31 Jan 2022: UPSC Exam Comprehensive News Analysis

C. GS 3 Related

Category: ECONOMY

1. The DLI scheme and the chip making industry in India

Syllabus: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment

Prelims: DLI Scheme- Provisions

Mains: Significance of the DLI scheme; Potential of India in the electronic design and manufacturing sector

Context:

• As part of the recently launched Design-linked incentive (DLI) scheme, the Ministry of Electronics and Information (MeitY) has sought applications from 100 domestic companies, startups and small and medium enterprises to become a part of the scheme.

DLI Scheme:

• Under the DLI Scheme, financial incentives and design infrastructure support will be extended to domestic companies, startups and MSMEs 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.
• The scheme is part of a package that the government announced recently with the aim of nurturing at least 20 domestic companies involved in semiconductor design and facilitating them to achieve turnover of more than ₹1500 Crore in the next 5 years.
• C-DAC (Centre for Development of Advanced Computing), a scientific society operating under MeitY, will serve as the nodal agency for implementation of the DLI scheme.
• The scheme has three components – Chip Design infrastructure support, Product Design Linked Incentive and Deployment Linked Incentive.

Incentives under the scheme:

• Under the Chip Design infrastructure support, C-DAC will setup the India Chip Centre to host the state-of-the-art design infrastructure and facilitate its access to supported companies.
• Under the Product Design Linked Incentive component, there are provisions for fiscal support of up to 50% of the total cost to eligible participants who are engaged in semiconductor design in India as well as the offer of fiscal support of 30% of the capital expenditure to participants building compound semiconductors, silicon photonics and sensors fabrication plants in India.
• Under the Deployment Linked Incentive component, there are provisions for incentives of 4% to 6% on net sales for five years to companies of semiconductor design for integrated circuits, chipsets, system on chips, systems and IP cores.

For more information on the provisions of the scheme refer to the following article:

PIB Summary for UPSC of 16 Jan 2022

Initiatives being taken in other countries:

• The U.S aims to reduce the country’s reliance on a small number of chipmakers based largely in Taiwan and South Korea. As part of its America Competes Act, 2022, there are provisions for providing $52 billion to encourage more semiconductor production in the US.
• The European Commission has announced a public-private semiconductor alliance with the goal of increasing Europe’s chip production share to 20% by 2030.
• South Korea has offered various incentives to attract $450 billion in investments by 2030.

Significance of the DLI scheme:

• As per MeitY estimates, the scheme is expected to facilitate the growth of at least 20 related companies which can achieve a turnover of more than ₹1500 crore in the coming five years. This will provide a boost to the Indian economy in the post pandemic phase.
  • The semiconductor industry is growing fast and it can reach $1 trillion dollar by 2030. India can grow fast and reach $64 billion by 2026 from the current $27 billion.
• The scheme can help overcome the global shortage of chips and semiconductor components. The inception of new companies in India will help in ramping up supplies in the global market. This can have a moderating influence on the prices.
  • Several sectors in India, including auto, telecom, and medical technology had suffered due to the unexpected global surge in demand leading to the scarcity of chips
• The scheme can go a long way in establishing a robust semiconductor ecosystem in India which can help it avoid high dependencies on a few countries or companies
  • Currently, semiconductor manufacturing is dominated by companies in the U.S., Japan, South Korea, Taiwan, Israel and the Netherlands. Taiwan and South Korea chipmakers alone produce up to 70% of the world’s semiconductors.
• Apart from acting as an incentive to domestic players and encouraging innovation in India, the DLI scheme will also help attract existing global players to choose India as their preferred investment destination. This apart from bringing new investments into India can also bring their leading-edge expertise in the domain.
• The DLI scheme in conjunction with other related schemes like the Production Linked Incentive scheme and initiatives by the IT ministry to train 85,000 qualified engineers on semiconductor design and manufacturing can help create a vibrant domestic ecosystem for Semiconductor Chip Design and manufacturing and could help bring India on the world map for semiconductor manufacturing.

Potential of India in the sector:

• Notably, several gases and minerals which are a part of the global semiconductor supply chain are produced in India. The presence of such backward linkages within India would be crucial to setting up of the fabrication units.
• The presence of elite academic institutions working in this domain and their ability to produce highly skilled engineers for semiconductor manufacturing would help ensure the availability of required manpower for this sector.
• India owing to its large market can become an important destination for electronics design and manufacturing for the global companies.

Challenges to making semiconductors in India:

• In India, more than 90% of global companies already have their R&D and design centres for semiconductors but never established their fabrication units. Some of the major reasons for lack of fabrication units in India include the following.
  • The setting up of fabrication units is capital intensive as it needs investment in the range of $5 billion to $10 billion. Lack of such high investments and adequate supportive government policies are one of the main challenges to setting up fabrication units in India.
  • Also the use of sub 5 nanometer technology in new fabrication units requires clearance from the technology provider. The major companies holding rights to this technology have been reluctant in sharing the technology owing to both commercial as well as geopolitical reasons.
  • Other main challenges to setting up fabrication units in India include infrastructure connectivity to airports, seaports and availability of large volumes of pure water.

D. GS 4 Related

Nothing here for today!!!

E. Editorials

Category: ECONOMY

1. Show commitment to equity in the Budget

Syllabus: Government Budgeting.

Mains: Analysis of Budget allocation contributing to deepening inequality in India.

Context: – 

This article examines how budget allocations of the recent past have worsened the inequality scenario in India.

Inequality in India: –

• According to the World Inequality Report 2022, the top 10 percent of Indians had about 96 times more income on average than the bottom 50 percent.
• Similarly, Oxfam International claimed that in 2021 India’s top 1 per cent owned about 77 per cent of the country’s wealth.
• Inequality Kills: OxFam report
  • “Inequality Kills: The unparalleled action needed to combat unprecedented inequality in the wake of COVID-19” is a report released by Oxfam.
  • The report notes that the COVID-19 pandemic has heightened economic inequalities across the world.
  • Know More About the Oxfam Report: CNA 18 Jan 2022

Constitutional mandate to reduce inequality: –

• Directive Principles of State Policy: The policymaking “duty” of all governments is to follow Part IV of the Constitution — the Directive Principles of State Policy.
• Articles 38 and 39 :
  • Article 38(1) states: “The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.”
  • Article 39(c) states: The State shall, in particular, direct its policy towards securing — (c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment;

Constitutional provisions related to budget:

• Under Article 112 of the Constitution, the Annual Financial Statement (AFS) of estimated receipts and expenditure of the Government of India has to be laid before Parliament in respect of every financial year.

How Budget allocation worsened inequality in India?

• Declined health Budget: –The health Budget has declined by a substantial 10% over the last year. This reduces the access to quality and affordable health services and increases out-of -pocket expenditure which can push people into poverty. This has serious concerns amidst the COVID-19 pandemic.
• Cut in Education budget: There has been a 6% cut in the education Budget over the last couple of years. The reduced expenditure in the education sector could reduce the opportunities for quality and affordable public education systems. Given that education has been a tool for poverty alleviation, the Budget cuts in the educational sector would amount to the institutionalization of endemic multidimensional poverty.
• Declined Social security expenditure: Social security expenditure has declined from 1.5% in 2020-21 to 0.6% of the Union Budget in 2022.This would deprive the people of the most basic services and entitlements.
• Reduced MGNREGA Supplements: The government supplements have reduced causing extensive distress in functioning of MGNREGA, thus undermining the legal guarantee of work on demand.
• Exclusion of beneficiaries: The households under the National Food Security Act (NFSA) are based on a percentage determined from the 2011 Census. The reduced allocation to the scheme could lead to the exclusion of eligible beneficiaries.

Way Forward

The Budget is a policy that matters to all. There is a need for society to stand up and make sure that we are true to our constitutional commitment of building a more just and equal society as envisaged under the DPSPs. That is our most fundamental duty.