Semiconductor Cos Nibble at Indian Carrots; Two Proposals Received to Set Up Fabrication Units

India’s long standing dream of having semiconductor fabrication factories in the country is finally gaining some traction. The Government has received two proposals to set up semiconductor fabrication plants in India, at a cost of nearly $5 bn, a top minister said on Monday.

“We have received two proposals to set up semiconductor manufacturing plants in India which will go to Cabinet in two weeks,” Telecom Minister Kapil Sibal told the press at the sidelines of an industry conference in Delhi (source).

Government’s department of Information and Technology had recently invited expression of interest from companies interested in setting up fabrication plants in India.

Pressing NeedFab Semiconductor IndiaDemand for electronics hardware in the country is projected to increase from $45 bn in 2009 to $400 bn by 2020. For the nine months ending April 2013, India is projected to have imported electronic goods worth $26 bn from countries like Taiwan and China.

According to a report by the department, the current import bill for semiconductors is around $7 billion per year and increasing at a rate of 22%. By 2020 this bill is estimated to reach around $45-70 billion.

Today there are no semiconductor wafer fabrication plants in India and semiconductor manufacturing is restricted to government companies. USA, EU and SE Asian countries dominate the global semiconductor industry making all other countries depend on them for their semiconductor needs.

Government Push

The Indian government has been pushing to create an environment favorable for semiconductor fabrication in India as its electronics import bill is growing at an alarming rate.

Union Finance Minister P Chidambaram announced sops for semiconductor wafer manufacturing facilities in India during his budget speech last month. The government waived off customs duty for import of plant and machinery.Silicon Chip

In the past the government has been heavily criticized by industry pundits for not providing funds and incentives to this segment, of the electronics goods industry, unlike other SE Asian countries.

This new scheme by the government will hopefully boost the morale of companies wanting to set up a wafer fabrication plant and other electronics manufacturing units. The application period for the M-SIPS (Modifies Special Incentive Package Scheme)  began from January 2013 and will end on May 2015. As per this new scheme, the government will provide up to $1.8 bn in incentives to companies involved in production of electronics products and components in India.

The Government will provide a subsidy of 20% on capital expenditure incurred to companies setting up production units within Special Economic Zones and 25% to units set up outside these zones. IT services company Accenture has been selected by the Department of Electronics and Information Technology (DeitY) to review investment proposals from companies.

The Back Story

Last year the government had come up with the National Policy On Electronics (NPOE)  in order to fill the gap between domestic demand and production of electronic goods. In the policy it was was said that there would be special incentive packages for the companies to start semiconductor wafer fabrication plants in India.

India has been a global leader in the software and services industry and major center for chip design generating $2 bn annually through chip design alone. Even though India has had no shortage of VLSI design or semiconductor engineers and domestic demand, infrastructure shortcomings like clean water supply, regular water supply and uninterrupted power supply and bad road connectivity has hindered the setting up of wafer fabrication plants.

The government of India had in the past many a time planned to build the ‘Indian microprocessor’ through various public-private-partnerships, but nothing has materialised till now. Hope the new efforts by the government are also just not an eyewash.