India wants a local semiconductor fabrication industry and has asked technology providers and investors to submit proposals to a government agency set up to oversee the development of the industry in the world's second most populous country.
The India government took the unusual step of taking out an advertisement on this subject in the Economist magazine, asking “technology providers and investors” to submit proposals by the end of July to its ministry of communications and information technology. Interested parties can get additional information here.
India's approach is both unorthodox and fascinating. The country wants to deepen its role in the high-tech market, building on the expertise of many of its software and consulting firms, which have attracted huge patronage from Western OEMs and telecommunications service providers. Also, India has recently been concerned about the potentials for foreign security violations of its military systems and government infrastructure. A local semiconductor fab is therefore being seen as a frontline defense against hackers and other high-tech intruders.
What is the government promising in return for the establishment of a semiconductor fab in India? The country has set up a committee that would “assess and recommend the quantum of government support in physical/financial terms for translating the interest into semiconductor fabs,” P.S. Narotra, a senior director in India's department of information technology, said in the Economist ad. Here are further details provided by the government:
- Huge demand.
- Favorable policy framework.
- Government procurement of electronics.
India, with over 1.2 billon people, nearly half of them in the 20-to-49 age group, is one of the fastest growing electronics markets. This demand for electronics hardware is currently about $45 billion and is expected to cross $400 billion by 2020. This translates to nearly $50 billion in semiconductor demand.
100 percent foreign direct investment (FDI) is permitted in semiconductor fabs. The government of India is in the process of developing a policy framework to provide preference for domestically produced electronics goods in government and government-influenced procurement. Apart from financial and fiscal incentives for capital investment in the projects, the government of India will also provide assistance for setting up of a world-class infrastructure for the semiconductor fabs and their ecosystem units.
The government of India is enabling multibillion-dollar investments in programs that are major consumers of electronic goods, like countrywide rollout of 3G, WiMax, and 4G; broadband to more than 6 million villages; and a National Knowledge Network with 100Gbit/s connectivity for over 20,000 colleges and research institutions.
This all sounds interesting, but semiconductor fabs are not only expensive but also require an extensive support system and a large market for the output. Plus, the rank of companies that can afford to spend the amount required has narrowed in recent years as many firms adopt the so-called fabless manufacturing strategy.
It's possible some organizations will take the bait if it is big enough, but they will also have to overcome technology transfer restrictions many Western nations impose on high-tech companies wishing to establish operations overseas. This will most likely be a challenge because of India's stated reason of producing primarily for domestic consumption. I would be interested in why any company would want to take up the offer and whether the incentives are sufficient to attract top-notch players.