. In 2020, Intel generated over 72.8 billion USD and Samsung over 57.7 billion USD, and it has placed them among the largest companies in the semiconductor industry in terms of revenue.

Another market report on semiconductors and electronics by Fortune Business Insights suggests that the market will grow from 452 billion USD in 2021 to 803.15 billion USD at an 8.6% CAGR (7).

The report attributes the market growth to the increasing consumption of consumer electronics worldwide.

In addition, the emergence of AI, artificial intelligence, IoT, Internet of Things, and ML, Machine Learning is offering new opportunities to develop the market. These technologies highlight the report, aid memory chips to process huge data in less time.

The increasing demand for more advanced and faster chips in industrial applications also plays a key role in driving the market growth.

Industry Structure

Companies dominating the global semiconductor industry are from the US, Taiwan, South Korea, Netherlands, and Japan. As of 2021, only three companies manufacture the most advanced semiconductors (8):

  • TSMC, Taiwan
  • Samsung, South Korea
  • Intel, United States

Other prominent names in the industry include:

semiconductor industry

The Global Chip Shortage

The global chip supply crisis started after the COVID-19 pandemic in 2020 and has intensified over the past few months.

It started with many large semiconductor factories shutting down in countries like Taiwan and South Korea. Further, the pandemic caused a surge in demand for electronic devices. It created a buzz in demand that these companies could not satisfy after they started to open up.

Today, major industries are grappling to meet the rising demand for electrical products and components.

Logistical and manufacturing constraints mean that the situation will only worsen, especially with the threat of a new omicron variant. The shortage that started in 2022 is likely to continue even in 2022. Many industries have now started to reduce their reliance on a few big factories (9).

Read Also: Evergrande Crisis: The Chinese Infrastructure Giant is Set to Collapse

The World’s Dangerous Dependency on Select Few Nations for Semiconductors

The world economy is largely dependent on a select few nations when it comes to semiconductors. Its prominence had remained under the radar until the auto industry recently suffered shortfalls in chips. Automakers including Volkswagen AG, Germany, Ford Motor Co., USA, and Toyota Motor Corp., Japan were forced to halt their production.

According to a Bloomberg report (10), European, USA, and Japanese carmakers lobbied their governments for help and agreed to accelerate their push to develop their chip industry.

One of the top leaders in the semiconductor business, Taiwan also represents a choke point in the world supply chain (under constant invasion threat by Beijing). It gives new urgency plans from Washington to Tokyo and Beijing to increase self-reliance.

semiconductor industry

The US exploited it to deny China access to its technologies. It also cut off the supply of semiconductors from TSMC and other foundries to Huawei Technologies, hobbling the advance of the biggest tech firm of China when it banned access to all USA chip technology, including design.

Moreover, the USA also negotiated with TSMC to establish a 12 billion USD chip fabrication plant in Arizona, and Samsung is following the suit with a 10 billion USD unit in Texas.

Last year, Congress also introduced the “CHIPS for America Act” to encourage the establishment of more semiconductor plants in the USA.

Meanwhile, the European Union is also aiming to bolster its “technological sovereignty” via an alliance armed with over 36 billion USD of public and private investment to raise its share of the global chip market to over 20% without a target date; it is less than 10% as of now.

According to reports, Japan is also wooing TSMC to set up its unit in Japan with over 1 billion USD earmarked for R&D investment in 2020 and another for 2021, some of which may go to the TSMC facility.

All these encouraged Taiwan to increase investment in its chip business. Of course, Taiwan is not the only player in the semiconductor supply chain.

The US still holds a dominant position, particularly in electronic software tools and chip design.

However, ASML Holding of NV, Netherlands holds a monopoly on the machines required to fabricate the best chips; whereas, Japan is a prominent supplier of chemicals, equipment, and wafers.

At the same time, TSMC is increasingly helping Taiwan build a comprehensive ecosystem, with ASE Technology Holding becoming the globe’s top chip assembler and MediaTek becoming the world’s biggest smartphone chipset vendor.

China is also channeling help to its chip industry and other key technologies with an investment of about 1.4 trillion USD by 2025. It has also been tapping Taiwan for chipmaking talent with two crucial executives at Semiconductor Manufacturing International Corp, Beijing’s top chipmaker, who used to work at TSMC.

As per the cited Bloomberg report (11), chip shortages are likely to become a regular occurrence not only because of capacity problems but also because of export control and governmental intervention.

Hence, it is no better time for India to prepare and strengthen its foothold in the chip business.

Read Also: India Amongst the Superpowers of 2050

India’s Position in the Semiconductor Value Chain

It is worth highlighting that semiconductor manufacturing needs high investment. Setting up even a FAB, semiconductor wafer fabrication unit needs an investment of about 3 billion to 6 billion USD (12). As of today, there is no such facility in India.

India imports almost 100% of its semiconductors (13). (Those disappointed need to know that no country has established complete autonomy in the semiconductor value chain so far.)

Thankfully, companies like Tata Group and others have recently announced their aspirations to ramp up manufacturing in the country (14). Tata Group is speaking with three states to invest about 300 million USD in setting up a chip assembly and test plant.

Today, the demand for semiconductors in India stands at about 24 billion USD. It is likely to reach 100 billion USD by 2025, considering the rise of IoT and 5G technology.

The shortage of semiconductors amid the pandemic, and the new geopolitical realities of the semiconductor supply chain further exacerbate India’s need to develop self-reliance for chips. Better late than never.

Government Initiatives

In the Union Budget 2017-18, the Indian government increased the allocation for incentive schemes, M-SIPs, Modified Special Incentive Package Scheme and EDF, Electronic Development Fund to 11 million USD to boost the electronics and semiconductor manufacturing in the country. The Union Cabinet had also approved incentives up to 1.47 billion USD for investors by amending the M-SIPS scheme.

The MEITY, Ministry of Electronics and Information Technology, is also planning to revise its policy framework and play an active role in expanding initial capital to make India a global chip hub.

Ravi Shankar Prasad, then Union Minister of MEITY, inaugurated an Electropreneur Park at the South Campus of Delhi University to incubate 50 early-stage startups to build at least five global companies in the next five years (15).

India as the Semiconductor Manufacturing Hub

The Union Cabinet approved financial aid of over 76,000 crore INR for the semiconductor manufacturing ecosystem in India. It announced incentives for every part of the supply chain, including electronic components, assemblies, and finished goods. The move was much needed for India to remain on its path to becoming self-reliant.

Under the scheme, India will extend up to 50% of the financial costs of projects for eligible companies (those with enough technology and capacity to execute such highly capital and resource incentive projects).

Delhi will work closely with state governments to establish high-tech clusters with needed infrastructure in terms of land, high-quality power, semiconductor grade water, research ecosystem, and logistics to approve applications to set up no less than two greenfield semiconductor fabs and display fabs within the country.

In addition, the scheme also extends 30% financial support for capital expenditure to approved units. Reports suggest that at least 15 units of compound semiconductors and packaging will be established in the country with the government’s support under the scheme (16).

“The biggest advantage India has is its readily available entire design ecosystem. India has about 24k design engineers. It means that the talent is already here. Almost all major economies give about 50% capital incentive on setting a semiconductor or display fab, and now we are doing the same,” said Vaishnaw.

“Another thing we are offering in advance is the clear 20-year roadmap where the focus is on generating and nurturing talent and ensuring the industry growth,” he added.

Moreover, to promote the fabless ecosystem in the country, the government has announced design-linked incentives and an offer up to 50% of eligible expenditure and other product deployment linked incentives on net sales for five years. It will provide support to 100 domestic companies and facilitate the growth of not less than 20 companies in the industry with over 1,500 crores INR turnover for the next five years.

The government has also announced a C2S, chips to startup program, that will train over 85k engineers to work in the semiconductor ecosystem.

“In the 1990s, the world believed that India was a good place for financial software but not for semiconductors. However, today in 2021, India is emerging as one of the hottest destinations for semiconductor design,” stated Rajeev Chandrasekhar, Union Minister of State for Skill Development and Entrepreneurship and Union Minister of State for Electronics and Information Technology (17).

India has designed more than 2k ICs and chips in the last few years. Considering the success of India’s electronics vision, Chandrasekharan believes that India has the potential to become the world’s semiconductor hub.

The government expects the scheme to create about 35k high-quality positions, more than 100k indirect jobs, and attract investment worth over 1.67 trillion INR (8.8 billion USD).

Read Also: How India is Collaborating with Foreign Nations for its Startup Ecosystem

Wrap Up

Previously Narendra Modi’s government had offered about 30 billion USD incentives to attract some of the world’s largest electronics makers to set up their units in India and gave the domestic industry a fillip.

The push has already helped India become the world’s second-largest smartphone maker behind China.

It has also helped the country win investment commitments from Foxconn, Pegatron, and Wistron, three of Apple’s top contract manufacturers.

We believe that the new scheme will help India bring advanced technology, more employment, and larger investments. It will also help cut tech imports costs at a significant rate.