The need to overhaul a semiconductor scheme
- The Semiconductor Design-Linked Incentive (DLI) scheme in India has fallen short of its target, approving only seven start-ups.
- A mid-term appraisal is impending, providing an opportunity for policymakers to reassess the scheme.
Goals of India’s Semiconductor Strategy
- To reduce dependence on semiconductor imports, particularly from China
- Especially in strategic and emerging sectors, ranging from defence applications to AI development.
- To build supply chain resilience by integrating into the semiconductor global value chain (GVC).
- To leverage its comparative advantage in chip design.
Issues with the DLI Scheme
- Lackluster Uptake
- While the DLI scheme focuses on design infrastructure and financial subsidies, its uptake has been low.
- Foundry and assembly stages received quick revisions in PLI schemes, highlighting a lack of scrutiny on the DLI scheme.
- Barriers to Entry
- The DLI scheme mandates domestic status for start-ups poses a significant barrier.
- Beneficiary start-ups must maintain their domestic status for at least three years after receiving incentives.
- They cannot raise more than 50% of their requisite capital via foreign direct investment.
- High costs and long-term payoff in semiconductor R&D deter domestic investors, affecting the risk appetite for start-ups.
- The DLI scheme mandates domestic status for start-ups poses a significant barrier.
- Modest Incentives
- The relatively modest incentives capped at ₹15 Crore for Product DLI and ₹30 Crore for Deployment Linked Incentive may not be a worthwhile trade-off for start-ups.
Proposed Solutions and Policy Shifts
- Delinking Ownership from Development
- Delinking ownership from semiconductor design and adopting more start-up-friendly investment guidelines to attract foreign funds.
- Broader Focus on Design Capabilities
- Revising the DLI scheme to focus on cultivating semiconductor design capabilities in India, supporting a wide array of chip designs within the country.
- Financial Outlay Enhancement
- Substantially enhancing the financial outlay of the scheme to support the broader objective of facilitating design capabilities.
- Nodal Agency Reconsideration
- Relook of the Centre for Development of Advanced Computing as the nodal agency due to potential conflicts of interest.
- Proposes the Karnataka government’s Semiconductor Fabless Accelerator Lab as a blueprint for a new implementing agency.
- Expanded Focus and Support for Start-ups
- Expanded focus for a revamped DLI scheme, attracting a broader range of semiconductor design start-ups
- Helping startups overcome initial hurdles through mentorship, industry connections, and financial incentives.