#FabInIndia: An Exclusive Interview With Ajay Jalan Of Next Orbit Ventures On His Grand Ambitions To Establish A Semiconductor Fab Factory In India

In Apr 2020. the Union Ministry of Electronics and Information Technology (MeitY) notified a new semiconductor manufacturing policy.

In Dec 2020, MeitY, in a move aimed at incentivising and attracting investment for setting up of chip manufacturing in India, issued an notice inviting expression of interest (EoI) for setting up / expansion of existing semiconductor wafer / device fabrication (fab) facilities in India or acquisition of semiconductor fabs outside India.

Close to 20 proposals have been reportedly submitted in response to EoI. A few proposals out of this is set to be approved for incentives.

As early as 31-March 2021, Reuters quoted "unnamed senior government officials" as saying that the incentive may be of the tune of $1b per approved proposal.

Though the government of India has not officially disclosed the details of the proposals it has received, Abu Dhabi-based Next Orbit Ventures, representing a consortium of investors, has reportedly submitted a proposal for establishing a semiconductor fab factory in India

Industry expert and Swarajya contributor Arun Mampazhy caught up with Ajay Jalan, a business leader who is the driving force behind NOVF. Jalan has been long pursuing a vision to set up a fab factory in India

In a free wheeling discussion with Arun, Jalan responded to questions on his own personal journey, what drives his ambition to establish a semiconductor plant, on the proposal his consortium has submitted to the government, policy challenges and on why it is a 'now or never' moment for India's chip manufacturing dreams.

Following is an edited excerpts from the interview

1.Hello Mr Ajay Jalan, glad to talk to you on a topic which has been a major point of discussion these days. Tell us more about your background and how and when did you get involved with the idea of establishing commercial semiconductor fabs in India?

Thank you for the interview.

On my own background. I am a chartered accountant & company secretary with MBA from Latrobe University, Australia, with executive training at the world's top business school including Harvard, ISB, IIM etc. I have over 25 years of professional experience in finance, operations, investment management, and entrepreneurship having worked at senior executive positions in IFCI, i2 Technologies, Tata's, ACS, and Semindia to name a few.

Currently I am a managing partner at Next Orbit Ventures Funds (NOVF) that i also founded. NOVF has more than $3 billion target corpus in multiple funds.

On the critical need for India to establish a fab factory of its own. Let me start by saying that we as Indians need to be proactive rather than reactive on strategic areas like semiconductors.

Semiconductors have always been a much coveted commodity more so during the last 20 years since the dot-com era took off globally.

India tends to prefer a low resistance path, but in the knowledge-based industry, we need to build products to be competitive and self-reliant rather than providing services to others which we as a nation are doing since long.

Semiconductor industry is complex, high value, high demand and high risk, with long gestational business model. Creating national champions in this field requires political, commercial, social, techno nationalist outlook to converge backed with a long term vision.

Unfortunately, India has missed the bus in this critical area so far. I wish all of us, especially the government and policymakers, realise this soon. Else we as a nation will may have to reconcile to the model of 'buy and serve' others.

At a personal level, my ambition to establish a semiconductor fab in India is driven by the unfortunate fact that we are the only country of this size which does not have domestic chip manufacturing plant. For a country with big economic aspirations, it is critical to have its own fab to remain competitive in the tech world.

In 2006, I was part of a team that tried setting up a $3 billion semiconductor fab project in 1200 acres Fab City in a southern Indian state.

I also had the privilege of being a part of a group that formulated India's first semiconductor fab incentive policy, fab manufacturing and developing 1200 acres of Fab city for ESDM ecosystem. I was closely involved with creation of Indian Semiconductor Association (ISA) which is currently known as Indian Electronics & Semiconductor Association (IESA). The basic premise was to build a public-private partnership business model for the semiconductor ecosystem in India.

Arun, this is over 16 years long journey full of hurdles and bumps on the road to reach my destination to build first fab in India. We have established relationships with 'best-of -breed' global technology partners, domestic corporate and several government officials to realise the dream. Let us hope we see now a light at the end of the tunnel sooner than later.

2.Despite no success in the last 15-20 years for attempts by various groups to start commercial #FabInIndia, what motivated you to persevere ?

Arun, given the economics of semiconductors manufacturing, it has to be viewed as a 'mission mode' project rather than a 'quick returns' model of business. It is not a business for the faint-hearted and requires vision, patience, perseverance, passion, poise and paisa (money). And these attributes need to combined with a sense of nation pride.

I am truly inspired by the Indian space programme and its visionary leaders like Dr Vikram Sarabhai, Dr APJ Abdul Kalam and Prof Satish Dhawan, whose Indian Space Research Organization with several marquee launch vehicles like ASLV, PSLV & GSLV and weather forecasting satellite to state of the art communication satellite at most competitive price with highest technological functionality after several failed attempts of ASLV, PSLV & GSLV.

Semiconductors and space technologies are complex, capex hungry, multidisciplinary, comes with long gestation period with multifold benefits. That is how NOVF has mentors, advisors and team members, global technology partners with deep experience and relationship with ISRO, IITs and Indian world-class research and technology organisations and members from global repute organisations.

My endeavours to build a world-class team like ISRO is not only to build one fab but multiple fabs starting from analog fab, digital fab, memory chips etc. and its ecosystem.

3.What is the NOVF business model, what are the reasons for such a model and who are the key people involved?

Arun, we have 16 year of experience (many good, some bad and few ugly) in building our organisation. We see ourselves as a learning platform based on 4Ts - Technology, Talent, Transparency and Trust.

NOVF has over the years has wrapped its business model around these Four Ts .

Technology - We have forged partnerships with 'best of breed' technology partners.

Talent - We have a battle-hardened talent pool with hands-on experience in global and local world-class organisations and venture capital, tech development and finance and policy etc. with successful track records of concept to commissioning of large PP projects.

Transparency - NOVF is clearly following the consortium model to embrace the principle of neutrality as semiconductors are constantly evolving multi-application technologies platform and knowledge-driven business to meet the expectations of multiple industries. Hence, any attempt of bias to single stakeholder will defeat the purpose and will be a drag for building up the semiconductors ecosystem.

Trust - This can only be built over a period of time. Given that fab factories are projects of critical national importance, government is bound to play multiple roles- as facilitator, mentor, off-taker, policy designer, enabling governance structure and capital providers. All these elements are key building blocks to build world-class, affordable products and services in the ESDM ecosystem.

4.Who are the key people involved? Name the people please as this credential building opportunity through digital media platform...

At NOVF, we have a team of more than 10 people with rich experience of creating global companies. They are driving this initiative of embarking India on a semiconductor manufacturing space. As the momentum builds up, more people with passion and mindset will join.

5.How long of a preparation has gone behind the latest effort, and what were the key aspects covered in the run-up to submitting a proposal to the Government of India in response to the Expression of Interest opened between December 2020 and April 2021?

We leveraged over 16 years of learning experience in various aspects of semiconductor manufacturing that involved working with central & state governments, technology partners, investors, academia and research organisation to build the proposal.

Market Research: We commissioned Frost & Sullivan to perform a comprehensive marker research. The findings were published by IESA in its vision summit 2019 in consultation with SEMI. This gave us an idea about the semiconductor market in India and the technology node to start with. After multiple discussions with our technology partners, we came to the point of starting with analog fab and after the creation of semiconductor infrastructure & supply chain work on digital fab.

Investment (model & players): Ours is the consortium model, which is the only way for the success of semiconductor fab in the long term. We approached various strategic and financial investors for joining hands in our journey. We have written to the top 30 corporate houses of India along with the Confederation of Indian Industry (CII) and Society of Indian Automobile Manufacturing (SIAM), and we are in advance discussion with some of them to join the consortium. We are also in discussion with various top global investors for support of this project.

State Government: For selection of location, we went to various state governments, including Punjab, Andhra Pradesh, Uttar Pradesh, Kerala and Gujarat. Gujarat turned out to be the best-suited state due to stable political conditions and proactive support with ease of doing business. In the year 2020, the government of Gujarat gave us the letter of support in terms of economic and infrastructure support.

Infrastructure Assessment (Elec/Water): Due diligence of land and available infrastructure at the site has been done by M/S Meptagon, Israel, which has done similar exercises of various fabs in Israel and other parts of the world.

Technology partner: We have a Definitive Agreement with one of the top 10 foundries for analog fab and a Letter of Intent with one of the top 5 foundries for digital fab.

Central Government: World over, no fabs in the past or currently have come up without upfront government economic support of more than 50 per cent of the project cost, direct and indirect tax exemption and demand creation support, including TSMC or global foundries or SMIC. Our proposal to GOI is on the same lines.

6.Is it a historic first that one of the top 10 semiconductor foundries in the world has signed a Definitive Agreement to work towards #FabInIndia?

NOVF, as a team, can proudly say. Yes.

To the best of our knowledge, it is historic that one of the top 10 foundries of the world has signed a Definitive Agreement with us for Fab in India. That foundry has a big role in India's current prowess in Indian space and defence preparedness.

7.Great to hear that. Now let us talk about a bit more details of the proposal you have submitted to MEITY. Perhaps you cannot reveal all, but we hope you will be able to share information of what wafer size and technology node(s), what is the capacity you are aiming at and any other such details?

NOVF team has zeroed down to analog fab with 65 nm is an apt and optimal technology first commercial fab of national importance in India. This has been validated by large industry houses. As you said earlier, COVID 19 pandemic, supply chain disruption of semiconductor chips and its huge demand for power electronics, storage solution and EV Mobility devices and solutions for automobiles, power sectors – conventional, as well as rapidly growing re-platform, will need more and more semiconductor devices.

We believe the proposed fab project brings significant completive edge vis-à-vis other global players, as our commercial Analog Fab Project.

This project is the first economy of scale commercial fab in India and will be globally competitive in terms of technology, quality, yield and unit cost.

We want to build a world-class semiconductor manufacturing fab with a target market of analog and mixed-signal, wafer size 300 mm (12”) with fab capacity of 40,000 wafers stats per month in two phases. The technology node for this Analog Fab is 65 nm, where products are logic, mixed-signal, CMOS Image Sensor, power management, RF CMOS and RF SOI.

The project cost estimation is approximately $3 billion under the assumption that 30 per cent of the tools will be refurbished. The proposed fab will give direct employment to 1500 people and indirect employment to 10,000 people. The total site of analog will be 50 acres with a cleanroom of 20,000 square meters.

8.How confident are you that once approved, built, and fully operational, the 65nm Fab will have enough orders to keep it running to full capacity? What are the primary markets you are aiming to cater to? Will it be more of import substitution or exports?

India’s total analog demand at 65 nm-250 nm per year is around 2 million 300mm wafer, whereas our project capacity to start with is 480,000 wafer per year which is less than 25 per cent of the total domestic market demand.

We envisage that through preferred market access support of the Government of India and corporate houses, we will have to ramp up capacity four times to meet the domestic demand itself. However, any capacity utilisation (Up to 50 per cent), if any, by our technology partner will primarily cater to the export market only.

9.How hopeful are you of expanding to other technology nodes in future, for example, 28 nm digital or even 14 nm?

Our tech partner, among the top three in the world, has assured us that once we create semi infra and a supply chain through analog fab, they will come for 28 nm digital or lower node as per Indian market requirement at that point of time.

10.How much investment has already been promised, and how much more are you expecting long term?

The entire equity commitment for $3 billion project has been earmarked, and investors are waiting for the Government of India’s upfront commitment instead of reimbursement as requested in EOI.

11.How helpful has been the state government you chose? Have you already decided on the location and purchased land? Has the state government promised uninterrupted power and water, which are critical for a Fab?

The government of Gujarat have been very proactive and supportive of this project. One hundred fifty acres of land is identified and secured in Dholera Industrial City Development Ltd (DICDL), which is going to be India’s first smart industrial city spread over 900 sq.km. The Gujarat government has also promised to support with all infrastructure required like water, power and gases etc.

12.To the extent that can be revealed, what kind of incentives and support has NOV asked from the central government? In addition to land, power, water and other infrastructure-related elements, are you looking for monetary support from the state government also?

We have asked from central government to provide upfront economic incentives instead of reimbursements, direct and indirect tax exemptions instead of reimbursements and demand creation support for fab in line with global norms. The state government has also agreed for monetary support under its industrial policy of 2020 apart from semiconductor grade infrastructure, including water and power.

13.At this point, is the approval of incentives by the central government the main pending factor? How confident are you about the central government agreeing to all the support you have asked for?

Yes, the central government approval is the key take-off point anywhere in the world, including India. In our evaluation with Hon’ble Commerce Minister, who is also Chairman of Empowered Committee for High Tech manufacturing in May 2021, he has assured to deliver all the support requested by third quarter of 2021.

We feel this is the last window for India to embark on its semiconductor journey, and the government will surely not miss this opportunity this time.

14.If all goes well, which let us hope it does, when do you expect a Fab to physically come up, and then when do you expect to have working chips produced after all the ramp-up and testing?

Presuming we get all approvals by third quarter of 2021, we will be able to do financial closure within six months of GOI approval, and groundbreaking and construction can start by December 2021. With this timeline, we estimate the fab unit to be ready for equipment by June 2023 and ready for commercial production by December 2025.

15.You may be aware that owners of some fabless companies have been stating in interviews that the Government of India should not incentivise and help Fabs take off in India. What would you tell them?

To come out with electronics products, both fabless and foundry is critical. Having fab would not only help fabless companies to come out with their product faster and cheaper but will also keep fab’s fully loaded. Having fab in India will support Fabless companies more.

16.Which aspect of #FabInIndia excites you most - contributing to defence and security, or self-sufficiency (Atmanirbhar Bharat) or being part of a business that has increased importance or all of the above?

We would say #FabInIndia will not only contribute to defence and security of the country but will also support self-sufficiency of the country as a whole.

Thank You, Ajay, for sharing these details. Wish you all the best, and we look forward to future developments.

Thank You, Arun.