‘80% Funds Allocated For Semiconductor Manufacturing Scheme Remain Unused’

Relevance: GS3 - Indigenization of technology and developing new technology. GS2 - Government policies and interventions for development in various sectors and issues arising out of their design and implementation, Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

(Source: The Hindu, 11/08/2023)

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Why in the news?

• Recently, a top official from the Industry Ministry claimed that $8 billion of the $10 billion allocated for the production of semiconductors under the production-linked incentive (PLI) scheme was unused.
• This article also discusses South Korea’s potential for involvement in semiconductor manufacturing in India.

What is the status of the PLI scheme for semiconductors?

• The Modified Programme for Semiconductors and Display Fab Ecosystem was announced in December 2021 with a total outlay of ₹76,000 crore.
  • The scheme was updated in September 2022, as a result of which the government funds 50% of the project cost across all technology nodes for setting up of semiconductor fabs.
• India is offering incentives of more than $10 billion to encourage semiconductor manufacturing in India.
• However, $8 billion of the total $10 billion earmarked for the Production Linked Scheme (PLI) for semiconductors was unused so far.

Why is domestic manufacturing of semiconductor important?

• Universal use: Semiconductors are used in almost all electronic hardware in use today. Therefore, domestic manufacturing will help insulate the supply chain and reduce dependence on imports.
• Import dependence: India is heavily dependent on imports to meet its domestic requirements.
  • As a result, the country is vulnerable to coercions and supply chain disruptions.
• Geopolitical tensions: The Russia-Ukraine conflict has disrupted the global supply chain as Ukraine is a key supplier of neon which is used in semiconductor manufacturing.
  • Similarly, the EU and the USA refused to sell advanced equipment to China which resulted in China imposing export controls on gallium and germanium which are inputs in semiconductor manufacturing.
• China: China is one of the leading manufacturer of semiconductors across the world.
  • However, China has tense ties with India due to the border clashes.
• Security risk: Externally manufactured semiconductor chips can pose a potential security risk due to their embedded instructions which may contain hard-to-identify malware.
  • This is a major risk for national security due to the use of semiconductors in sectors like telecommunication and defense equipment.

How can South Korea participate in the semiconductor manufacturing industry in India?

• The Secretary for the Department for Promotion of Industry and Internal Trade recommended that Korean investors invest in the manufacture of semiconductors under the PLI scheme.
• Since April 2000, Korean investors have invested around $5.6 billion in India.
• He highlighted the upcoming bid for over 20 gigawatt hours of storage and mobility battery capacity in India.
• Korean enterprises which are leaders in sectors such as microprocessors, consumer electronics, automobiles, etc.
• South Korea’s investment in the scheme would contribute to improving economic ties between the two countries.
• This would assist in upgrading and enhancing the Comprehensive Economic Partnership Agreement between India and South Korea.

India’s economic ties with South Korea

• The trade relationship between India and the Republic of South Kore reached $27.8 billion in 2022.
  • The countries have set a target of enhancing bilateral trade to $50 bn by 2030.
• South Korea is the 13th largest FDI investor in India between April 2000 and September 2022.
  • Major sectors of investment are: metallurgy, automobile, electronics, prime movers, machine tools, hospitals and diagnostic centres
• In 2009, a Comprehensive Econmic Partnership Agreement was signed by the two countries.
  • It was equivalent to a Free Trade Agreement and will enhance access for the Indian service industry in South Korea, reduce restrictions on FDI, and boost trade.
• India’s exports to Korea: Mineral fuels/oil distillates (mainly naphtha), cereals, iron, and steel.
• India’s imports from Korea: Automobile parts, telecommunication equipment, hot rolled iron products, petroleum refined products, base lubricating oils, nuclear reactors, mechanical appliances, electrical machinery & parts, and iron and steel products.
• India and South Korea launched the ‘Korea Plus’ initiative in 2016 to promote and facilitate Korean Investments in India.
  • This has enabled major Korean conglomerates like Samsung, Hyundai, and LG to make significant investments in India.
• India, and South Korea have also committed to collaborating on building resilient and robust global supply chains in the aftermath of the COVID-19 pandemic and the over-reliance on China.

What are the challenges faced by the semiconductor industry in India?

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FAQs

MCQs

Question: Consider the following statements:

1. India is self-sufficient in semiconductor production and is the leading exporter of semiconductor devices.
2. The India Semiconductor Mission is a decadal strategy to develop the Indian semiconductor industry.
3. At present, incentives for semiconductor fabs are based on the size of the node.

How many of the above statements is/are correct?

(a) Only 1 statement

(b) Only 2 statements

(c) All 3 statements

(d) None