What's the article about?
- It talks about the Production-Linked Incentives (PLI) Scheme for semiconductor manufacturing in India.
Relevance:
- GS3: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth
Context:
- The Union government's production-linked incentives (PLI) for semiconductor manufacturing have faced underutilization, with upwards of 80% of the funds remaining unused.
- This raises questions about the effectiveness of the scheme and the government's overall strategy for developing India's semiconductor manufacturing capabilities.
Analysis:
- Employment and Value Addition Concerns: While semiconductors are crucial components for various hardware and appliances, their manufacturing process relies heavily on advanced and automated systems. As a result, semiconductor manufacturing facilities generate significant value in sales but employ relatively few people. This highlights the potential limitations of PLI schemes in terms of job creation.
- “Ecosystem” Wager: The central premise of PLI schemes is to attract an “ecosystem” that will enhance the value addition of India's electronics manufacturing sector. However, this outcome is not guaranteed even with optimal utilization of PLI benefits. Global manufacturing giants may prioritize other factors, such as cheap and accessible international transport facilities for chips, over India's PLI incentives.
- Emphasis on Assembly and Subsidies over Design: A significant portion of PLI funds is focused on assembly and subsidizing large manufacturing plants, while less emphasis is placed on encouraging semiconductor design talent and fostering a domestic design ecosystem. This approach could limit India's ability to fully capture the value chain in semiconductor manufacturing.
- Private Capital and Technology Advancements: Private capital is hesitant to invest in semiconductor manufacturing due to the rapid advancements in chip technologies and emerging fields like artificial intelligence. This makes it challenging for policymakers to determine the optimal allocation of resources for boosting India's technological position.
- Need for Clear Outcome Definition: The government needs to clearly define the desired outcomes of PLI schemes, whether it is safeguarding cyber sovereignty, reducing electronics costs for Indian consumers, or establishing India as a global electronics manufacturing hub. This clarity will facilitate better evaluation of the schemes' effectiveness and allow for timely course corrections.
Way Forward:
- PLI schemes for semiconductor manufacturing represent a significant wager with uncertain outcomes. The government must address concerns regarding underutilization of funds, limited employment generation, and the emphasis on assembly over design. Additionally, clear outcome definitions and a focus on nurturing domestic design talent are crucial for maximizing the potential benefits of these schemes.
