The Hindu Business Line : Circa 2007: Semiconductor ‘chips’ into India’s hardware dream

New Delhi, Dec. 26 When the Indian IT industry toasts its highs of 2007, semiconductor manufacturing will most certainly be cheered as the new ‘chip’ on the block.

Semiconductor manufacturing got-off to a jump-start in January this year when the Union Cabinet gave its in-principal approval to a special incentive package scheme for setting up semiconductor fabrication and other micro and nano technology industries in India – a bold effort aimed at placing the country in the league of hardware destinations such as Japan, Taiwan, China, Korea, and Singapore.

Fab policy

Shortly thereafter, the Government unveiled the broad contours of the policy that would pave the way for what it hoped would be about $10-billion dollar fab opportunity for India – considering that a typical fab requires a minimum $3-billion investment and that the country had the eco-system to take two to three such mega fabs. The Centre announced capital subsidy for investors keen on setting-up chip manufacturing units in India. This included an incentive of 20 per cent of the capital expenditure during the first 10 years for units within the SEZs and 25 per cent on the capital expenditure for the non-SEZ units.

Sops allowed

Any unit can claim incentives in the form of capital subsidy or equity participation in combination – including equity in the project of up to 26 per cent; or capital subsidy in the form of investment grant and interest subsidy.

Sops have also been rolled-out for setting up manufacturing facilities for liquid crystal displays (LCD), organic light emitting diodes (OLED), plasma display panels, photo-voltaic cells, storage devices, solar cells and micro and nano technology products, including assembly and testing of these products.

“Overall, it has been an exciting year for the Indian semiconductor industry. Recognition by the Government has come in the form of the Semiconductor Policy 2007 that addresses not just chip manufacturing but also the ecosystem of ATMP (assembly-test-mark-pack) units, solar fabs and related hi-tech manufacturing. The India story is tied-up with the growth of the Indian semiconductor market that is expected to touch $5.49 billion with a compounded annual growth rate of about 27 per cent by 2009,” says Ms Poornima Shenoy, President, India Semiconductor Association (ISA). Already over a dozen companies including Suzlon, Reliance (who, sources say, are weighing a $6-billion semi-conductor foray), Solar Semiconductor, and Tata Group – have approached the IT Ministry with specific enquiries on the policy. Others such as Hindustan Semiconductor Manufacturing Corporation (HSMC) and SemIndia have already gone public with their plans to jump into India’s semiconductor bandwagon.

Investment plans

More importantly, the Government has got formal applications from three companies – Moser Baer, Videocon and Titan Energy under the scheme. Officials estimate the three formal proposals to entail a staggering Rs 20,000 crore in investments.

According to the IT Department officials, while Moser Baer’s plans to manufacture solar photovoltaic cells/modules and Titan Energy Systems proposal to get into solar cells and modules, would envisage an estimated investment of about Rs 6,000 crore each, Videocon’s proposed LCD unit would entail an investment of about Rs 8,000 crore.

Sources said that a Taiwanese giant is also in discussions with the Department for a possible investment in the semiconductor arena. ‘Overall we expect to see two to three mega fabs and about 10 ecosystem players in the LCD, Photo Voltaic, and storage technology space,” the official said.

Growth signs

The thrust on manufacturing comes at a time when India has won accolades in recognition of its work in chip design and embedded software, with a high level of complex design being executed in the country.

“All the top semiconductor design companies are present here today. This is a powerful indicator of India’s importance - at ISA we can see only growth going forward; there may be minor hiccups, but we are on track,” Ms Shenoy points out.

And while the semiconductor juggernaut gains speed, another hardware story is in the making. The Government is in the process of fine-tuning a new IT hardware policy which is likely to be announced shortly.

It is also working on a policy framework that would encourage creation of IT Investment Regions (ITIRs) in the country. The end of the year notwithstanding, the last word in the hardware growth story, it seems, is yet to be written.