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Without much ado, the government has extended the deadline for submitting applications to set up semiconductor fabrication units, or fabs, which produce the most complex and valuable part of any electronic device - the chip -, from Wednesday to the end of the month. "We want to give the interested companies sufficient time to think and apply," says an official in the department of electronics and information technology.
The real reason could be different: in September, the government had given in-principle approval to two proposals to set up fabs in the country - one consortium led by Jaiprakash Associates and the other by Hindustan Semiconductor Manufacturing Corporation -worth Rs 50,000 crore, of which the government was ready to subsidise as much as 40 per cent. As a result of ongoing investigations, bureaucrats and ministers alike have become extremely cautious, and this is yet another instance of the government playing safe. In the final few months of its second tenure, the last thing the United Progressive Alliance wants is another controversy - hence, the effort to get in more investors and avoid any allegations of favouritism.
India has, for at least six years now, been chasing the dream of setting up electronic fabs. After a two-and-a-half year wait, the government had finally come close to achieving this ambition when the Jaiprakash Associates and Hindustan Semiconductor proposals were cleared. Now, it appears there will be some more delay.
Officials in the department, as also Communications & Information Technology Minister Kapil Sibal, are convinced that fabs will act as a catalyst for the country's components and equipment electronics industry. India currently imports a majority of its electronics because chips aren't made locally. The government expects India to import electronic goods worth almost $300 billion, of its total demand of $400 billion, by 2020. India's electronics import bill could, thus, exceed that of oil. Local fabs will reduce imports, stimulate investments in the economy and create jobs.
Deepa Doraiswamy, industry manager (automation and electronics) at Frost & Sullivan, a research firm, says that India is already recognised as a hub for semiconductor chip design, which makes a compelling case for setting up fabs. "We have talent and expertise not just in designing parts of the chip but in making the complete chip," she says. For example, global semiconductor design & manufacturing company Texas Instrument designs the complete chip for its mobile handsets out of its Bangalore facility. Chip manufacturing, Doraiswamy adds, would be a natural progression for India and will lead to the assembly and packaging of the devices, "completing the ecosystem for electronics in the country".
Too little, too late?
Compelling as it may sound, some experts are sceptical if it will have any significant impact on investments. Most of the big names in the business now prefer to outsource their fab needs to large vendors so that they can focus their energies on research and product development. Some of these global corporations are also consolidating their global facilities which are running at only 60-70 per cent of their capacity. "From that perspective, they don't see a need to invest in any fresh fab," argues Doraiswamy. That's perhaps why none of the leading chip manufacturing companies has come forward to set up shop in India.
Investors may also be wary of the time which the government may take to clear subsidy for complex project. Already, there are signs of a controversy around the 40 per cent subsidy. Initially, the Planning Commission had some reservations on the grounds that allocating subsidies to just two consortiums, without adequate guarantee of technology transfer, was not advisable. Some Cabinet ministers were also of the view that having only two consortiums handle such a high-value project could give the impression of malpractice and, hence the option to allow others also to participate should be explored. The move to open the window for other applications was made to ensure that there is no post facto criticism of the procedure followed to incentivise the two fab units.
Therefore, the Cabinet gave only "in-principle" approval to the two consortiums. "The proposals will go back to the Cabinet after the new deadline ends," says an official. An executive with one of the consortium partners says the final go-ahead is expected only after February next year, once the formalities have been completed. "We are expecting environmental clearance to take another eight to ten months," he says. It will take two-and-a-half years to finish the project if the work on the facility starts by the end of 2014. "The facilities are expected to start production only sometime in 2017," the executive adds.
The long gestation period and the technology mandates of the government have also raised questions about the usefulness of the projects when they finally come up. The government has mandated vendors to produce chips of nodes 90, 65 and 45 nanometre (nm) which go into industrial devices such as medical equipment and low-end handsets. Chips that go into high-end products - 28 nm and 22 nm - will come in only in the second phase. However, the world over, the current technology uses 22 nm chips. Work is on to lower the sizes further to 10 nm.
Doraiswamy says six years is too long a period to predict what shape technology will take. In the country's rural market, the demand for low-end handsets and education tablets, which require 45 nm chips, is expected to remain strong for a while. "I am not saying that the technology is not going to change, but from the Indian perspective, a five-year time frame is still not going to make a 45 nm chip obsolete." She, however, admits that products such as digital cameras and notebooks will keep progressing rapidly and, hence, it is unlikely that their chip needs will be met out of the India facility.
The Indian Electronics and Semiconductor Association says that the products being currently produced on the 28 nm and 22 nm nodes are likely to be those which will not be made in India, even if the country puts that technology node into place today. According to a study by Gartner, a total of $34.6 billion is expected to be spent worldwide on semiconductor manufacturing equipment in 2013. This is an 8.5 per cent decline from 2012, when $37.8 billion was spent.
Experts also point out that even though India has lined up an array of sops to woo investors, these may not be enough when compared to what countries such as China and Taiwan - the global hubs for electronics manufacturing - offer. While China provides state subsidies for the facilities and is said to be even taking care of their losses, Taiwan has set up an industrial park for which the government chipped in with 50 per cent of the investment cost. India is offering to fund almost 40 per cent of the project cost, but this might not be enough.
INDIA'S ROLLER-COASTER FAB JOURNEY
2007: Talks with Intel Corp to set up a facility in India fail. Government unveils new semiconductor policy, which too fails to garner interest
June 2011: Invites proposals to set up semiconductor fabrication units. Only two consortiums submit formal bids
Sept 12: Cabinet gives in-principle approval to the consortiums
Oct 9: Government publishes details of sops and calls for more proposals
Nov 5: Last date for submitting proposals for the unit extended to November 25 from November 6
THE DEALS SO FAR
JAIPRAKASH ASSOCIATES ALONG WITH IBM AND TOWER JAZZ
Investment Rs 26,300 crore
Proposed location: Greater Noida
HINDUSTAN SEMICONDUCTOR MANUFACTURING CORPORATION (HSMC), ALONG WITH ST MICROELECTRONICS AND SILTERRA
Investment Rs 25,250 crore
Proposed location: Prantij, near Gandhinagar, Gujarat
