Last month, Chief Minister M.K. Stalin made a pitch to electronics giant Samsung Electronics Co. Ltd. for opening a semiconductor manufacturing unit in Tamil Nadu and assured the company of support. With the Union government rolling out a ₹76,000-crore incentive scheme to promote domestic semiconductor manufacturing and prospective companies showing interest, the moot question is can Tamil Nadu grab this opportunity?
Industry representatives point to the measures needed from the Central and State governments for semiconductor manufacturing to become a reality. “The two broad aspects of chip system domain are chip designing and chip manufacturing. Although India has made some progress in creating a home-grown semiconductor design ecosystem, it lacks fabrication facilities that could manufacture chips locally,” said Neeraj Bansal, partner and COO-India Global; National Leader-Supply Chain Re-alignment, KPMG in India. India’s initiatives in the past to establish fabrication units failed owing to roadblocks, including the huge set-up cost, he said.
According to industry estimates, setting up a fabrication unit would need an investment of $3 billion-$7 billion. Industry representatives said the idea of the Union government is to bring in at least 2-3 fabrication units. “Besides front-end chip manufacturing, there is back-end manufacturing, which is assembly and testing. These facilities can be set up with an investment of $100 million-$300 million,” said Ar Rm Arun, president, Southern India Chamber of Commerce (SICCI).
He pointed out that one of the global four biggies — Intel, Samsung, Taiwan Semiconductor Manufacturing company and GlobalFoundries — can be pursued to set up front-end manufacturing facilities. “If we can excite one of them to come into play, there is definitely a potential to attract $3 billion-$10 billion investment,” Mr. Arun said. However, these companies already have a well-established ecosystem elsewhere and will think many times before making an investment here.
Mr. Arun said the alternative could be to have a quasi-government set-up, where the government makes the major investment and allow NRIs to run the facility. He pointed out that the Centre and the Tamil Nadu government have their own quasi-government set-up in the form of Invest India and Guidance Tamil Nadu, run by professionals and working towards attracting investments.
He explained semiconductor manufacturing needs uninterrupted supply of water and power. Hence the State government should have a re-look at the Factories Act, which dates back to 1940-1950. “The laws should be simplified to meet the current-day requirements. Semiconductor is a cyclical industry. There are ups and downs. During the up period, we are able to scale up getting more manpower. During a down period, we definitely need to scale down, so that we can manage the operation,” Mr. Arun said.
He also pointed out that the Tamil Nadu Industrial Investment Corporation Ltd. (TIIC) is looking at the sector with a bank’s eyes (a short-term prospective). “It has to work like a development institution looking to fund projects with a long gestation period,” Mr. Arun said.
S. Narendran, an expert adviser to companies looking to invest in the sector, said it is open for the States to grab the opportunity and the State which makes decisions quicker will win. One of the challenges for Tamil Nadu is the availability of the talent ecosystem for semiconductor manufacturing and the State has to begin now to create a skilled talent pool.
“Tamil Nadu can be a small shareholder by investing in the manufacturing facility and can reap the rewards in the form of high returns. Already we have a successful example in the Tamil Nadu government’s investment in Titan. The same can be replicated,” Mr. Narendran said. The entire semiconductor ecosystem can be put under a Special Economic Zone, similar to that of Gift City in Gujarat.
According to an official announcement by the Union government, three companies — Vedanta in a joint venture with Foxconn; IGSS Ventures, Singapore; and ISMC — have submitted applications for semiconductor fabrication units, while Vedanta and Elest have submitted applications for display fabrication units.
SPEL Semiconductor Ltd., part of the Chennai-based Valingro Group, is one of the companies which has submitted applications under the compound semiconductors/silicon photonics/sensors fab and semiconductor assembly and testing component of the scheme.
“SPEL has been in the assembly and testing business for over 30 years. To expand it would cost less than $100 million-$300 million,” said Mr. Arun, who is the chairman of Valingro Group.
A few months ago, he had an interaction with Union Commerce Minister Piyush Goyal, along with other representatives of SICCI. Some of the points emphasised at the meeting are tax holidays, relaxation in custom procedures, tweaks in labour laws and keeping trade union activity under control, soft loans with a lower interest to meet the working capital requirements and relaxation in RBI norms for the sector.
According to him, Tamil Nadu can attract at least five assembly and testing facilities, which could create direct employment for 500-600 persons and indirect employment for 1,000 others. The Central and State governments should not only focus on greenfield expansion, but also on brownfield expansion.
The scheme is devised in a way in which the incentives would be given after full investments are made. “But the incentives should be milestone-based and the companies should be able to avail them in various stages of their projects,” Mr. Arun said.
Another industry representative, who did not wish to be named, pointed out that the Sterlite Copper and Foxconn issues are playing in the minds of some potential investors. “The Government of India will have to play a larger role in spearheading the manufacturing journey through co-investment by setting up facilities that will go a long way in boosting investor confidence, both locally and globally. This collaboration model has been successful in countries like Taiwan and South Korea and the results are there for us to see,” Mr. Bansal of KPMG said.
According to sources, the State government is also in talks with companies and working to attract investments in the sector. With other States also competing, we have to watch whether Tamil Nadu will bring in the investment.
