In today's Explainer we see how the Indian government intends to make the country a global semiconductor manufacturing hub.
The government has a tough job at hand. They have to create more jobs,
invest in this country’s future and grow the economy while at it. And
when you’re in the middle of a pandemic, this becomes exponentially
harder. And it seems that there is a collective recognition now that
they can’t do it alone. They need the private sector to join hands.
However, for corporates looking to turn a profit, this could be easier
saidThey are strapped for cash and investing billions at this juncture may
still be a tall order. So the government needs to do something to get
them excited. They need to incentivize them to set up shop and drop big
money to aid the growth agenda. than done.
They are strapped for cash and investing billions at this juncture may
still be a tall order. So the government needs to do something to get
them excited. They need to incentivize them to set up shop and drop big
money to aid the growth agenda.
What do these incentives look like?
Well, they could be tax rebates, exemptions on import and export duties,
easier land-acquisition terms or subsidies. In return the government
expects them to produce in India or as we like to call it here “Make in
India.” In fact, most incentive structures are tied to production
targets. They are called Production Linked Incentive Schemes (PLIs).
So far, the Indian government has introduced PLI schemes for a whole
host of industries such as the auto sector, white goods industries,
electronics and phone manufacturing. In total, thirteen PLI schemes have
already been put in place, and they are expected to cumulatively add up
to investments of around $30 billion
by 2025. The PLI schemes for mobile phones, in particular, have been a
crucial factor in consolidating India’s place as the world’s
second-largest mobile phone manufacturer, and boosting India’s mobile
phone exports by 250%.
However,
despite all the progress, we still don’t make the big money parts — the
semiconductor chips. It’s been a sore point of sorts and the government
has been trying to fix it.
And to this end, they recently cleared a $10 billion
PLI scheme to attract global chipmakers to set up semiconductor plants
in the country. That’s right! India wants to be a semiconductor
manufacturing hub and they hope to create some 35,000 specialised
high-end jobs, 100,000 indirect employment opportunities and attract
investments worth $23 Billion in the process.
And unlike previous
PLI schemes where the government offered incentives on incremental
sales, this one is expected to offset the high costs of setting up a
semiconductor factory. The government is expected to bear as much as 50%
of the costs associated with setting up a fabricator and it could go a
long way in alleviating some of the uncertainty involved in investing in
such projects.
Now there is still some confusion on whether this will be a straight
cash infusion or include some other kinds of incentives we spoke of
earlier. However, both industry incumbents and outsiders have hailed
this announcement as a gamechanger.
Having said that, however,
incentives alone won’t help us become a manufacturing hub. If you’ve
been reading our newsletter, you’ll know that manufacturing
semiconductors is no walk in the park. Apart from the obvious high
costs, companies have to take into account the infrastructure
challenges.
For instance, do you get an uninterrupted power supply? If not, then you
can’t set up the plant. Next, you’ll need access to lots of water. Not
just any water, but millions of litres of ultra-pure water. In fact,
even a basic fabrication unit is known to consume more than 20 million litres of water per day. And sourcing this water has turned out to be China’s Achilles heel in scaling production. Even Taiwan
has had trouble with this thing for a while now. Finally, you also have
to make sure that you set up the plant at a pristine location. If you
can’t get yourself a clean workspace, then the plant is a no go once
again.
In fact back in 2017, when India last tried to woo global semiconductor
companies, it failed on these accounts. Last time around we offered to
waive off customs duties on the import of machinery required for chip
manufacturing. But clearly, that wasn’t enough, and there weren’t many
takers. However, a lot has changed since then. The world is reeling
through a crippling semiconductor shortage and it desperately needs
alternatives. And if India can position itself right, by offering the
right kind of incentives alongside the other bits, maybe this time will
be different.
