All you want to know the government’s $10-bn plan to boost chip manufacturing


by 5paisa Research Team Last Updated: Dec 16, 2021, 12:01 PM IST

India is looking to cash in on the global microchip shortage that has impacted industries across the board. 

The Indian government has approved a Rs 76,000 crore ($10 billion) plan to incentivise production of chips, by facilitating the setting up of their manufacturing units in the country. 

What is India’s end goal here?

Simply put, India wants to be the next electronics manufacturing hub, and cut its reliance on Chinese chip imports. Not only does this make sense from a foreign exchange perspective, it would also generate employment opportunities within the country, and bring much-needed foreign direct investment. Moreover, India could set itself up as a counterweight to China, with which it has had strained political relations.

India is looking to reshape supply chains to cut its reliance on China amid a global chip shortage that has impacted the production of goods ranging from cars to computers, a newspaper report said. The government has already asked local carmakers to reduce electronics imports from China, the report added.

“In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure," the Ministry of Electronics and Information Technology said in a statement on Wednesday.

For how long will the new scheme be offered?

The government said that the so-called production linked incentive (PLI) scheme will be offered to companies over the next six years. 

So, what will the government actually offer under the scheme?

Under the scheme, the government will extend financial support of up to 50% of the project cost to firms selected to set up semiconductor and display fabs in India. It will also work closely with states to establish high-tech clusters with requisite infrastructure such as land, semiconductor-grade water, high-quality power, logistics and research ecosystem to house the fabs.

How many units does the government expect will take it up on its offer?

The government expects that more than 20 units will be set up under the scheme. Citing a government official, a report in the Mint newspaper said two chipmakers and two display manufacturers are expected to set up units in the next four years under the plan

Apart from them, as many as 20 companies including chip packaging firms and compound semiconductor companies that make chips for the automotive sector, power equipment, etc., are expected to be operational in three years. 

So, how much investment does the government think it can generate from the PLI scheme?

Overall, the government expects investments worth Rs 1.7 trillion could materialise. Of these, the four big units it thinks will set up shop first, could invest between Rs 30,000 crore and Rs 50,000 crore each. The smaller ones could bring in anywhere from Rs 3,000 crore to Rs 5,000 crore each.

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