Semiconductor policy notified

The government today notified the semiconductor policy it had announced on February 22 this year.

With this, it expects to attract an investment of $6-10 billion (Rs 24,000-44,000 crore) by luring two or three fabrication units, with an investment worth $2-3 billion each, by 2010.

Addressing the media, Minister for IT and Communications Dayanidhi Maran said, "An appraisal committee, to be headed by an additional secretary in the IT department, will be formed soon. It will receive expression of interest from interested parties and submit its recommendations to the government."

He added that he would reopen negotiations with Intel and other companies to explore possibilities of them setting up units in the country.

Reacting to the announcement, an Intel spokesperson said, "Once the comprehensive policy document is circulated, we will evaluate and respond."

Last month, the government had announced a host of incentives in the semiconductor policy that include bearing 20 per cent of the capital expenditure during the first 10 years if a unit is located in a Special Economic Zone (SEZ) and 25 per cent in case of other units. The countervailing duty (CVD) on capital goods too would be exempted in case of units situated outside an SEZ.

The policy further entails that for semiconductor manufacturing (wafer fabs) plants, the investment will be Rs 2,500 crore, while for manufacturing other products the investment will be Rs 1,000 crore.

In cases where projects have a 1:1 debt to equity ratio, the government will restrict its equity participation to around 26 per cent. The remaining part "will be in the form of interest-free loans, tax subsidies and concessions", according to the IT minister.

The policy covers LCDs, plasmas, storage devices, solar cells, photo-voltaics and nanotechnology products, as well as assembly and testing of these products.

The domestic market for electronic goods is expected to reach $363 billion by 2015 and the domestic demand for semiconductors alone is predicted to touch $43 billion.

However, there have been two views on this issue: one, that India should restrict itself to chip designing (where more than 125 players already exist in the country) and leave fabrication to the people who are already in the business. According to the other view, India needs a fabrication industry of its own to create a full semiconductor ecosystem.

A full-fledged fab requires an investment of $3-4 billion (Rs 13,500-18,000 crore). Some analysts question the viability of creating a chip manufacturing industry in India.

According to them, a company can manufacture chips in a country like Taiwan, at a fraction of the cost it would spend here. Moreover, foundry revenue had slowed down the world over because of price competition from recent market entrants like China.

Also, the gestation period for a chip-manufacturing plant was around 18 months, by which time the technology involved could change and leave a new entrant stranded, they argue.

Gartner Dataquest said there would be overcapacity and saturation in the market by 2009, by which SemIndia planned to set up its $3 billion chip fab. But SemIndia has a counter-point.

The company claims to have commitments from the likes of AMD (which may take a stake, now that the policy has been announced), Sandisk, Flextronics and Broadcom.