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Should govt introduce incentive schemes to support ancillary industries that go into the running of these fabs?

As India has embarked on a mission to set up a semiconductor chip fabrication industry — particularly commercial silicon fabs — on its soil in the next decade or two, it is imperative that policy-makers start looking at whether (and when) to facilitate and grow the domestic industry for associated supply chain and logistics.

There are multiple elements of the ecosystem around semiconductor fabs. On the design side there are companies providing Intellectual Property (IP) cores and Electronic Design Automation Tools (EDA). Fabless companies, as well as Integrated Device Manufacturers (IDMs), own chip designs. IDMs also own fabs. The Design Linked Incentives offered as part of the Rs 76,000 crore incentive scheme for the semiconductor ecosystem is aimed at boosting the presence of industries in India focused on the elements of the ecosystem related to semiconductor design.

Decisions on the first-round applications for silicon-based semiconductor fabs have been pending for over a year now. Some reports say that “Apart from applications that the government has at this point, there are four large opportunities, which are in the final stage. So, as and when we open the second window, they will come”. Contrary to first-round closure timeline promises of December 2022 and January 1, 2023 given by Ministers Ashwini Vaishnaw and Rajeev Chandrashekhar, the recent statement by Vaishnaw has been that after March 1, the government would “come out with a programme that is credible”. A week into this month, we are waiting to hear about the programme.

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After the first-round application process was closed in February 2022, the policies were tweaked, at least one applicant (Vedanta-Foxconn) is being allowed to add a technology provider at a later stage, and the review panel seems to be still learning and tweaking the evaluation criteria. To avoid the first-round process running into legal complications, a fresh start is also a possibility.

Though the progress has been much slower than ideal, it looks like India may eventually get commercial silicon fabs this decade. That brings up the question of whether incentive schemes should be introduced to support other elements also that go into building and running fabs — something like a ‘Supply chain and Logistics Incentives for Chip Ecosystem’ (SLICE).

Such a scheme could support domestic industry interested in building various parts of the facility associated with fabs such as clean room, water deionisation plants, and recycling plants, airflow systems, chemical and gas storage, supply and recycling systems as well as locally making some of the raw material needed (chemicals, gases, and tools).

Not every element of this list is a ‘complex and costly’ affair. For example, “nitrogen, oxygen, argon, helium, hydrogen, and carbon dioxide are six gases that are both used in large amounts and commonly sourced from industrial supply chains” while the electronic special gases “number over a hundred in pure and specialty mixtures”. On the tools and equipment front also, there are many small and medium ones needed for fabs.

It will be for the government to decide whether it wants to continue with the ‘incentive culture’ for such elements of the ecosystem also, and, if so, what kind and how much of incentives. In the very least, the Union government should guide the states on looking at various slices of the opportunities available, and perhaps even encourage them to come up with their own versions of policies for specific areas that they want to incentivise. This to some extent can also help involve states who may not get a fab itself, but want to play a role.

The investor community too can start looking for opportunities — sometimes there are ‘out of the box’ situations; for example, a relatively unnoticed recent news says the Japan External Trade Organization (JETRO) “asks Indian firms to acquire Japanese SMEs, invest more in Japan”. Japanese companies are leaders in many elements of the supply chain for fabs.

Given that the Ministry of Electronics and Information Technology spent one year studying proposals received under an ‘Expression of Interest’ for semiconductor fabs and another year now on reviewing formal applications under a scheme and still claims to be learning, it is better to get going on SLICE-like schemes now itself. Like a strategy that upcoming fabs in India should not limit themselves to the domestic market, supply chain and logistics industries that may come up or get enhanced with or without incentives should also cater to global market.

(Arun Mampazhy is a semiconductor engineer. Twitter: @nano_arun.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.