Govt. Gets Proposals Worth Rs 515 Billions To Set Up Semiconductor FAB Units In Noida And Prantij

By Srabani Sen

The Cabinet on Thursday (Sep 12, 2013) gave an initial approval to set up two semiconductor wafer fabrication (fab) manufacturing facilities in the country. However, the Cabinet would now seek proposals from more chip manufacturers before giving the final nod. The Cabinet took the decision after reviewing proposals from two consortia, and the final decision will be taken after four weeks.

“The Cabinet has given in-principle approval for setting up of semiconductor wafer fabrication manufacturing facilities,” Information and Broadcasting Minister, Manish Tewari told reporters after a meeting of the Union Cabinet, chaired by Prime Minister Manmohan Singh.

The government will now advertise the incentives it offers for setting up semiconductor fabs in India and invite applications from other chip makers. The incentives include return of some state and Central taxes as well as cash subsidies. Besides the package of incentives, Finance Minister P Chidambaram in his Budget 2013 had also announced zero customs duty for plant and machinery.

Proposals received

The ministry has already received two proposals—one is led by Israel’s Tower Semiconductor Ltd. and the other is led by Geneva-based STMicroelectronics NV. Tower has given the proposal to set up the facility after teaming up with International Business Machines Corporation (IBM) and India’s Jaypee group. STMicroelectronics, on the other hand, has partnered with Hindustan Semiconductor Manufacturing Corporation and SilTerra Malaysia Sdn.

The Tower-IBM-Jaypee consortium proposes to invest Rs 263 billion (US$ 4.14 billion) to set up a facility at Noida in Uttar Pradesh. While technology partner IBM will hold 5 per cent equity, Tower will have 10 per cent stake.

The second group proposes to invest Rs 252.50 billion for a facility at Prantij in Gujarat. STMicroelectronics will hold 10 per cent equity stake in the unit. Both proposals are for manufacturing of 40,000 wafers of 300 mm size per month.

Informs Dr. Ajay Kumar, Joint Secretary, Department of Electronics and IT (DeitY), “The investment envisaged for the two units is around Rs 250 billion and the level of government support for these units will be decided through negotiation with chip makers.”

The impact

As India’s demand for electronic hardware is expected to cross US$ 400 billion by 2020 from about US$ 45 billion now, this will lead to demand for more than US$ 50 billion of semiconductors. India now consumes about US$ 7 billion of semiconductor products every year.
According to Dr. Ajay Kumar, the Cabinet decision has been a historic one and will change the landscape of the electronics manufacturing ecosystem of India. While the electronics manufacturing ecosystem and the electronics industry as a whole will feel the direct impact of the production, Indian economy will also benefit from its contribution. “A fab is estimated to contribute 23 times of the investment to GDP. Its transformative effect on the electronics industry is tremendous. It has a very strong multiplier effect than any other industry,” he adds.

“We are waiting for the minutes of the Cabinet meeting to come through so that we can start work on the next step. We will now invite other investors to send their proposals,” he says.

Industry reaction

Welcoming the Cabinet decision, Rajoo Goel, Secretary General, ELCINA Electronic Industries Association of India, says, “The credit for pushing this policy through despite several hurdles goes to the minister Kapil Sibal, and DeitY Secretary and Joint Secretary. This decision will not only give a big boost to the industry but, will also give a feel good factor to it. Importantly, it will encourage the industry and boost other policies like Modified Special Incentive Package Scheme (MSIPS), Electronics Manufacturing Cluster (EMC) policy, etc.”

Earlier, Kapil Sibal had found it difficult to convince various government departments on several issues related to the project of setting up a semiconductor fab. Some departments wanted to have a tender process for setting up of the fab which is not practical in case of high-tech projects, especially those being set up for strategic reason. “It takes so much battling to be done to convince our government agencies how necessary it is to have a fab unit in the country,” Kapil Sibal had said at the Telecom Summit organised by industry body CII.

Welcoming the development, PVG Menon, President, India Electronics and Semiconductor Association (IESA), says, “The fab is a highly strategic game changer for India. It will leapfrog the country ahead by several years, in development of indigenous electronic products and help in the development of a local semiconductor industry.” Menon also believes that the presence of a local fab in India would boost the country’s capability to build IP assets within India. “We reiterate that in terms of its impact and implications, the fab must be treated on par with India’s investments in her space and nuclear programmes,” he says.

A high level committee, headed by advisory to Prime Minister Sam Pitroda was given the task in April 2011 to identify technology and investors for setting up a chip plant.

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