India may soon get two fab facilities: Will it be difficult to rope in investors?

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By Srabani Sen

The recent Indian government announcement about unveiling a manufacturing policy soon, no doubt indicates its seriousness to boost domestic manufacturing. And with a subsequent announcement that two semiconductor wafer fabrication (fab) units will be set up in India, the government has taken a giant leap forward. While the semiconductor and electronics manufacturing sectors are rejoicing over this initiative taken by the government after decades of failure to produce tangible results, it’s time to ponder over a few issues—what is the extent of the government’s support for this initiative? Will it be easy to get investors, considering past records that show the government failed to attract chip manufacturers to set up shop in the country? And how difficult would it be to identify the right technology?

“India may have missed the bus earlier, or had contradictory policies for manufacturing, but this renewed vigour is very essential and long overdue,” states S Uma Mahesh, co-founder, CEO, Indrion Technologies.

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While the construction of the two fabs is expected to cost about US$ 5 billion, the amount of government financial support is yet to be arrived at. It could be a mix of grants and subsidies.

The Union Cabinet has already approved the proposal to set up an empowered committee to identify technology and attract investors for these facilities. The six member committee includes an adviser to the Prime Minister on technology issues, the chairman of the National Manufacturing Competitiveness Council (NMCC) and MJ Zarabi, former chairman of India’s Semiconductor Complex.

Says Dr Zarabi, “The government certainly has a great desire to set up the wafer fab facilities. However, this is not an easy task. We will submit our recommendations on July 31, based on our ideas, requirements (keeping in mind the demand faced by our economy), and what kind of incentives ought to be offered to prospective investors.” The committee will also recommend the level of government support for the fab project.

“The committee will assess and recommend how much and in what shape (equity, grant or subsidy) government support should be for these facilities. The empowered committee will focus on the policies related to technology, procurement, preferential market access for local manufacturers, investor specifications, quantum of investment required, etc. Once the recommendations are out, the government will decide to act,” says Ajay Kumar, joint secretary, Department of Information and Technology.

Commenting on the prospective investors, Mahesh, who was a part of Hyderabad’s FabCity initiative, opines, “It would not be easy to get investors for these facilities. The government should establish its sincerity through policy incentives and grants. In earlier government initiatives, the monetary benefits fell short; hence, the efforts did not see the light of day. But that can be corrected now by offering added advantages and incentives. The investors should also be convinced that India is a growing and potential market for semiconductors. With a coherent, consistent, comprehensive and holistic policy approach, and with long term commitments, getting investors will be possible.”

Mahesh believes that technology identification will not be a hurdle. “Basically, the technology need not be the most advanced geometry; it should preferably suit a mix of signal/analogue designs,” he says.

“More importantly, policy contradictions that make it easier and more remunerative to import, when compared to the levies on domestic manufacturing, should be corrected. Also, the FabCity initiative of India Semiconductor Association(ISA)in Hyderabad should be taken into account. I believe there are some remarkable and valuable lessons that can be reused,” Mahesh adds.

The impact

The Indian electronics hardware industry and the Indian economy would be the direct beneficiaries of this proposal to set up fab facilities. The Indian electronics hardware sector is capital intensive and is facing several barriers as domestic manufacturing is minimal. This proposal can, therefore, have a significant impact in boosting localised manufacturing.

The semiconductor wafer fabs will also have an impact on the development of downstream and upstream products, including ancillaries. It would also impact the development of the IT/ITES sector, particularly in very large scale integration (VLSI) design software, solutions and services. It will also help bootstrap innovation and R&D in the country, especially in the area of semiconductors.

The government has also estimated that the creation of the chip-making industry within India will help create 30 million direct and indirect jobs by 2020.

All said and done, it remains to be seen how the market determines the success of these fabs—through its acceptance or rejection. Also, only time can tell whether this effort will fare any better than earlier government proposals to start semiconductor manufacturing in the country, which had failed.

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