CONTEXT

• Semiconductors are essential to all digital and electronic systems—from smartphones and computers to AI, EVs, and IoT devices.
• Global chip supply disruptions post-COVID-19 exposed India’s overdependence on imports, especially from China (~35% of global chip output in 2021).
• To counter this vulnerability, India launched the Semicon India Programme (2022) with a ₹76,000 crore outlay to boost domestic chip manufacturing.
• Special Economic Zones (SEZs), with their tax and infrastructure incentives, are vital tools to attract investment in electronics and chip sectors.

CONCEPT: WHAT SEZ RULE CHANGES WERE MADE?

• On June 9, 2024, the Ministry of Commerce notified amendments to SEZ Rules, 2006 to facilitate semiconductor and electronics manufacturing.

Key Amendments:

1. Rule 5 (Land Size Reduced):
   • Earlier: 50 hectares minimum for semiconductor SEZs.
   • Now: Reduced to 10 hectares—enabling smaller, more feasible projects.
2. Rule 7 (Encumbrance-Free Land Relaxed):
   • Earlier: SEZ land had to be free from legal claims/encumbrances.
   • Now: The Board of Approval can relax this condition, speeding up project clearance in India’s complex land ecosystem.
3. Rule 18 (Domestic Sales Allowed):
   • Earlier: SEZ units were export-oriented only.
   • Now: Domestic supply is permitted after paying duties—mitigating global trade risks and supporting local demand.

CURRENT: EARLY IMPACTS & SIGNIFICANCE

• Too early for full outcomes, but two major investments already approved:
  • Micron Technology (Sanand, Gujarat) – ₹13,000 crore, 37.64 ha facility.
  • Aequs Group (Dharwad, Karnataka) – ₹100 crore, 11.55 ha facility.

Importance of Semiconductors:

• Backbone of Digital India, 5G rollout, defence tech, automation, and consumer electronics.
• Enhancing chip self-reliance aligns with India’s goals under Atmanirbhar Bharat and Make in India.

CONCLUSION

• The SEZ rule relaxations are a strategic move to catalyse India’s entry into the global semiconductor supply chain.
• Eases project setup, attracts FDI, and supports long-term goals of digital sovereignty and economic resilience.

MAINS QUESTION

1. Analyze the importance of semiconductors in India’s economic and technological development, and discuss the government’s initiatives to promote domestic chip manufacturing.
2. Evaluate the impact of the SEZ rule relaxations on India’s semiconductor industry, highlighting the potential benefits and challenges.