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There has been a lot of news lately about manufacturing under the “Make In India” banner. In the last ten days alone, the Kalyani Group has announced the country’s first-ever private missile subsystems manufacturing facility in partnership with Rafael Advanced Defense Systems of Israel, which will encompass design, development and manufacturing; elevator and escalator supplier Schindler has announced an investment into India's first Escalator manufacturing line; and Apple CEO Tim Cook has said that the company is set to ramp up its manufacturing in India.
Apart from this, according to news reports, two states—Telangana and Andhra Pradesh—have been cleared to set up greenfield electronics manufacturing clusters (EMCs), aimed at catering to the needs of electronic products manufacturing, electronic component manufacturing and semi-conductor designing companies.
Despite these positive signs, however, The Hindu, a leading English newspaper, reported last week that the Parliament’s Standing Committee on Commerce has questioned the low manufacturing growth – reportedly averaging just 1.6% in the last five yearsdespite a slew of Government initiatives aimed at promoting manufacturing and the ease of doing business.
Certainly semiconductor manufacturing/fabrication is one of the sectors that has not seen much movement in the last decade or more. India’s fab debate (should we, shouldn’t we set up a fab in India) has been in and out of the news for years. That debate has re-surfaced recently with the announcement that Next Orbit Ventures (NOV) is proposing three wafer fabs, one each for digital and analog ICs and a third for solar cells, at a total investment of $10 billion.
India’s has only one fab, set up in 1983—Semiconductor Laboratory, refurbished after a fire in the early 80s, and now an autonomous semiconductor lab under the Department of Space.
At various points in time during 1990-2010, IBM, Fujitsu, Motorola and others reportedly expressed interest in setting up a fab in India. Senior chip industry executives of Indian origin settled in the US had also proposed setting up a fab project, SemIndia, in 2006, but that did not come to pass. Nor did the proposed Fab City project near Hyderabad.
Other companies that have over the years announced their intentions to set up a fab include the consortium of Jaiprakash Associates, IBM and Tower Semiconductor; Hindustan Semiconductor Manufacturing Company (HSMC) together with ST Microelectronics and Silterra Malaysia; and Cricket Semiconductor.
It is no secret that wafer fabs are not easy to set up and run: they require huge capital investments, advanced technical knowhow, skilled manpower and a solid infrastructure backbone. These are not one-time investments. Continued investment in R&D and capital is required to stay abreast of technology advancements. Plus, there is the challenge of profitability and competing with global fabs—several established players continue to struggle even after a decade of existence. It’s no wonder then that wafer fab projects have been slow to take off so far, despite Government support from initiatives such as the National Policy on Electronics announced in 2012.
But there is good news for companies considering fab projects in India. According to a news report published last week, there is a revised semiconductor policy on the cards. According to the article, “the Minister for Electronics and IT, Ravi Shankar Prasad, has instructed the IT secretary…to work on a war footing on getting a semiconductor fab in India.”
There is another way for India to go before a full-fledged wafer fab facility actually comes to fruition, the route of Assembly-Test-Mark-Pack (ATMP) plants, or OSATs as they are often called today. This is a model that has been successfully tried and tested in Taiwan and South Korea, and an appropriately cautious one given that anyone planning a fab in India has no history to go by for such a huge investment. Several companies, including SemIndia, Tessolve, SPEL and AMD, have announced their intentions to either expand current ATMP facilities or set up new ones.
Considering the size of the Indian market for electronics products, the other route that the Government should explore is to focus on building a strong systems manufacturing ecosystem that will benefit from proximity to the huge market and create a pull-through for local wafer fabs by creating a stronger market ecosystem.
Given India’s exploding digitization and the sheer scale of its electronics imports, few will question the presence of a domestic market for their products. But is that enough to justify a wafer fab in India?
As anyone who attends semicon industry events in India knows, this is a favorite topic for panel discussions, and with good reason. It stirs up strong emotions, right from patriotism to skepticism. With a new semiconductor policy on the horizon, it looks like the debate is not going to end anytime soon!