What the Rs 76k-cr Semiconductor PLI Scheme Means for MSMEs Working with Electronics Manufacturing Industry

Ease of Doing Business for MSMEs: “The program would foster greater domestic added value in electronics manufacturing and significantly contribute to the achievement of a $ 1 trillion digital economy and domestic product. gross (GDP) of $ 5,000 billion by 2025, ”the Cabinet said when announcing the program.

Ease of doing business for MSMEs: The government’s nod to the Rs 76,000 crore production incentive program (PLI) for the development of the semiconductor and display manufacturing ecosystem in India would have horizontally distributed benefits, according to the experts. This means that instead of supporting the growth of the semiconductor industry alone, it would spread across all segments involved in electronics manufacturing, where MSMEs are widely present, from automobiles to smartphones to television, refrigerators, laptops, air conditioners, medical equipment and Suite. Essentially, this would help further penetration of electronic or smart devices in the country. However, this would all flow from the execution of the program in the years to come.

So what exactly is the government proposing? Here’s a quick recap of what Cabinet announced on Wednesday:

  • Tax support up to 50% of the cost of setting up semiconductor factories (manufacturing or manufacturing factories) and display factories in India to qualifying companies.
  • Tax support of 30% of capital expenditure to approve the establishment of units of compound semiconductors, silicon photonics, sensors, factories and assembly, testing, marking and packaging of semi – Conductors (ATMP) and Outsourced Semiconductor Assembly and Testing (OSAT) facilities in India. At least 15 units of compound semiconductors and semiconductor packaging likely to be put in place with government support.
  • Product design incentive up to 50% of qualifying spend and product deployment incentive of 6% to 4% on net sales for five years under the Design Incentive Program (DLI) . Here, 100 domestic semiconductor design companies for integrated circuits (ICs), chipsets, systems on chip (SoC), IP systems and cores and semiconductor related design will be supported.

“The program would foster greater domestic added value in electronics manufacturing and significantly contribute to the achievement of a $ 1 trillion digital economy and $ 5,000 billion gross domestic product (GDP). dollars by 2025, “the Cabinet said when announcing the program. Although basic chipmaking is a big item and therefore only large Indian and foreign companies would invest millions of dollars like Tata, which is planning to go into semiconductor manufacturing according to reports. media, but its development would directly or indirectly benefit MSMEs. .

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“The chip shortage and reliance on semiconductor imports has impacted MSMEs working with the electronics manufacturing industry. Their capacity is not fully utilized. You have to look at things as a whole here. For example, the waiting time for cars is very long because the chips are not available, and as a result, the production of car manufacturers has dropped by 40%. This means that all others such as MSMEs who supply goods including gearbox, seat cover or seat belt etc. to this car company do not suffer from any fault on their part. Once India has its own ecosystem, it will dramatically improve manufacturing in India and its MSMEs, ”Sandeep Aurora, vice president of the India Electronics & Semiconductor Association (IESA), told Financial Express Online. Aurora was previously Director of Marketing at Intel India.

Demand for semiconductors in India, which is fully met by imports, is worth around $ 24 billion and is expected to reach $ 100 billion by 2025, according to Invest India. The demand for semiconductors would likely come from technological growth in the country, such as artificial intelligence, Internet of Things, 5G and others. In such a scenario, the shortage of chips has made it essential for India to develop its own resources. Currently, Taiwan Semiconductor Manufacturing Co. (TSMC) of Taiwan is the world’s largest semiconductor chip subcontractor which supplies companies such as Nvidia, Apple, AMD, Intel, and others.

Importantly, according to a Bloomberg report in September this year, India and Taiwan had discussed a deal that would lead to the creation of a chip factory worth around 7.5. billion dollars in India. “It is important to encourage manufacturers to install units in India so that the downstream can open… MSMEs are ready to seize this opportunity. But there has to be a certain anchor maker who has to start in India, ”Charu Mathur, managing director of the Indian Association of Electrical and Electronics Manufacturers, told Financial Express Online.

In December of last year, the government also issued an expression of interest (EoI) for the establishment and expansion of existing factories or the acquisition of those outside India. The proposals, however, according to Invest India, are being evaluated by the Ministry of Electronics and Informatics (MeitY) on the basis of the proposed technology, the proposed wafer capacity, the loading strategy. factories, the financial viability of the project and the incentive support from the government. .

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“As factories move here and local manufacturing becomes more prevalent over the years, MSMEs will greatly benefit from the ease of the supply chain. It would also make the market more competitive with more players entering. In addition, it would lead to the creation of a specialized workforce of engineers in the semiconductor industry, which currently has around 20,000 people involved in chip design. The government intends to increase this number to 85,000 engineers through this incentive program. It would greatly contribute to India’s ‘Make in India’ vision and help it to truly become a technological powerhouse, ”an executive at a software technology company in India told Financial Express Online, seeking anonymity.

The automotive industry is currently one of the largest users of semiconductor chips. Saurabh Poddar of Sellowrap Industries, which manufactures auto parts, said if the auto parts supply needs came to MSMEs from auto manufacturers under the program, it would benefit small units. However, until the semiconductor ecosystem grows, “MSME business will resume after the chip shortage is over.” Poddar was previously the Western Region Co-Chair of the Automotive Component Manufacturers Association of India (ACMA).

With the approval of the Rs 76,000 crore program, the government announced that it had announced incentives for each part of the supply chain worth Rs 2.30 lakh crore, including electronic components, sub-assemblies and finished products. This included an incentive worth Rs 55,392 crore under the Production Linked Incentive Program (PLI) for large scale electronics manufacturing, PLI for computer hardware, promotion program of Semiconductor and Electronic Component Manufacturing (SPECS) and Modified Electronic Product Manufacturing (EMC 2.0) scheme. In addition, PLI incentives worth Rs 98,000 crore have been approved for related sectors including ACC battery, automotive components, telecommunication and grid products, solar PV modules and white goods.

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