DLI scheme to provide much needed impetus to IP creation in semiconductor business

The Indian government launched the Make-in-India initiative with a vision to transform the country into a major global manufacturing hub. The initiative has since garnered a lot of attention and led to several positive outcomes such as employment opportunities, foreign direct investment, global competitiveness, and skill development among rural migrants.

In 2022, more than 98% of phone shipments in the overall Indian market were 'Made in India'. In fact, the Make in India initiative also led to an eightfold growth in phone manufacturing in the last eight years. This has acted as a catalyst to also push the demand and supply of semiconductors within the country. India’s history with chip manufacturing dates to the 1970s!

While the Semi-Conductor Laboratory (SCL) in Mohali was extremely competitive, and had 180 nm process production lines, a fire destroyed the entire operation in the early 1990s putting India's semiconductor journey to an end, at least for a while.

The next phase of growth for the Make-in-India campaign is moving further up the supply chain in high-tech manufacturing, notably the dynamic semiconductor sector. A key objective of the government is to create an ecosystem to support the design and production of high-quality chips, at the lowest possible cost.

Currently, India contributes less than 3% of the global output of key high-tech manufacturing industries, including electronics, aerospace, and medical devices. Therefore, companies need to discover solutions to tackle obstacles such as logistical costs and skilled workforce.

Another of government’s many moves to back the manufacturing sector, the production-linked incentive (PLI) scheme, provided the much-needed impetus to companies to set up or expand on manufacturing units for increased production, to which the government provides incentives on incremental sales.

As per data released by the MEITy, the PLI scheme for large-scale electronics has emerged as the most successful scheme while creating over 28,000 job and resulting in an astonishing 139% increase in exports of smartphones over the last three years.

On similar lines, the design-linked incentive (DLI) scheme aims to offer financial incentives as well as design infrastructure support across various stages of development and deployment of semiconductor designs for very large-scale integration (VLSI) chipsets, systems on chips (SoCs), systems and intellectual property (IP) cores, and other types of semiconductor-linked design activity over five years.

In this respect, the Union government is currently assessing a proposal that may provide an opportunity to multinational companies to enrol themselves in India’s $200 million DLI scheme if they design chips within India.

What this means for Indian and global semiconductor companies?

The move comes at a time when the majority of nations are working on a China +1 policy. However, due to challenges around key infrastructure such as access to water, utilities, electricity, roads, and railways, semiconductor manufacturing in India is a feasible but ‘stretch’ dream.

While setting up manufacturing units can take some time, the country already is home to numerous multinational corporations (MNCs) that have their R&D labs in India. With the DLI scheme in place, the fabless chip companies will be incentivized to design their products in India!

Further, it will facilitate import substitution and value addition in the electronics sector. In addition, there are several design-driven projects specific to the Indian market, hence, this scheme will provide tremendous opportunity to global companies to expand and tap their India potential.

Given these steps, we firmly believe that the Indian government will create enough room for innovation and the design of integrated circuits (ICs), chipsets, SoCs, and systems & IP cores. In doing so, it will create job opportunities and stimulate the economy.

India is a position to leverage its incredible education system and fully avail itself of enormous number of engineers that are graduating every year, a number that is greater than some of the biggest economies in the world.

So, although manufacturing gets headlines, it would make sense to invest in R&D labs and design semiconductors end-to-end in India, even at the most advanced semiconductor nodes like, 3-, 5-, and 7-nm that require highly advanced semiconductor manufacturing processes, even if they are implemented elsewhere, given the costs and other barriers to building fabs in India.

Win-win for everyone!

We enthusiastically await the final announcement from the government as through the DLI scheme, global companies will get financial assistance in the form of licensing fees (for EDA and other design tools) and to cover the cost of IP filing and registration.

India has managed to create excitement around its semiconductor aspirations. However, to sustain it, the country will need to now take giant steps toward building out its own chip ecosystem. With the country’s huge talent pool we have high hopes that the chip-design industry will thrive in this atmosphere.

-- Sanjay Saha, India Country Manager, Synaptics.