Business   

Nascent fab industry looks to budget for sops

Blueprint submitted to set up Fabcity with necessary ecosystem

— FILE PHOTO

AIMING FOR A SLICE: An assembly and testing unit of SPEL Semiconductor Ltd. near Chennai

THE DOMESTIC semiconductor industry is keeping its fingers crossed amidst expectations that the Finance Minister, P. Chidambaram, may come up with a policy pronouncement in the forthcoming Union Budget to help the nascent industry set up wafer fabrication plants commonly known as `fabs' and enable India to compete with heavyweights such as Taiwan and China to grab a slice of the global $220 billion silicon chip pie.

Having attained a pre-eminent position in semiconductor chip designing on the world stage, India is now turning its attention to manufacturing chips to feed a growing local market for chips in gadgets ranging from credit cards, a slew of medical devices and electronic items including mobile phones, TVs, DVDs, set-top-boxes and personal computers apart from the huge export potential for wafers.

Huge potential

Chips are increasingly loaded with software where India's $17 billion software industry has an edge. Senior Ministers in the UPA Government including Mr. Chidambaram and Information Technology and Communications Minister Dayanidhi Maran are trying to woo hardware manufacturers to India.

According to the industry body India Semiconductor Association (ISA), the domestic electronics industry is expected to grow to $100 billion by 2015. The local market for chips alone is currently worth $800 million and is expected to climb to $ 35 billion by 2016.

"Given the opportunities that India is forgoing due to substantial dependence on global markets for meeting its domestic demand, it is time for the country to take aggressive steps towards promoting a robust semiconductor manufacturing in India," says ISA.

In the absence of a fab here, the chips that are designed in India are currently manufactured in foundries located outside. This, says ISA, cannot continue for long mainly due to cost considerations.

"Chips are like oil in the information age. You cannot ignore it and keep importing to meet local demand," says Poornima Shenoy, President, ISA.

"There are significant cost advantages in making wafers here. The cost savings can be as high as 50-60 per cent for end use consumers of various devices that use chips", says Vinod K Agarwal, President and CEO, SemIndia, Inc. that had announced plans recently to set up a fab in the country with technology licensed from the U.S.-based chip-maker Advanced Micro Devices, Inc. (AMD).

The ISA has submitted a blueprint to the Union Government for setting up a Fabcity in the country with all the necessary ecosystem.

The Fabcity blueprint has underlined the need for substantial and continuous Government support given the unique nature of the industry such as the high cost structure (a single fab costs around $3 billion to build), infrastructure requirements and exposure to international competition.

"In view of the cost structure, equity participation from the Government in fabs is desired. Besides, an interest subsidy for reducing the cost of raising funds by the fabs is favoured," the blueprint has recommended.

To create a demand for indigenous chips, the blueprint has also advocated that direct and indirect tax incentives/rebates be given to electronic goods manufacturers purchasing these chips. The incentives could be based on the concept of local value addition in the domestic manufactured goods.

As the Fabcity would be predominantly catering to the domestic market, it is further recommended that the existing SEZ Policy may be adapted to meet the specific requirements of the semiconductor industry as well by designating fabs as SEZs. "Fabs all over the world have been helped by Government assistance. India can not be an exception. In a few years, China and Taiwan will corner 80 per cent of the global chip-pie. India will be nowhere in the scene if we don't act now," says Mrs. Poornima.

A policy announcement by Mr. Chidambaram in the 2006-07 Union Budget will help SemIndia to arrange funds easily and start work on the foundry.

Fab-less semiconductor firms such as the U.S.-based Broadcom Corporation are keenly waiting for India to unveil its chip-making plans.

P. Manoj

in Bangalore

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

RBI action plan to contain inflation
SAFTA will call for genuine long term commitment
Nascent fab industry looks to budget for sops
Major changes in Hindu Law on succession
Auto Expo evokes keen interest

Copyright © 2006, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu