Did you know that the Indian semicon policy had expired and now requires an extension?


Interesting, isn’t it! I wonder how many folks in the Indiian semiconductor industry, and for that matter, in India and in the Indian technology industry, are actually aware of this! The Indian semiconductor policy was announced back in 2007. It has now supposedly expired on March 31, 2010!

Let me refresh your memory!

Back in September 2007, the Department of Information Technology, Ministry of Communication and IT, Government of India, came up with the Special Incentive Package Scheme (SIPS) to encourage investments for setting up semicon fabs, and other micro and nanotechnology manufacturing industries in India!

The “ecosystem units” were clearly defined as units, other than a fab unit, for manufacture of semiconductors, displays including LCDs, OLEDs, PDPs, any other emerging displays; storage devices; solar cells; photovoltaics; other advanced micro and nanotechnology products; and assembly and test of all the above products.

What has happened since? Lots of initiatives announced in solar PV, including the National Solar Mission. However, as of now, no semicon fabs! SemIndia and HSMC had planned to start one, but somewhere down the line, one doesn’t get to hear much about those. In between, the global recession happened, starting Q3-08 and went on to span the most of 2009. Consequently, the global semiconductor industry took a solid beating, and perhaps, the Indian semicon policy got buried in the midst of all of these.

Now, there are published reports of De Core Nanosemiconductors setting up an LED fab in Gandhinagar, Gujarat. It also has a plant for LED lamps in Noida, UP. The Karnataka government recently announced its own semiconductor policy at the India Semiconductor Association’s (ISA) Vision Summit 2010.

As per published reports again, the Karnataka government recently approved investment projects worth Rs.943 billion. The proposals include a 50 MW solar PV power project of Moserbaer, electrical switchgears by Easun Reyrole, aerospace components by Swiss firm Starragheckert, and CFL bulbs, energy efficient tube light and LED lamps by Surya Roshini. That’s great!

Are these enough? Perhaps, not! Should other states also propose similar semicon policies? Perhaps, yes!

Most importantly, should the Indian semicon policy get an extension? Why not? Why should a policy have an end date in the first place? Do you, for a moment, think that in the year 2050, there won’t be the need for any electronic device? Or, even in the year 2020? If yes, then more chips would need to be manufactured. So, the question is: should the Indian semicon policy be extended or enhanced? Perhaps, the latter.

Am certain that the concerned stakeholders will be taking corrective measures regarding India’s semiconductor policy.

I also happened to speak with a few industry figures to get their views on India’s semiconductor policy. Here are some of their views.

Manjunatha Hebbar: Vice President & Head – Strategic Services (ERS), HCL Technologies Ltd

While I agree that we need an extension of this policy, I feel it also needs a validation from a country competitive standpoint.

For example, what other countries are doing to favor industrialization in this space and how they are benefiting from the same? This will help strengthen the policy, while making it relevant for every stakeholder/beneficiary.

Also, consideration for these policies should be from a long term perspective – covering at least 10 years minimum with some periodic validation, say, every two years, to bring more relevance vs. progress made and considering other environmental factors.

Raju Pudota, Managing Director, Denali Design Systems Pvt Ltd

I believe you should highlight that the extension is needed till 2015. Now that the Indian economy has opened up, the proposals will start within the companies who are interested. Since the level of investment is high, they would need time internally to get approval for investment in India. Once this is done, then they would need to approach the Indian government for permits, etc. I believe we need this policy to be in effect till 2015.

Also, note that initially the focus would be to increase the electronic manufacturing ability – and following that, the real semiconductor consumption drive would start. I believe that the policy in 2007 was ahead of its time. We needed an ESDM policy at that time which was followed by a Semi policy right about now.

If the electronics system design and manufacturing ESDM) ecosystem focus is going to start now, we need to give it a couple of years to bear fruit, and then drive the demand for local semiconductor content.

S. Uma Mahesh, co-founder CEO, Indrion Technologies

More electronics from India can still be achieved without a fab, although a fab will surely be of NO harm. Requirements of state policies is well said though specifics about the drawbacks in Karnataka policy and how to overcome them (example, funding amounts) will be good. We have already suggested some changes sometime back, for example, something like including ‘rebate’, ‘discount’ to the tune of Indian manufactured amount in the system solution, for one.

I believe manufacturing capability (not necessarily ‘self sufficiency’) is a sine qua non for any country’s long term success. And, it need not be semiconductor (read chips) alone. As we said in our fabcity report — manufacturing can be any — of LCD, LED, solar, and of course (as possible) semicon. Interestingly, it appears now that we have missed the manufacturing cycle point for semicon fab to start in India.. and may have to wait for the next such cycle to begin.

Another point of concern is to correct the usage of the original Fabcity.

The simple point is: all we have to do at the minimum is to have a policy and the business will decide whether it will utilize it and if they do decide to, the policy will have influence on it (our Fabcity approach). Not having the right policy will mean a definite no for manufacturing, which is like depriving the basic vitamins for a patient/person. Appreciate your efforts.

Rajat Gupta, Managing Director, Beceem Communications Pvt Ltd

The Policy certainly needs extension, both in time and in content. My take:
1. Photovoltaic and solid state lighting (white LED) manufacturing: The government incentives ought to be all linked to sales post-manufacturing not for getting started on manufacturing. In any case, unless there is business viability this will not take-off and if there is, there will be investors willing to put money – the government does not have to become an investor (except in providing real estate subsidy to drive the selection of location where all such manufacturing can be concentrated). How can we achieve that?

a) India has 600K+ villages and all of these have borewells the power of which is (supposed to be) provided free by the government. Assuming about 50 per village (not sure) and ea 10 KVA approx: this is about 500 KVA of “committed” power that the government is actually unable to supply beyond 5-15 percent during peak demand months in summer.

The total such capacity demanded is thus about 300,000 MVA ~ 250,000 MW. These should be completely switched over to solar and the government subsidy worked out such that the savings to the exchequer for, say, three years, is passed on to manufacturers. I believe this is completely workable and “creates” so much of additional power capacity from the existing power plants. It also gives farmers reliable power based on solar. This ecosystem of solar cells –> solar power driven pumps/motor/genset –> government subsidy that makes this possible and financially viable for both manufacturing and the government.

b) Lighting: Existing incandescent lamps are only about 5 percent efficient, Fluorescent and compact fluorescent are marginally better at about 7-10 percent. White LEDs are probably at about 20 percent, but potentially for significant improvement through R&D over the next decade or so. This needs to be stimulated.

Of the total power being generated and consumed in India, about 20 percent is due to lighting. If this is replaced with white LED, the improvement will be about 10 percent add-on of virtual capacity increase without any additional investment. Again calculating this virtual increase as due to investment, the government can divert that as some form of incentive to make it attractive to the growth of this business/ecosystem.

The above alone may meet India’s CO2 norms for the next several years and the additional carbon credits once these are monetized can provide additional incentive to Govt to think along these lines. Their investment could actually become virtually funded by other countries!

2. VLSI manufacturing: The government has to give appropriate incentives to this industry and suitably phase these to allow an ecosystem to build up. The fabless model is fine for companies to transact their business. But, India needs to have this technology or some semblance of it to start with or else never be able to count herself amongst the leading nations of the world. How can we achieve that?

a) One of the quickest ways to get started is to create an organization (with equity wholly or partly owned by the government of India) with the charter that that company invest in/fractionally own some of the leading semiconductor manufacturing facilities in Taiwan. TSMC may be very difficult to own even modest percentages, but simultaneously buying reasonable stakes in UMC, Chartered Semiconductor, the IBM multi-platform consortium may be possible with (my guess) at under $1 billion that gives adequate leverage. This organization then makes available fab capacity (that is available to them now due to their fractional ownership) to fabless product companies with intended product sales in India.

b) Repeat the above for packaging, assembly, and VLSI Test operations. (The challenges are less here though, but these are just as important elements of the eco-system)

c) With this, India will “own” leading edge VLSI technology although in a circuitous manner, but given that we missed the boat by over 20 years I think this is a reasonably low cost but effective way to get a starting foothold.

d) Next, and in parallel, the government ought to give incentives to companies to create semiconductor manufacturing capacities on Indian soil but buying re-furbished and lower cost equipment at previous generation technology nodes. Some policies are required here that allow easy transport back-and-forth of sub-assemblies for repair and replacement.

The business model here would be that the government provides land (to drive the concentration of such technology around three to four zones distributed across the country) but companies should be able to do this on their own should they so choose to. These companies in return bring in (a) captive manufacturing load (whether for sales in India or export, both are ok) and additional spare capacity (or, equivalently, a commitment to scale up with an incentive / penalty structure) to stimulate manufacturing by Indian fabless companies.

e) Eventually, the organization(s) in (d) above will “catch” up with those in (a) above. There will need to be phased modification of the incentives, reducing some, changing some such that over a six-seven year period all incentives can go away and the eco-system will be self sustaining.

f) Well, not quite, we will also need to address (i) the semiconductor manufacturing, assembly, test equipment manufacturing and (ii) the semiconductor manufacturing raw materials (silicon wafers, silicon grade pure chemicals, etc etc). The focus to these technologies have to be phased to the decade after the steps outlined in (a) to (d) have yielded some measurable results.

I will add more views, as and when I get those. Supporters and followers of the Indian semiconductor industry, feel free to add your comments, friends.

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  1. Dr. Satya Gupta
    April 3, 2010 at 8:47 am | #1

    Good article. Keep writing.

  2. April 3, 2010 at 4:46 pm | #2

    Excellent comments from Rajat! Thanks.

  3. Krishnan Ramabadran
    April 5, 2010 at 10:46 am | #3

    Three years seems too short a time for developing a capital intensive industry of semiconductor manufacturing. It takes time for big investment decisions to be made, and it is just about started happening.

    Recent year has only shown the potential this sector has – it would materialize only if the policy continues for more time.

    Not only manufacturing, but the entire eco-system including fabless manufacturing needs to be encouraged. If we end up being big-time successful in PV, LED, LCD, manufacturing that’s great. For VLSI, semicon fabs are not the only alternative to growing the SC sector, we need to look for fabless manufacturing. Value addition is the name of the game, not just manufacturing. Look at iPod, the manufacturing happens in China, but the huge value addition is from a US company. US grows when Apple grows.

    Hasn’t our strength been design? Just look at the huge growing embedded and VLSI services industry figures from F&S…But there is multiplication possible in the numbers if we grow up the value chain – hold on to the design strengths and use fabless model for manufacturing.

    My 2 paisa…

  4. April 5, 2010 at 5:10 pm | #4

    Quite agree with you, Krishnan! :)

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