Govt seeks to boost electronics by subsidising chip units

In order to boost investments in the semiconductor industry and reduce dependence on chip imports, the union cabinet on Thursday gave in-principle approval to a proposal for setting up two semiconductor manufacturing facilities.

The government's investment envisaged for the two units is around Rs25,000 crore each, and the level of further government support for these units will be decided through negotiations with chip makers.

The new chip-fabrication units are expected to provide a significant push to domestic electronics manufacturing and act as magnets for the electronic components and ancillaries industry.

Citing communications and information technology minister Kapil Sibal, news agency PTI said these semiconductor fabrication plants, or fabs, would assist in checking imports of electronic products.

Of the two chip-fabrication projects the government had shortlisted for subsidy, the consortium for one is led by the Jaypee Group, which has teamed up with IBM as its technology partner. The other is led by domestic chipmaker Hindustan Semiconductor Manufacturing Corp (HSMC), which will get technology support from the Geneva-based STMicroelectronics NV.

However, according to a Business Standard report, some cabinet ministers have questioned the idea that only two projects will come up for such a significant subsidy amount and suggested the Department of Electronics and Information Technology wait for four weeks to see if any other consortium proposes a similarly subsidised project.

The proposal will be brought back to the Cabinet after four weeks, the report said citing unnamed sources.

According to the PTI report, Sibal said the cabinet had accepted the two offers in principle and also approved the incentives to be given to these consortia. The same incentives could also be extended to other players interested in setting up semiconductor plants in India.

"Incentives ... are already covered under existing policies, which account for about 62 per cent [of the subsidy cost]. The balance 38 per cent is in the form of a loan provision, which is refundable. The burden on the government will only be of interest charges," Sibal said.

The government had invited applications for fab units in 2011. The two projects led by Jaypee and HSMC had been shortlisted from among 30 applications by an empowered committee headed by the prime minister's technology adviser, Sam Pitroda, National Manufacturing Competitiveness Council chairman V Krishnamurthy and others.

The ambitious proposals has reportedly also run foul of the Planning Commission, which is against such large-scale subsidy pay-outs at a time when the country is battling a widening fiscal deficit.

Silicon chips form the core of any electronic device and account for the bulk of its end price. If these are manufactured locally, it would create the right ecosystem, as it involves a lot of downstream spin-offs.