Govt offers sops to semiconductor biz

NEW DELHI/BANGALORE: The government on Thursday finally announced the long awaited semiconductor policy. Till now, India has been designing chips, in over 100 chip design units, for the world — for products like iPods, set top boxes, LCD TVs, cell phones — while countries like China, Taiwan, Singapore manufactured the India designed chips. The new policy promises sops for companies to set up fab units (jargon for chip manufacturing plants) in India.

Whether global semiconductor giants actually set up fab units in India remains to be seen. But the potential importance of the policy cannot be undermined. India is the fastest growing market for electronic products in the world with electronic goods consumption (from cellphones, LCD TVs, set-top boxes to smart washing machines) expected to grow from $28 billion in 2005 to $363 billion by 2015.

India is expected to account for 11% of the global electronics market by 2015, compared to 1.8% in 2005. And these digital products will consume semiconductors (a basic component of most electronic goods today) to the tune of $36 billion by 2015, says the Indian Semiconductor Association.

This may make a compelling case for semiconductor giants like Intel, AMD, Infineon, Toshiba, IBM and SemIndia to establish manufacturing units and avail the 20% subsidy for semiconductor plants in SEZs and 25% for those located outside SEZs.

The incentives will be in the form of tax concessions, interest subsidy and interest free loans for subsidising the capital expenditure incurred in setting up the manufacturing units for the first 10 years of its existence. So, a unit set up in 2010 (the policy is valid till then) would receive subsidies up to 2020.

Announcing the package for semiconductor fabrication and other micro and nano technology manufacturing industries, IT and Communications Minister Dayanidhi Maran said that the government has rolled out the red carpet for big companies. “Earlier we lost to Vietnam and Israel because of the absence of a policy,” Mr Maran said.

SemIndia founder, chairman & CEO Vinod Agarwal, said, “We are excited that the government has taken a step in the right direction at this crucial juncture. This policy announcement will give a major fillip to hi-tech manufacturing in the country which can become a significant contributor to the Indian economy.”

Mr Maran said that large companies have already approached the government evincing interest and the policy could immediately attract $6-9 billion investment in fabrication units. The incentive package is over and above the incentives offered by the various state governments. Andhra Pradesh leads the race for creating an ecosystem for semiconductor players.

The minimum investment for availing the incentives for semiconductor manufacturing has been pegged at Rs 2,500 crore, while the threshold for other products like LCDs, organic emitting diodes, plasma display panels, storage devices, photovoltics and other advanced micro and nano technology products and assembly and testing is Rs 1,000 crore.

Asked if the company would establish a manufacturing unit in India following the announcement, an Intel spokesperson said, “Once a comprehensive policy document is circulated, we will evaluate and respond.”

AMD India MD Alok Ohrie said, “We are very pleased that the government has taken a definitive step towards jump starting high-tech manufacturing in India. This move has the potential to change the course of IT industry landscape in the country. AMD reaffirms its commitment to stand by SemIndia by offering process technology for the proposed fab.”

However, everyone may not join the party. For instance, Europe’s largest chip maker ST Microelectronics (STM) which has a 1,700 people design centre in India says that there is already an overcapacity of chip making units.

Says Vivek Sharma, vice president, emerging markets region, and director, STM India design centre, “We have enough capacity for the next five years. Also, the future could be fab-lite companies (that is, companies like STM will design chips while manufacturing could be outsourced).”

Nonetheless, many companies could come calling, considering the opportunity that the domestic market offers. After announcing the policy, Mr Maran said that during his recent visit to San Fransicso, many mono-silicon and poly-silicon manufacturers had expressed interest in investing in India. He said he is in talks with them and had received expressions of interest from MNCs after the policy got an in-principle nod.