The changes incorporated in the semiconductor scheme, which the government notified on Tuesday, is expected to motivate global specialist players to take ‘India seriously’ and not defer their plans to invest here, as pointed out by industry experts. This is primarily because, as experts feel, global giants like Intel, Samsung, TSMC, Micron Qualcomm etc., which have well-established manufacturing sites in China, US, Korea and Taiwan, are reluctant to deploy funds in India because of low ‘Internal rate of return” in setting up a greenfield facility.
It is to be mentioned that the Internal Rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments.
As Shamsher Dewan, SVP & group head, Corporate Ratings, ICRA, puts it, “Setting up a semiconductor plant is a highly specialized, complex, and capital-intensive process. As such, availability of fiscal support from the government (across various technology nodes) is positive and is likely to provide an impetus to investments in semiconductor and display manufacturing in India."
The changes were announced nearly a fortnight after Union Cabinet approved modifications in the production-linked incentive (PLI) scheme for manufacturing of semiconductor and display manufacturing ecosystem. (https://www.news18.com/news/india/pli-scheme-for-semiconductors-tweaked-modi-govts-move-charges-up-industry-6058807.html)
Vicky Bahl, Partner, Grant Thornton Bharat says, “If one has to go with the minimum economic size, let’s say 40,000 wafers a month, one may find it difficult to get the entire output consumed domestically. This is because the plant will be of a particular technology node such as 28 nanometre (nm). It is good that the government is clarifying what should be the economic size of the plant that is required, which shall be approved under the scheme, and what the revenues would be of these players which are applying. Otherwise, the fab wouldn’t meet the target IRR which is required for survival in this industry, which anyways is highly cyclical.”
As per the notification issued on 4th October 2022 by the Ministry of Electronics and Information Technology (MeitY),, companies/consortia / joint ventures, which are proposing to set up a Silicon Complementary metal–oxide–semiconductor (CMOS) based semiconductor fab in India for manufacturing Logic / Memory / Digital Integrated Circuits (ICs)/ Analog ICs / Mixed Signal ICs / Systems on Chips (SoCs) that can handle 40,000 or more Wafer Starts Per Month (WSPM) of 300mm (i.e. 12 inches) can avail subsidized schemes from the government.
While the minimum capital expenditure required is Rs. 20,000 crore (₹200 billion), the minimum Revenue of Rs. 7,500 crore (₹75 billion) (including Group Companies) in any of the three financial years preceding the year of submission is a prerequisite. Most importantly, fiscal support as a percentage of the project cost is 50% across the board unlike multiple slabs for different nm sizes.
"Capital investment threshold of Rs. 20k crore is a very important criterion because, in India, deploying this capex will be 15-20% higher than established bases such as Taiwan, Korea, and China. This is because India does not have any value chain of capital goods suppliers for this kind of highly complex technology-oriented manufacturing," Bahl added.
However, there is a small catch. the applicant Companies / Consortia / Joint Ventures should have ‘Own or possess production grade licensed technologies’ for the proposed technology process and demonstrate the roadmap to advanced nodes technologies through licensing or development, as per the two-day old notification. Analysts reckon the move was necessitated to dissuade fly-by-night operators.
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