Daily Prelims Notes 31 January 2022
- January 31, 2022
- Posted by: OptimizeIAS Team
- Category: DPN
Daily Prelims Notes
31 January 2022
Table Of Contents
- Economic Survey 2021-22
- India – Oman ties
- IndEA 2.0
- Bomb Cyclone
- Nord Stream Pipeline
- DLI Scheme
Subject – Economy
Context – The Union Finance Ministry is expected to release the single volume Economic Survey for 2021-22 on January 31, 2022.
What is the Economic Survey?
- The Economic Survey is an annual financial document that reviews the economic development in India over the past financial year by analysing and providing detailed statistical data of all the sectors-industrial, agricultural, industrial production, employment, prices, exports, among others.
- It also analyses trends in other factors that have an impact on the Indian economy such as money supply and foreign exchange reserves.
- The Economic Survey is released a day before the Union Budget is presented in the Parliament.
- The Survey is prepared by the Economics Division of the Department of Economic Affairs of the Finance Ministry under the overall guidance of the Chief Economic Adviser (CEA). It is only released after it is approved by the FM.
- However, this year the Economic Survey is being prepared by the Principal Economic Advisor and other officials in absence of the Chief Economic Advisor (CEA).
- The previous CEA KV Subramanian had completed his three-year term as CEA on December 6 last year.
Why is Economic Survey significant?
- The Economic Survey is regarded as the flagship annual document of the Union Ministry of Finance. It is also seen as the report of the Union Government for the financial year under review.
- The Economic Survey provides a summary of all the economic development across the country that happened in a particular financial year. Apart from analysing the macroeconomic situation of the country over the past financial year, it also provides an outline for the next financial year.
- The survey maps out a roadmap for India’s economy going into the next financial year. It provides detailed reasons and justifications for why it believes the government should enact certain economic reforms for managing the economy.
When was the first Economic Survey of India presented?
- The first Economic Survey was tabled in the year 1950-51. Up to 1964, it was presented along with the Union Budget. From 1964 onwards, it has separated from the Budget.
Why is the Economic Survey presented before the Budget?
- As the Economic survey reviews the overall performance of the economy during the year, it helps in giving a better understanding of the Union Budget.
- The survey primarily helps to comprehend the country’s priority for the next financial year and what sectors would need more emphasis in the Union Budget.
- The Economic Survey was de-linked from the Budget in 1964 and unveiled in advance in order to provide a context of the latter.
What do the Economic Survey documents contain?
- The Economic Survey consists of two parts– one includes the economic challenges the country is facing and the second is the analysis of the year gone by.
Is the govt bound to present the Economic Survey?
- The government is not bound to present the Economic Survey as it nowhere mentioned in the Constitution. However, it is now part of the government’s practice to present the survey every year before the budget.
Economic Survey’s objectives
The various objectives of the Economic Survey in India can be summed up under three heads:
- Reviewing the country’s economic development over the past 12 months.
- Summarising how the different development projects of the country perform.
- Highlighting the government’s policy initiatives.
The format of the Economic Survey
- After Arvind Subramanian took charge as the Chief Economic Advisor (CEA) of the country, the Economic Survey became a two-volume report and his successor KV Subramanian continued the same trend.
- The first volume generally has chapters on the future course of the economy. Therefore, the first volume provides a scope for the CEAs to narrate their views. The second volume lists the country’s economic developments over the past year.
- The principal focus of the second volume is to explain the immediate economic issues faced by the different sectors with the help of statistical data. It throws light on the major challenges anticipated along with the solutions presumed.
Key Highlights of the Economic Survey 2021-22
Forex Reserves in India
- India was the fourth largest forex reserve holder as of December 2021 according to the Economic Survey 2022 released on Monday.
- The continuous inflow of the forex reserve has transformed India from the earlier Fragile Five countries to the the fourth largest forex reserve holder, the survey noted.
- India was the fourth largest forex reserves holder in the world after China, Japan, and Switzerland as on November 2021.
- The forex reserve stood at USD 633.6 billion at end of December 2021 as against USD 577 billion at the end of March 2021, the Economic Survey document said.
State of the Economy:
- Indian economy estimated to grow by 9.2 percent in real terms in 2021-22 (as per first advanced estimates) subsequent to a contraction of 7.3 percent in 2020-21.
- GDP projected to grow by 8- 8.5 percent in real terms in 2022-23.
- The year ahead poised for a pickup in private sector investment with the financial system in good position to provide support for economy’s revival.
- Projection comparable with World Bank and Asian Development Bank’s latest forecasts of real GDP growth of 8.7 percent and 7.5 percent respectively for 2022-23.
- As per IMF’s latest World Economic Outlook projections, India’s real GDP projected to grow at 9 percent in 2021-22 and 2022-23 and at 7.1 percent in 2023-2024, which would make India the fastest growing major economy in the world for all 3years.
- Agriculture and allied sectors expected to grow by 3.9 percent; industry by 11.8 percent and services sector by 8.2 percent in 2021-22.
- On demand side, consumption estimated to grow by 7.0 percent, Gross Fixed Capital Formation (GFCF)by 15 percent, exports by 16.5 percent and imports by 29.4 percent in 2021-22.
- Macroeconomic stability indicators suggest that the Indian Economy is well placed to take on the challenges of 2022-23.
- Combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide adequate buffer against possible global liquidity tapering in 2022-23.
- Economic impact of “second wave” was much smaller than that during the full lockdown phase in 2020-21, though health impact was more severe.
- Government of India’s unique response comprised of safety-nets to cushion the impact on vulnerable sections of society and the business sector, significant increase in capital expenditure to spur growth and supply side reforms for a sustained long-term expansion.
- Government’s flexible and multi-layered response is partly based on an “Agile” framework that uses feedback-loops, and the use of eighty High Frequency Indicators (HFIs) in an environment of extreme uncertainty.
- The revenue receipts from the Central Government (April to November, 2021) have gone up by 67.2 percent (YoY) as against an expected growth of 9.6 percent in the 2021-22 Budget Estimates (over 2020- 21 Provisional Actuals).
- Gross Tax Revenue registers a growth of over 50 percent during April to November, 2021 in YoY terms. This performance is strong compared to pre-pandemic levels of 2019-2020 also.
- During April-November 2021, Capex has grown by 13.5 percent (YoY) with focus on infrastructure intensive sectors.
- Sustained revenue collection and a targeted expenditure policy has contained the fiscal deficit for April to November, 2021 at 46.2 percent of BE.
- With the enhanced borrowings on account of COVID-19, the Central Government debt has gone up from 49.1 percent of GDP in 2019-20 to 59.3 percent of GDP in 2020-21, but is expected to follow a declining trajectory with the recovery of the economy.
- India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID levels during the current financial year.
- There was significant pickup in net services with both receipts and payments crossing the pre-pandemic levels, despite weak tourism revenues.
- Net capital flows were higher at US$ 65.6 billion in the first half of 2021-22, on account of continued inflow of foreign investment, revival in net external commercial borrowings, higher banking capital and additional special drawing rights (SDR) allocation.
- India’s external debt rose to US $ 593.1 billion at end-September 2021, from US $ 556.8 billion a year earlier, reflecting additional SDR allocation by IMF, coupled with higher commercial borrowings.
- Foreign Exchange Reserves crossed US$ 600 billion in the first half of 2021-22 and touched US $ 633.6 billion as of December 31, 2021.
- As of end-November 2021, India was the fourth largest forex reserves holder in the world after China, Japan and Switzerland.
Monetary Management and Financial Intermediation:
- The liquidity in the system remained in surplus.
- Repo rate was maintained at 4 per cent in 2021-22.
- RBI undertook various measures such as G-Sec Acquisition Programme and Special Long-Term Repo Operations to provide further liquidity.
- The economic shock of the pandemic has been weathered well by the commercial banking system:
- YoY Bank credit growth accelerated gradually in 2021-22 from 5.3 per cent in April 2021 to 9.2 per cent as on 31 December 2021.
- The Gross Non-Performing Advances ratio of Scheduled Commercial Banks (SCBs) declined from 11.2 per cent at the end of 2017-18 to 6.9 per cent at the end of September, 2021.
- Net Non-Performing Advances ratio declined from 6 percent to 2.2 per cent during the same period.
- Capital to risk-weighted asset ratio of SCBs continued to increase from 13 per cent in 2013-14 to 16.54 per cent at the end of September 2021.
- The Return on Assets and Return on Equity for Public Sector Banks continued to be positive for the period ending September 2021.
- Exceptional year for the capital markets:
- 89,066 crore was raised via 75 Initial Public Offering (IPO) issues in April-November 2021, which is much higher than in any year in the last decade.
- Sensex and Nifty scaled up to touch peak at 61,766 and 18,477 on October 18, 2021.
- Among major emerging market economies, Indian markets outperformed peers in April-December 2021.
Prices and Inflation:
- The average headline CPI-Combined inflation moderated to 5.2 per cent in 2021-22 (April-December) from 6.6 per cent in the corresponding period of 2020-21.
- The decline in retail inflation was led by easing of food inflation.
- Food inflation averaged at a low of 2.9 per cent in 2021-22 (April to December) as against 9.1 per cent in the corresponding period last year.
- Effective supply-side management kept prices of most essential commodities under control during the year.
- Proactive measures were taken to contain the price rise in pulses and edible oils.
- Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.
- Wholesale inflation based on Wholesale Price Index (WPI) rose to 12.5 per cent during 2021-22 (April to December). This has been attributed to:
- Low base in the previous year,
- Pick-up in economic activity,
- Sharp increase in international prices of crude oil and other imported inputs, and
- High freight costs.
- Divergence between CPI-C and WPI Inflation:
- The divergence peaked to 9.6 percentage points in May 2020.
- However, this year there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0 percentage points in December 2021.
- This divergence can be explained by factors such as:
- Variations due to base effect,
- Difference in scope and coverage of the two indices,
- Price collections,
- Items covered,
- Difference in commodity weights, and
- WPI being more sensitive to cost-push inflation led by imported inputs.
- With the gradual waning of base effect in WPI, the divergence in CPI-C and WPI is also expected to narrow down.
Sustainable Development and Climate Change:
- India’s overall score on the NITI Aayog SDG India Index and Dashboard improved to 66 in 2020-21 from 60 in 2019-20 and 57 in 2018-19.
- Number of Front Runners (scoring 65-99) increased to 22 States and UTs in 2020-21 from 10 in 2019-20.
- In North East India, 64 districts were Front Runners and 39 districts were Performers in the NITI Aayog North-Eastern Region District SDG Index 2021-22.
- India has the tenth largest forest area in the world.
- In 2020, India ranked third globally in increasing its forest area during 2010 to 2020.
- In 2020, the forests covered 24% of India’s total geographical, accounting for 2% of the world’s total forest area.
- In August 2021, the Plastic Waste Management Amendment Rules, 2021, was notified which is aimed at phasing out single use plastic by 2022.
- Draft regulation on Extended Producer Responsibility for plastic packaging was notified.
- The Compliance status of Grossly Polluting Industries (GPIs) located in the Ganga main stem and its tributaries improved from 39% in 2017 to 81% in 2020.
- The consequent reduction in effluent discharge has been from 349.13 millions of litres per day (MLD) in 2017 to 280.20 MLD in 2020.
- The Prime Minister, as a part of the national statement delivered at the 26 Conference of Parties (COP 26) in Glasgow in November 2021, announced ambitious targets to be achieved by 2030 to enable further reduction in emissions.
- The need to start the one-word movement ‘LIFE’ (Lifestyle for Environment) urging mindful and deliberate utilization instead of mindless and destructive consumption was underlined.
Agriculture and Food Management:
- The Agriculture sector experienced buoyant growth in past two years, accounting for a sizeable 18.8% (2021-22) in Gross Value Added (GVA) of the country registering a growth of 3.6% in 2020-21 and 3.9% in 2021-22.
- Minimum Support Price (MSP) policy is being used to promote crop diversification.
- Net receipts from crop production have increased by 22.6% in the latest Situation Assessment Survey (SAS) compared to SAS Report of 2014.
Industry and Infrastructure:
- Index of Industrial Production (IIP) grew at 17.4 percent (YoY) during April-November 2021 ascompared to (-)15.3 percent in April-November 2020.
- Introduction of Production Linked Incentive (PLI) scheme, major boost provided to infrastructure-both physical as well as digital, along with measures to reduce transaction costs and improve ease of doing business, would support the pace of recovery.
- GVA of services crossed pre-pandemic level in July-September quarter of 2021-22; however, GVA of contact intensive sectors like trade, transport, etc. still remain below pre-pandemic level.
Subject – IR
Context – India is laying out the red carpet for Oman’s top defence official Mohammed Nasser Al Zaabi, who will be in India from January 30 to February 4 on an official visit.
Why is Oman important from a defence and strategic point of view?
- Oman is India’s closest defence partner in the Gulf region and an important anchor for India’s defence and strategic interests. Defence cooperation has emerged as a key pillar for the robust India-Oman strategic partnership. Defence exchanges are guided by a Framework MOU which was recently renewed in 2021.
- Oman is the only country in the Gulf region with which all three services of the Indian armed forces conduct regular bilateral exercises and staff talks, enabling close cooperation and trust at the professional level. Oman also provides critical operational support to Indian naval deployments in the Arabian sea for anti-piracy missions.
- Bilateral training cooperation between the two sides is also robust with Omani forces regularly subscribing to training courses in India both at professional as well as higher command level. Indian armed forces also subscribe to the Staff and Command courses conducted at NDC, Oman. Oman also actively participates in the Indian Ocean Naval Symposium (IONS).
History of India-Oman ties
- Oman, for many years, was ruled by Sultan Qaboos bin Said al Said, who was a friend of India.
- Sultan Qaboos, the longest-reigning leader of the modern Arab world, died in January ‘2020 at the age of 79.
- The Government of India announced national mourning for one day on January 13, 2020 in his honour. Gandhi Peace Prize 2019 was conferred on late HM Sultan Qaboos in March 2021, in recognition of his leadership in strengthening the ties between India & Oman and his efforts to promote peace in the Gulf region.
What’s the significance of the Duqm port?
- The Port of Duqm is situated on the southeastern seaboard of Oman, overlooking the Arabian Sea and the Indian Ocean. It is strategically located, in close proximity to the Chabahar port in Iran. With the Assumption Island being developed in Seychelles and Agalega in Mauritius, Duqm fits into India’s proactive maritime security roadmap.
- Duqm has seen a rise in Indian activities. In recent years, India had deployed an attack submarine to this port in the western Arabian Sea.
- In August 2017, Oman signed an MoU with the United Kingdom that allowed the Royal Navy to use the Port of Duqm. The agreement allows UK access to facilities at Duqm, and among the vessels that will be allowed to dock at the port is the HMS Queen Elizabeth aircraft carrier, the largest ship in the British Navy.
- The Port of Duqm also has a special economic zone, where about $1.8 billion investments are being made by some Indian companies. The Adani group had signed an MoU with Duqm port authorities in recent years.
- In the context of strategic oil reserves near Duqm, India had extended an invitation to Oman to participate in building strategic oil reserves in India.
Subject – Economy
Context – Dr Amit Mitra, a seasoned economist-turned-politician and Principal Chief Advisor (Cabinet rank) to the Chief Minister and Finance Department, Government of West Bengal, feels that “there is no readymade formula to tackle stagflation which is policy-induced
- It is a seemingly contradictory condition described by slow economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e. inflation).
- Stagflation can also be alternatively defined as a period of inflation combined with a decline in gross domestic product (GDP).
- Typically, inflation rises when the economy is growing fast. That’s because people are earning more and more money and are capable of paying higher prices for the same quantity of goods.
- When the economy stalls, inflation tends to dip as well – again because there is less money now chasing the same quantity of goods.
Steps needed to control stagflation in Indian economy:
Tax measures: The best policy measure is to reduce income tax and corporate taxes as they tend to reduce labour costs and raise demand for labour. Similarly, GST should be reduced in order to prevent the price level from rising. To encourage state and local governments to reduce state and local sales, the central government should sanction additional grants-in-aid to them.
Wage control: A policy of wage control should be adopted with government intervention to limit wage rises. When wages rise, firms are forced to reduce production and employment. Consequently, there is a fall in real income and consumer expenditure. Limiting wage increases can break the cycle of wage inflation and help to improve the economic situation.
Supply-side solutions: One solution to stagflation is to increase aggregate supply through supply-side policies, for example, privatisation and deregulation to increase efficiency and reduce costs of production. Private sector must be incentivised to invest more and to increase supply through tax measures.
Monetary policy: The primary macroeconomic objective should be to reduce inflation. Reducing inflation may cause higher unemployment and lower economic growth in the short-term. But, this unemployment can be targeted once the price level is controlled.
Labour reforms: Frictions in the labour market should be reduced by reducing the time and cost involved in obtaining information about employment opportunities. Barriers which either limit entry into a profession or maintain wages at artificially high rates should be removed.
Subject – Science and Tech
Context – Govt. moots plan to link digital IDs
- The government has invited stakeholder comments on a proposal that seeks to establish ‘Federated Digital Identities’ to optimise the number of digital identities that a citizen needs to have, by linking various consumer identification data into a single unique ID for digital transactions such as authentication and e-KYC services.
- The proposal is part of the Electronics and IT Ministry’s India Enterprise Architecture 2.0 (IndEA 2.0) framework that aims to enable the governments and the private sector enterprises to design IT architectures that can span beyond organisational boundaries for delivery of integrated services.
- InDEA 2.0 proposes a model of Federated Digital Identities that seeks to optimise the number of digital identities that a citizen needs to have.
- The model empowers the citizen by putting her in control of these identities and providing her the option of choosing which one to use for what purpose. It gives the agency to the citizens and protects privacy-by-design.
- Electronic registries can be linked via the IDs to allow easy, paperless onboarding of citizens and also avoid repeated data verification needs.
What is InDEA 2.0?
- India Digital Ecosystem Architecture 2.0 or InDEA 2.0 is a framework that enables Governments and private sector enterprises to design IT architectures that can span beyond their organizational boundaries and enable delivery of holistic and integrated services to the customers.
- While InDEA 2.0 builds upon the principles and models recommended in India Enterprise Architecture (IndEA 1.0 – 2018), it adopts a radically different approach to architecture development. It addresses the architectural needs of an ecosystem rather than of an enterprise which was the focus of its predecessor.
Why InDEA 2.0?
- The boundaries between functions, jurisdictions and public-private organizations are getting blurred due to increasing interdependencies and the need for citizen-centric approaches to designing digital services, as opposed to organization-centric approaches.
- The need to provide endto-end services, adopting the methods of digital transformation, agile development methods, disruptive business models, and above all, the as-yet unfathomable opportunities offered by the emerging technologies like AI, ML, IoT and DLT are strong forces pushing the limits towards the evolution of digital ecosystems.
- The core value proposition of InDEA 2.0 to the Governments is in terms of a more rational planning of IT investments, cost savings due to reusable and interoperable systems, and better architectures designed faster. To the citizens, it means a more holistic and seamless experience across organizations. And to the industry, it holds out immense promise of innovation.
- The InDEA 2.0 framework is useful to the policy makers in the government, and architects and system designers in the public and private sector.
Subject – Geography
Context – ‘Bomb cyclone’ hits eastern U.S., triggers transport chaos, outages
- A bomb cyclone is a large, intense midlatitude storm that has low pressure at its center, weather fronts and an array of associated weather, from blizzards to severe thunderstorms to heavy precipitation.
- It becomes a bomb when its central pressure decreases very quickly—by at least 24 millibars in 24 hours.
- When a cyclone “bombs,” or undergoes bombogenesis, this tells us that it has access to the optimal ingredients for strengthening, such as high amounts of heat, moisture and rising air. Most cyclones don’t intensify rapidly in this way.
- Bomb cyclones put forecasters on high alert, because they can produce significant harmful impacts.
- The U.S. Eastern Seaboard is one of the regions where bombogenesis is most common. That’s because storms in the midlatitudes—a temperate zone north of the tropics that includes the entire continental U.S.—draw their energy from large temperature contrasts.
- Along the U.S. East Coast during winter, there’s a naturally potent thermal contrast between the cool land and the warm Gulf Stream current.
- Over the warmer ocean, heat and moisture are abundant. But as cool continental air moves overhead and creates a large difference in temperature, the lower atmosphere becomes unstable and buoyant. Air rises, cools and condenses, forming clouds and precipitation.
- Intense cyclones also require favorable conditions above the surface. Particularly strong upper-level winds, also known as “jet streaks,” and high-amplitude waves embedded within storm tracks can help force air to rise.
- When a strong jet streak overlies a developing low-pressure system, it creates a feedback pattern that makes warm air rise at an increasing rate. This allows the pressure to drop rapidly at the center of the system. As the pressure drops, winds strengthen around the storm. Essentially, the atmosphere is trying to even out pressure differences between the center of the system and the area around it.
Subject – IR
Context – The Nord Stream pipeline is back in the news following the renewed tensions between the West and Russia over Ukraine
- Owned by the Russian energy giant, Gazprom, Nord Stream the longest subsea pipeline, is an export gas pipeline which runs under the Baltic Sea carrying gas from Russia to Europe.
- The gas for Nord Steam comes mainly from the Bovanenkovo oil and gas condensate deposit in Western Siberia.
- The pipeline’s significance comes from the fact that it bypasses transit countries, making it highly reliable for European customers.
What is the Nord Stream Pipeline?
- Nordstream consists of two pipelines, which have two lines each.
- Nord Stream 1 was completed in 2011 and runs from Vyborg in Leningrad to Lubmin near Greifswald, Germany.
- Nord Stream 2 which runs from Ust-Luga in Leningrad to Lubmin was completed in September 2021 and has the capacity to handle 55 billion cubic meters of gas per year once it becomes operational.
- The twin pipelines together can transport a combined total of 110 billion cubic metres (bcm) of gas a year to Europe for at least 50 years.
- The Nord Stream crosses the Exclusive Economic Zones (EEZs) of several countries including Russia, Finland, Sweden, Denmark and Germany, and the territorial waters of Russia, Denmark, and Germany.
- In Germany, the pipeline connects to the OPAL (Baltic Sea Pipeline) and NEL (North European Pipeline) which further connects to the European grid.
What are the objections to the pipeline?
- The pipeline has run into trouble from environmentalists who argue that it does not fit in with German efforts to cut dependence on fossil fuels and fight climate change.
- The strategic objection, particularly from the U.S., is that it will make Europe too dependent on Russia, increasing Russia’s influence in Europe. Moreover, there is concern that Russia could use it as a geopolitical weapon.
- Ukraine has objected because it will lose around $2 billion in transit fees once the pipeline becomes operational.
- Countries like Poland and Belarus also stand to lose transit fees and hence oppose the pipeline as it will bypass existing pipelines running through them.
Why is it important for Europe and Russia?
- Europe requires more than 100 billion cubic metres (bcm) of natural gas each year and around 40% of its gas comes from Russia. This gas is used for heating homes, factories, and offices in the harsh, long European winters and also for power generation.
- Over the last few years, Europe has become more dependent on gas imports because of a decrease in domestic gas production. Reducing dependence on Russian gas is difficult as there are no easy replacements.
- There is no infrastructure to import LNG from exporters like Qatar and the U.S.
- Moreover, Germany’s transition to cleaner fuels by phasing out nuclear power and cutting reliance on coal has increased its dependence on Russian gas as gas is seen as a cleaner fuel.
- Finally, a reduction in gas from Russia would increase already high gas prices and that would not be popular domestically. As for Russia, which has the largest natural gas reserves in the world, around 40% of its budget comes from sales of gas and oil.
- Nord Stream 2 is important because it eliminates the risks related with sending gas through transit countries, cuts operating costs by doing away with transit fees and gives direct access to its most important European customer, Germany. It increases Europe’s dependence on Russia while giving it a reliable customer.
Subject – Science and Tech
Context – India has invited applications from 100 domestic companies, startups and small and medium enterprises to become a part of the design-linked incentive (DLI) scheme
What is the DLI scheme?
- The DLI scheme aims to provide financial and infrastructural support to companies setting up fabs or semiconductor making plants in India.
- It will offer fiscal support of up to 50% of the total cost to eligible participants who can set up these fabs in the country, MeitY said in a statement.
- It will also offer fiscal support of 30% of the capital expenditure to participants for building compound semiconductors, silicon photonics and sensors fabrication plants in India, under this scheme.
- An incentive of 4% to 6% on net sales will be provided for five years to companies of semiconductor design for integrated circuits, chipsets, system on chips, systems and IP cores.
- It is expected to facilitate the growth of at least 20 such companies which can achieve a turnover of more than ₹1500 crore in the coming five years, according to MeitY.
How can the scheme make a difference in the semiconductor manufacturing industry in India?
- Schemes like the DLI are crucial to avoid high dependencies on a few countries or companies.
- The DLI scheme aims to attract existing and global players as it will support their expenditures related to design software, IP rights, development, testing and deployment. It will boost the domestic companies, start-ups, and MSMEs to develop and deploy the semiconductor design. It will also help global investors to choose India as their preferred investment destination.
What are other countries doing to be dominant in the race of chip making?
- Currently, semiconductor manufacturing is dominated by companies in the U.S., Japan, South Korea, Taiwan, Israel and the Netherlands. They are also making efforts in solving the chip shortage problem.
- These chipmakers produce up to 70% of the world’s semiconductors.
What are the challenges in 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.
- Although India has semiconductor fabs in Mohali and Bangalore t they are purely strategic for defence and space applications only.
- Setting up fabs is capital intensive and needs investment in the range of $5 billion to $10 billion. Lack of investments and supportive government policies are some of the challenges to set up fabs in India.
- New fabs use sub 5 nano meter technology that requires clearance from both the technology provider and the Government. So, a combination of capital and the geopolitical situation comes into play to build new fabs.
- Infrastructure like connectivity to airports, seaports and availability of gallons of pure water as challenges to set up fabs in India. He, however, reckons that several gases and minerals which are a part of the global semiconductor supply chain are produced in India.
- Mobiles, wearables, IT and industrial components are the leading segments in the Indian semiconductor industry contributing around 80% of the revenues in 2021.
- Design Linked Incentive (DLI) scheme along with the recent Production-Linked Incentive (PLI) scheme have become crucial in shaping India as an efficient, equitable, and resilient design and manufacturing hub.