CM has urged Samsung to
open a semiconductor manufacturing unit in the State
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.
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