Budget 2023 | Govt May Bring Incentive Scheme To Boost Local Chip Manufacturing: Report

The Ministry of Electronics and IT (MeitY) is reportedly working on an incentive scheme, worth around Rs 10,000 crore to Rs 12,000 crore, to promote domestic manufacturing of high-end components

The government in December 2021, approved a Rs 76,000 crore production-linked incentive (PLI) scheme, to boost semiconductor and display manufacturing. ( Image Source :Getty )

As the world’s chip shortage problem persists, the central government is likely to incentivise local chip manufacturing. According to a report by the Economic Times (ET), the Ministry of Electronics and IT (MeitY) is working on an incentive scheme, worth around Rs 10,000 crore to Rs 12,000 crore, to promote domestic manufacturing of high-end components that could go into products such as smartphones, servers, and personal computers.

According to ET, this scheme can help India not only with domestic chip demands but also make it an exporter. Budget 2023 comes at a time when the world’s supply chain is adverse effects of Covid-19. The pandemic led a chip shortage which was further widened by labour challenges and geopolitical uncertainties. 

An official aware of the details told the publication that the objective of the components incentive scheme is to develop a complete ecosystem of electronics manufacturing in India.

“The scheme may offer incentives on production of components as well as capital support for setting up production facilities. The final contours of the scheme are still to be finalised, but we are aiming to come out (with the policy) by next financial year (starting April 1),” an official said. 

As of now, India has the necessary talent for designing chips, but the lacks an end-to-end manufacturing base. Ashwini Vaishnaw, Minister for Communications, Electronics & Information Technology has said that the biggest advantage for India is the entire design ecosystem. We have around 24,000 design engineers working in India. So, that's a huge ecosystem. That means the talent is there, how to apply the talent, that application process is there. So, that is what gives us a very big advantage. 

The Centre in December 2021, approved a Rs 76,000 crore production-linked incentive (PLI) scheme to boost semiconductor and display manufacturing. It aims to help India to boost manufacturing and reduce import dependency. Also, help us grow as an exporter at a time of the global shortage of semiconductors. 

But according to industry experts, the government needs to do more. Rajeev Singh and Abhishek Malik, Deloitte Touche Tohmatsu India LLP in an article for ET wrote, “even if the PLI scheme gives a fiscal support of 50 per cent of the cost of establishing at least 2 greenfield fabrication units, not much of the current scheme’s outlay would be left out for other aspects like display fabrication units, testing facilities, packaging facilities, chip design centers, etc.” 

As of now, the government has already indicated that it would be open to joint venture (JV) partnerships with a Chinese firm for high-tech components, which will enable the likes of Apple to further expand manufacturing in India. In Karnataka, construction of India's first chip manufacturing plant is expected to start next month. Taiwan's Foxconn and India’s Vendanta have lined up to build their own fabrication plants in Gujarat.

As of now, India’s semiconductor demand is met by imports from countries such as the US, Japan, and Taiwan.