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What is the DLI scheme? Will it help in developing the semiconductor industry in India?

What is the DLI scheme? Will it help in developing the semiconductor industry in India?


  • GS 3 || Science & Technology || Fourth Industrial Revolution || Automation

Why in the news?

  • Recently, there has been an abrupt and cascading shortage of semiconductors worldwide.
  • The Ministry of Electronics and Information (MeitY) under the Design Linked Incentive (DLI) Scheme.
                                                                                                          About DLI scheme ●       Under the Design Linked Incentive (DLI) Scheme is inviting submissions from 100 domestic semiconductor chip design firms, corporations, start-ups, and MSMEs.

●       The incentives will be provided across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores, and semiconductor linked design for over a period of 5 years.


Aim of the scheme


●       To nurture at least 20 domestic companies involved in semiconductor design and facilitate them to achieve a turnover of more than Rs.1500 Crore in the next 5 years.


Nodal Agency


●       C-DAC (Centre for Development of Advanced Computing), a scientific society operating under MeitY, will serve as the nodal agency for the implementation of the DLI scheme.



What are semiconductors?

  • Semiconductors are materials that have a conductivity between conductors (generally metals) and nonconductors or insulators(such as most ceramics). Semiconductors can be pure elements, such as silicon or germanium, or compounds such as gallium arsenide or cadmium selenide.
  • Semiconductors often known as integrated circuits or simply chips are the tiniest and most precise products ever created on a worldwide scale.

Challenges in front of India

  • High Cost of establishment: As per a government estimate, it would cost roughly $5-$7 billion to set up a chip fabrication unit in India.
  • Bureaucratic inefficiencies: The process of establishing an indigenous semiconductor facility requires clearances and approvals from multiple government departments. Further, there exists a considerable degree of bureaucratic delays at each stage that discourages the establishment of manufacturing units.
  • Unstable power supply:The smooth production of semiconductors requires the availability of an uninterrupted 24*7 power supply. However, this requirement is not fulfilled by many regions in the country. This restricts production to very few locations.
  • Fourthly, Technological Constraint-The indigenous manufacturing of semiconductors requires the use of high-end technologies. These technologies are licensed by patent holders at a very high price.
  • Fifthly, Structural Flaws– FDI in electronics is less than 1% of the total FDI inflow because of the dearth of skilled labor, delays in land acquisition, and the uncertain tax regime.

Initiatives taken

  • National Policy on Electronics 2019: It envisions positioning India as a global hub for Electronics System Design and Manufacturing (ESDM) sector. It aims to encourage the development of core components (including chipsets) and create an enabling environment for the industry to compete globally.
  • Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme: Under this, the government will provide support for the setting up of Electronics Manufacturing Clusters (EMCs) and Common Facility Centres (CFCs).
  • Production Linked Incentive Scheme(PLI): Under this, the government will provide an incentive of 4% to 6% on goods manufactured in India and covered under target segments to eligible companies for a period of five years.
  • Incentives- The government would provide a financial incentive of 25% on capital expenditure for a list of items that make up the supply chain of electronic products under the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS). Electronic components, semiconductors, and specialized sub-assemblies are examples of this.
    • India will pay each semiconductor manufacturer that establishes a production facility in the nation more than $1 billion in cash.

Way forward

  • Demand will increase in the future- Across industries, emerging technologies such as the Internet of Things, artificial intelligence, augmented and extended reality, and blockchain are gaining traction. The demand for specialized sensors, integrated circuits, improved memory, and enhanced processors is growing as these applications gain traction across industries.
    • As part of its ‘Make in India’ push, India is finalizing plans to mass-produce semiconductor chips. Each semiconductor business that establishes a manufacturing unit in the country will receive more than $1 billion in cash from the government.
    • In December 2021,India invited an “expression of interest” from chipmakers for setting up fabrication units in the country or for the acquisition of such manufacturing units.
  • Focus on the back-end of manufacturing– Semiconductor foundries are the world’s most expensive factories, accounting for 65% of industry capital expenditure but only 25% of the value addition. Therefore, to lower the risks of investment, India should especially look at the back-end of manufacturing such as assembly, packaging, and testing. Once it stabilizes and an ecosystem develops, the front-end of manufacturing will follow.
    • Simultaneously, GOI needs to take advantage of the presence of Indian engineers in chip design, the part of the chain that contributes the largest value.
  • Investment in R &D- The government should provide appropriate resources to help technical institutes expand their research and development capabilities.
    • For example, with assistance from the Ministry of Electronics and Information Technology, IIT Madras created the ‘Moushik’ microprocessor.
  • States’ proactive cooperation- Areas like steady power, huge quantities of pure water, and land are all state responsibilities, and it will be up to state governments to establish the ideal environment for semiconductor projects to succeed.


  • The twenty-first century will be marked by a digital revolution, which will see a surge in the usage of mobile phones and computers. This increased demand can only be satisfied if semiconductor chips are readily available and continue to work. In order to realize its digital potential and emerge as a strong force in the modern era, India must focus on domestic semiconductor development.