Semiconductor plant in Gujarat
On February 1, 2022, the Union Finance Minister Nirmala Sitharaman in her budget speech, listed out a few Sunrise Opportunities emerging in India. The sectors included semiconductor and its eco-system among others that would provide employment opportunities for youth, and make Indian industry more efficient and competitive globally.
These sectors, as stated by the Finance Minister, possess the potential to assist a sustainable development at scale and modernize the country.
In barely seven months since these words were said on the floor of the Parliament, India’s first semiconductor plant was announced to be set up in Gujarat by a joint venture of global mining major Vedanta and Taiwanese electronics maker Hon Hai Technology Group (known as Foxconn) with a total investment of approx Rs 1.54 lakh crore (approx USD 20 billion). A Memorandum of Understanding (MoU) to this effect was signed with the Gujarat Government on September 13 in presence of the Union Minister for Electronics and Information Technology Ashwini Vaishnav. In a phased-manner, the JV would setup a semiconductor fabrication unit, a display fabrication unit, and a semiconductor assembling and testing unit in the State.
Prime Minister Narendra Modi welcomed the development which, he said would “create a significant impact to boost economy and jobs while also help in creating a huge ecosystem for ancillary industries and thereby helping our MSMEs.”
How Gujarat will reap benefits from this development?
The semiconductor plant by Vedanta-Foxconn would bring with it an entire ecosystem besides creating direct employment for about 1 lakh people.
A semiconductor factory is usually surrounded by a variety of allied industries, therefore the spill-over benefit from this plant in Gujarat would reach to an additional one lakh people in terms of indirect employment in the allied and semiconductor-related industries.
In order to understand the quantum of benefit Gujarat is set to derive from this opportunity, South Korea is an apt example.
Having a population of about 5 crore, the East Asian country has a land mass nearly half of that of Gujarat’s. But as described by the global consulting major Deloitte in one of its reports on semiconductor industry in Asia Pacific, “Through layers of outsourcing and subcontracting, a huge semiconductor industry chain has been created in South Korea, forming city clusters of semiconductor industries such as Yongin and Icheon, supporting the whole semiconductor industry of South Korea.”
As a result, South Korea saw development of over 20,000 semiconductor-related companies, including 369 integrated circuit (IC) manufacturing enterprises, 2650 semiconductor equipment enterprises and 4078 semiconductor material enterprises, the report noted.
In yet another example, Taiwan has emerged as the ‘Silicon Valley of the East’ following its high concentration of semiconductor manufacturers and allied industries led by MSMEs, supplying the prepared chips and products to the clients across the world.
Gujarat is known to have its manufacturing capabilities, and there have been organic proliferation of electronics and devices cluster in parts of Saurashtra, i.e. Morbi, Jamnagar, Mundra while also in Dholera and parts of South Gujarat. Morbi has been a thriving hub for digital clocks and electronic items such as calculators.
Notably, Gujarat has over 7 lakh registered MSMEs in manufacturing and services sector, with the total credit offtake in excess of Rs 1.2 lakh crore by these MSMEs, the State Level Bankers’ Committee (SLBC) data showed.
Besides manufacturing, the availability of skills for the specialised sectors such as semiconductors would also be enhanced with a special focus on academic infrastructures.
During his recent visit to Ahmedabad, the Union Electronics & Information Technology Minister Ashwini Vaishnaw has already sought a proposal from the Indian Institute of Technology – Gandhinagar (IIT-GN) to develop a 5G use case laboratory and a semiconductor laboratory at the Institute. It is deemed necessary to create a full eco-system of design, testing and supporting the industry to take full advantage of a mega investment like a semiconductor fabrication unit in Gujarat.
On top of all these, Gujarat became the first Indian State to announce a dedicated policy for assistance in the field of semiconductor and display manufacturing facilities.
The policy offers an array of incentives that ranges from one-time complete refund of stamp duty and registration fee, power tariff subsidy of Rs 2 per unit, complete exemption on electricity duty in addition to the capital assistance over and above the assistance provided by the Centre under its India Semiconductor Mission (ISM), which was launched in 2021.
Apparently, these factors played in favour of Gujarat to be chosen over other alternate destinations such as Maharashtra, Tamil Nadu, Telangana and Karnataka.
The policy push from Gujarat
Anil Agarwal, the Chairman of Vedanta Group has stated that among the five-six States offering incentives to set up the plant, it was Gujarat which showed its commitment on making available the required land at a competitive rate besides other incentives under the ‘Gujarat Semiconductor Policy’ that was launched in July, 2022.
Under its 5-year policy for 2022-27, the State authorities have adopted a cluster-based approach in developing the semiconductor ecosystem. This is similar to what we have seen in South Korea or Taiwan.
As a fallout, Dholera is being developed as a city on the lines of silicon valley. A Semicon City at Dholera Special Investment Region (Dholera SIR) will set up and all the eligible projects will get 75% subsidy on first 200 acres land purchase and 50% on additional land required for fab projects or upstream/downstream and other projects approved under ISM.
No wonder Agarwal preferred Gujarat over other States as the project would require a land area of 800-1000 acres to be located away from the noise and vibrations of the traffic on highways.
Gujarat has reportedly promised the desired land at an attractive rate.
Soon after signing the MoU, Oil-to-Metals major Vedanta Group Chief Agarwal complimented the Gujarat Chief Minister Bhupendra Patel in a twitter post, saying, “My deep gratitude to the #Gujarat Govt & the Union IT Minister, who have helped Vedanta tie things up so quickly. India’s #tech ecosystem will thrive, with every state benefiting via the new electronics manufacturing hubs.”
He went on to say that the project would help fulfil Prime Minister Narendra Modi’s vision of creating a robust manufacturing base in India. “It will reduce our electronics imports & provide 1 lakh direct skilled jobs to our people…going from job seekers to job creators!”
“India’s own Silicon Valley is a step closer now. #India will fulfil the digital needs of not just her people, but also those from across the seas. The journey from being a Chip Taker to a Chip Maker has officially begun…Jai Hind!” Agarwal tweeted.
The proposed semiconductor manufacturing fabrication unit in Gujarat will operate on the 28nm technology nodes with a wafer size of 300mm and the display manufacturing unit will produce Generation 8 displays catering to small, medium and large applications.
How will it turnaround MSME’s fortunes in Gujarat?
One of the toughest job in the electronics and allied industry is to manufacture semiconductors. Today, India is completely dependent on imports to meet its semiconductors requirements. These semiconductors, through the chips, control the supply of electricity in electronics and digital items.
The Indian semiconductor market is estimated at USD 27.2 billion and is expected to grow at a CAGR of 19% to reach USD 64 billion in 2026. Unless large players put money into the business, there is feeble possibility that India could take significant advantage of this market. So far there has been no net gain for Indian manufacturers and consumers as all of the imports eventually drains the foreign currency as well as uncertainty on timely supplies.
In this backdrop, India’s first semiconductor project in Gujarat will become the driver for India’s ambitions to achieve self-reliance – atmanirbharta – in electronics manufacturing.
The project is the largest ever single-ticket investment for Gujarat. The State’s existing industrial ecosystem has played an enabling role for attracting big ticket investments thereby creating opportunities for upstream and downstream industries.
For India to become an electronics hub and reduce its dependence on Taiwan or China for semiconductors and displays, it is important for the country to develop its own domestic hub for semiconductors manufacturing. This effort would help attract suppliers and device assemblers from across the globe to setup base in India, thereby bringing foreign investments and also fuel local employment.
Fulfilling India’s Atmanirbhar ambitions
The global shortage of semiconductors during the pandemic years i.e. 2020-2021 had prompted the world to look for alternate sources to secure the supplies as against the currently dominant suppliers such as Taiwan, China and Japan.
The critical nature of the semiconductor chips in its range of applications in electronic devices and industrial applications, had prompted the Government of India to take measures towards self-reliance in this area. In 2021 the Centre had launched a special Rs 76,000 crore incentive scheme under the ISM for the development of the semiconductor and display manufacturing ecosystem in India.
The scheme provided capital incentives, fiscal support and design-linked incentive (DLI) to encourage domestic MSMEs to venture into the sector. This set-off the creation of an ecosystem well before the top semiconductors investors stationed their plants in India.
India’s electronics manufacturing involves small to large players, where MSMEs hold significant share in the value-chain providing crucial raw materials or intermediate devices for final products that range from smartphones to television, computers, coolants among others.
This would eventually provide impetus to the electronics manufacturing and help achieve USD 1 trillion digital economy and USD 5 trillion GDP by 2025.
The latest development is the first move in the direction to make India Atmanirbhar in semiconductors manufacturing and make Gujarat a hub in line with Taiwan or South Korea to feed the domestic and global requirements of semiconductor chips.
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