A Leap Ahead

September 2013 holds special significance for India's technology industry. It was the month the momentous decision that India would set up semiconductor manufacturing facilities moved into the phase of concrete action. It denotes the dawn of an era of high value domestic manufacturing in India. The move would set in motion the creation of the ecosystem required to support the electronic systems design and manufacturing (ESDM) sector.

The two facilities announced are: the first one, Jaiprakash Associates along with IBM (USA) and Tower Jazz (Israel) will set up the fab at an outlay of about `26,300 crore at Greater Noida; and the second one, Hindustan Semiconductor Manufacturing Corporation (HSMC) along with ST Microelectronics (France/ltaly) and Silterra (Malaysia) will set up the fab at an outlay of about `25,250 crore at Prantij, near Gandhinagar, Gujarat.

According to government sources, the first facility will have a capacity of 40,000 wafer starts per month of 300 mm size, using advanced CMOS technology. Technology nodes proposed are 90, 65, and 45 nm nodes in Phase I, 28 nm node in Phase 11 with the option of establishing a 22 nm node in Phase Ill. For the second facility, the capacity is of 40,000 wafer starts per month of 300 mm size, using advanced CMOS technology. Technology nodes proposed are 90, 65, and 45 nm nodes in Phase I and 45, 28, and 22 nm nodes in Phase II.

The two facilities would enjoy a package of incentives laid out by the government that includes incentives already available under the Modified Special Incentive Package Scheme (M-SIPS), tax deduction available for expenditure on R&D under the Income Tax Act, and also investment linked deduction under Section 35AD of the Income Tax Act. The government will provide Viability Gap Funding (VGF) in the form of an interest free loan for a period of 10 years.

Why are fabs important and strategic for India? The wafer fabs lay the foundation for ESDM in the country which in turn holds great economic benefits beyond the value chain of the electronics industry. According to IESA, India today consumes close to $7 bn of semiconductor products every year. By 2020, when the total ESDM market is expected to reach $400 bn, this consumption is expected to rise to touch $55 bn. With the location of a fab in India, the country could achieve a degree of self-sufficiency in electronics, and partially reduce the very high supply chain risks that India is exposed to, without an alternate source for procurement.

The government hopes that it will stimulate the flow of capital and technology, create employment opportunities, help higher value addition in the electronic products manufactured in the country, reduce dependence on imports and lead to innovation. The proposed fabs will create direct employment of about 22,000 and indirect employment of about one lakh, government reports say.