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Jolt To India’s ‘Fab’ Plans: Planning Commission Halts Rs 250 Billion Proposal to set up 2 Fab Units

There may be some more time before India has its Semiconductor Wafer Fabrication (Fab) units, with a potential of creating about 30 million direct & indirect jobs by 2020, as the planning commission has shot down DeitY’s implementation proposal in its current form after Union cabinet had approved the project in principle in 2011.

Friday, July 26, 2013: Expressing serious reservations that a huge ‘undue’ subsidy could go to the private sector, the Planning Commission of India has refused to accept the Department of Electronics and IT’s (DeitY) Rs 250 billions (Rs 25000 crore) plan to set up semiconductor wafer fabrication manufacturing units in the country in its present form. This comes as a big blow to the industry that was optimistic of setting up of at least the first Semiconductor Wafer Fabrication (Fab) unit this year with the project having the backing of political heavyweights like Kapil Sibal and P Chidambaram.

Wafer Manufacturing: Some Distance Away!

Wafer manufacturing: Some distance away!

The Department of Electronics and IT had proposed to set up semiconductor wafer fabrication manufacturing units in the country with an investment of around Rs25,000 crore, most of it through government funding, either as equity, grant or subsidy –in physical or financial terms.

But the Plan panel has now asked the department to go back to the drawing board and re-work the entire proposal, raising questions if it would be worth investing so much money in a sector that sees rapid technology changes. Returning the proposal to DeitY, the panel highlighted the use of excess capacity available the world over and developing electronics before setting up fabrication units.

Sources in the Planning Commission have indicated that such a huge subsidy, when there is already excess capacity the world over and $4 billion M-SIPS (Modified Special Incentive Package Scheme) available, is not the most plausible option and certainly not the priority of the government.

Significantly, DeitY is already in talks with companies for setting up these units. These include Jaypee Group that has tied up with International Business Machines Corp. (IBM) as its technology partner, and the chip-maker Hindustan Semiconductor Manufacturing (HSMC). HSMC has further teamed up with Geneva-based STMicroelectronics. But the Plan Panel’s refusal could derail the entire deliberations that are underway and overall plans for the sector that found a special mention in the national Budget for 2013-14.

Finance minister P Chidambaram had said while presenting the Budget, “The government would provide appropriate incentives to semiconductor wafer manufacturing facility including zero custom duty for plant and machinery.”

Telecom & IT minister Kapil Sibal too had given a thumbs up to the project in January 2013. ”We have to set up a fab (electronic chip fabrication) unit in this year. Negotiations are on. We will have proposal very soon in our office,” Sibal had said while unveiling one year agenda of DEITY.

The ‘Fab’ History

The Sam Pitroda committee had recommended setting up Semiconductor Wafer Fabs in the country to the Prime Minister in September, 2010 as part of its development plan of the Electronics System Design and Manufacturing (ESDM) sector in India.

The Union Cabinet had also approved the setting up of two semiconductor plants in the country at an estimated investment of around Rs25,000 crore in 2011, with the aim of boosting innovation and R&D, especially in electronics, which would have helped in creating around three crore (direct and indirect) jobs by 2020.

Subsequently an Empowered Committee was set-up with a mandate to identify technology and investors for setting up of two Semiconductor Wafer Fabs in the country. The members of the Committee include Mr Sam Pitroda Adviser to PM on Public Information Infrastructure and Innovation; Mr V Krishnamurthy Chairman, NMCC; Secretary, Department of Expenditure; Mr Arun Maira, Member (Industry), Planning Commission; Dr. M. J. Zarabi, Former CMD, Semiconductor Complex Ltd. (SCL) – Technical Expert; and Secretary, DIT who is the Member Convenor.

The final proposal was made after rounds of discussion from various technology providers and investors and scrutiny of various business proposals from the interested parties, the entire process spearheaded by DeitY.

The semiconductor or electronic chips form the basis of all electronic products such as mobile phones, computers as well as equipment used in telecom networks, defence and so on.

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