On-tap application to set up fab plants likely; Meity may consider proposal

The change will give room to more players

The government is tweaking the semiconductor and display fab scheme so that interested parties can make an application on tap instead of being subjected to a 45-day deadline, according to sources. At present, interested applicants have to apply within 45 days to be considered eligible for financial incentives.

The new scheme will permit interested players to make an application to set up a fab plant any time without any deadlines. The Ministry of Electronics and Information Technology (Meity) is expected to consider the proposal.

The only condition is that the proposal will be subject to the total budget earmarked for financial incentives under the semiconductor scheme which is pegged at $10 billion. However, the government has hinted that the budget can be increased, if required.  

There will be no need for the government to repeatedly invite new applicants and again impose a deadline after the first proposal is cleared. The government has been looking at giving clearances for at least two semiconductor and display fab plants in India. The numbers could go up, however, as India needs many more fab plants to meet chip demand.    

Both new players, as well as applicants who have already applied but found that their proposals had failed to make the cut, can go back again to rework them and resubmit under the changed scheme. 

The tweaking of the scheme will be announced to coincide with the Ministry’s clearance for its first fab plant project which is expected soon and likely to be the joint venture between Vedanta and Foxconn for a chip plant in Gujarat.

The move to put in a deadline had discouraged many global chip makers from having discussions on the possibility of setting up a fab plant in India. This was because of the large investment required ($4-10 billion) and the plants’ strategic importance to a country.

Owing to this, chip companies are invariably involved in hectic  and detailed negotiations to get the best deals from a government before the project gets off the ground. The production linked incentive scheme for various industries which has deadlines for applications does not work for fab plants. “Under the new scheme, we will remove the 45 day deadline on applicants looking to set up a fab plant,” said a top government official. “They can now come any time and we will consider their proposals within the $10 billion budget for incentives under the semiconductor scheme. This will encourage many more players to come in.”

Under the existing scheme, applicants wanting to set up a fab plant were given 45 days from 1 January 2022. Only three companies met the deadline: Vedanta-Foxconn, Singapore-based consortium IGSS and ISMC, a consortium led by Next Orbit which had roped in Tower Corporation as a partner. The change is expected to help many companies such as IGSS who have been waiting precisely for such a policy tweak and are working on strengthening their  proposals to meet the requirements of the government.

Many of the contenders have seen their proposals stuck because of the insistence of the government that the consortiums should have all their binding agreements ready from their investors and technology providers before it considers them. The government would not accept a memorandum of understanding or a letter of intent.

The government has also insisted on an anchor investor in a consortium who has deep pockets to sustain the initial large investment for making a fab plant —  a feature lacking in many of the proposals.

Other issues that firms such as ISMC, for example, face are challenges because of the uncertainty about the Tower Corporation which is not only the technology provider but is also ready to make investments and even buy back chips. Yet the Tower Corporation’s acquisition by Intel has become ensnared in Sino-American tensions; the proposal needs to get a green signal from China as it is one of Tower’s biggest clients. This seems to be stuck till the second quarter of this year.

HOW IT WILL CHANGE THE SCENARIO

• The 45-day deadline does not work as talks between firms and Centre are required for a multi-billion-dollar fab plant to take off
• It will encourage global players to sound out the government with a proposal for discussion any time, which was not possible earlier
• Will give many players whose earlier proposals had not found favour a second chance to tweak them to requirements of ISM
• In view of at least two fab plants, govt hints that the overall budget earmarked for incentives could go up