Chip making plan hangs on Rs 6,750 cr central fund

The country's fledgling semiconductor manufacturing initiative may now depend on the government accepting a demand for a funding mechanism of around Rs 6,750 crore ($1.5 billion).

A recently set up industry association (ISA) Indian Semiconductor Association-that comprises companies like Freescale, SemIndia, Broadcom, has sent a proposal to the Planning Commission asking for a dedicated fund for the initiative.

The fund, ISA Chairman Rajendra Khare, said would be used for providing equity support to projects. "Without these funds, even those fabrication units that have already been announced (the $3 billion each SemIndia-AMD and IEMA projects) will not be set up.

The ISA also expects two new wafer fabrication projects to be announced once the fund is set up.

"There are two Korean companies which are willing to invest in fabrication units in India, provided the government creates the fund," Khera said.

In fact, if the fund came through, it might then lead to a profusion of chip manufacturing facilities, he added.

Khare said up to 25 per cent of the equity component of a project (1:3 debt-equity) could be funded through this mechanism. Apart from the fund, the association has also asked the government to formulate a policy to allow more players to come in. The national policy on semiconductors is being drafted by the department of information technology.

"The government is in the process of drafting a national policy on semiconductor facilities and the proposed policy is likely to be based broadly on those in Taiwan and China," a senior government official told Business Standard.