Industry executives and experts have given a thumbs-up to the government’s newly formulated semiconductor policy, the fine print of which was released last week.
At the same time, they have also expressed some concerns, pertaining to the government taking a stake in lieu of subsidy and gradation of incentives for fabs of different sizes.
According to the policy, companies will need to shell out only 30-35% of the total project cost to set up a semiconductor fab and display fab, as the central government will provide 50% subsidy while states have been allowed to offer incentives over and above what the central government has proposed.
Various states are already offering sops on capital expenditure, of between 10% and 15% along with a host of other incentives.
The Vedanta Group, which is looking to invest between $3 billion and $5 billion to set up a display fabrication unit in the country, said the fine print looks favourable.
“For the first time, the government has announced the incentive on a pari-passu (equal footing) basis,” said Akarsh Hebbar, managing director, AvanStrate Inc, which is part of the Vedanta Group.
Pari Passu denotes that the government will start providing the subsidy right at the construction stage in a phased manner. This will be a huge advantage for companies since semiconductor plants are very expensive and take several years to be built and start production.
There are, however, some areas of concern.
The topmost pertains to the gradation that the government has provided in the policy.
It has said that it would provide up to 50% fiscal support for fabs that are 28-nanometre (nm) or below, up to 40% for 45-nm fabs and 30% for 65-nm fabs.
“This is something strange, because economic viability across the board requires support,” said Ajay Jalan, founder and managing partner of Next Orbit Ventures.
“The only logic I can see is that they only want only 28-nm digital fabs and want to discourage 65-nm or 45-nm fabs. It will not be an ideal situation because, you know, the semiconductor ecosystem will not be complete without analogue or memory or digital,” Jalan said.
All three need to be supported and “the staggered support” is not what industry will appreciate, he added.
Jalan’s firm has already submitted a proposal to the government worth $3 billion for an analogue fab of 65-nm.
“Another worry is that these incentives can be against equity to the government,” Jalan explained.
“The whole purpose of the grant and subsidies will be lost if an equity stake is taken to the extent of 49% against the fiscal support. Then it is not support; it is like a joint venture with the government. Government taking 49% dilutes the whole purpose of the scheme,” he added.
The government has notified the Rs 76,000 crore ($10 billion) package and said that applications will open on January 1 and close within 45 days.
The government will fund 50% of the capital expenditure for two chip fabs and two display fabs, it said.
“There is a 45-day window, so there is urgency,” said Arun Mampazhy, an expert on semiconductor fab technology. “There seems to be a reasonably good guideline in terms of who can apply. You either have to have experience in running a 65-nm or a 45-nm or a 28-nm or above fab or you should have a licence for 28-nm and a roadmap for advanced note,” he said. “…which means, hopefully, any random person cannot apply without really having either an agreement or a joint venture or a licence, at least from one of the reliable and respected fabs.”
The government subsidy is in line with sops offered by other nations, said Hebbar of AvanStrate.
“The application window of 45 days is more than enough. As soon as it was announced, a lot of Taiwanese and Korean companies mobilized their resources and are saying that they want to look at India seriously,” he added.
Industry experts said the comprehensive policy and the various sops under it are a step in the right direction and will provide impetus to the sector. The short window of 45 days for applications will also help in faster closure of the scheme.
“The freedom to state governments to pitch in is definitely good,” Mampazhy said. “Hopefully, the state governments will take it in a competitive spirit. In addition to that, the infrastructure support for Electronics Manufacturing Clusters (EMC) 2.0 scheme will also provide ways to get additional support and demand aggregation support.”
According to the government notification, the government will also provide additional infrastructure support through the EMC 2.0 scheme, demand aggregation, support for R&D, skill development and training along with state government aid, if any.
For compound fabs and ATMP facilities, 30% of the capital expenditure will be reimbursed and the tenure of the scheme will be three years starting January 1.
The government is expecting 15 to 20 companies to be supported in each category.
Experts also said that the government has done a good job in terms of prioritising and putting out details of which areas are of urgent focus. There is, however, a fair bit of confusion over the extent of government support.
“There is no upper ceiling; 30% of capex incentive is mentioned but how far can that capex go? It also says that this is open for three years and the government is expecting about 15 to 20 beneficiaries. So, the government is taking it as it comes, because it’s still an evolving market,” Mampazhy said.
For the compounds in Silicon Photonics, Mampazhy said he was unsure about how far a Rs 100 crore investment – the minimum put out by the government – would go.
“How much upwards of that (Rs 100 crore), we’ll have to wait and see, because even there, to put up a decent fab, you will need to put in a few billions, or at least little close to a billion depending on which one you’re talking about,” he added. “There is speculation that various companies, both global companies as well as some domestic players, have expressed interest.” Mac Pro Tricks