At the outset, I confess that I am not good at economics or share market or anything related.
More than 25 of my articles on #FabInIndia and semiconductor related topics are out there, and also some videos, TV and online debates. Given that my email address is there on my profile, I do occasionally get emails asking suggestions about investment opportunities in the field.
Some of them are from people with no background in the electronics industry, some are from those who may already have a company somewhat related or somewhere in the potential supply chain of an upcoming semiconductor ecosystem in India.
The most frequent number given to me in terms of how much they would like to invest, is in the 100s of crores of rupees. At the threshold of year 2022 — which in all likelihood will be a make or break year for India's semiconductor ambitions — here is a small primer, mainly focused on central government policies.
I already confessed what I am not, maybe now I should tell what I am trying to be here — a little story teller. As the story progresses, the reader is free to take the moral he wishes. In other words, I don't have magic pills, I can only point to some medicinal plants in a forest.
I will request the reader to watch the first six minutes of this video where I have a brief introduction to the semiconductor ecosystem, indeed those interested can also watch the hour-long panel discussion that follows. For the sake of clarity, I present that ecosystem picture below again.
I will now take elements from this picture and try to point out what government of India policy exists to encourage each of these segments, while gently reminding the reader that it is not intended to be a comprehensive suggestion.
Raw Materials And Similar Elements Of The Supply Chain
A lot of people tend to ask, is the government of India planning to make the ecosystem that "starts with sand" as many have heard that it is from sand that raw Silicon wafers (that is, the starting Silicone wafers) are made. I will point to a few documents and links. First to this and the Gazette Notification therein. Under the list of goods, see category "F — Semiconductor wafers".
While you are at it, also read the kind of incentives offered for the other categories of goods too, especially A, B, C and D — those are areas where a few 100 crore of rupees in investment can possibly enable you to make a good impact.
SPECS scheme is as of now open till 2023, I believe one can still apply, or alternatively try to find out which companies may have already received approval for incentives and find out if they are interested in additional investments.
Let me go back to "category F" — semiconductor wafers need not mean only Silicon wafers, for now however, I will point to this writeup for a brief study of the global Silicon (starting) wafer market and key players. If I were to give my opinion, I do not think at present there is major incentives being offered by the government of India to set up raw wafer manufacturing plants that can compete in the global market — it may happen in future, especially given that government is trying to perhaps build the manufacturing ecosystem "from the other end" — that point will be clearer later in this article.
Likewise, the chart available at this link will give you an idea of the players and market for "Semiconductor equipment suppliers". There are many more pieces of the puzzle needed as the fab comes up or once it is functional, for example, chemical supply, water deionisation plant, waste treatment plant, robotics needed for wafer movement between equipment and so on.
However, there is a catch or two — one, it will take at least three to four years for fab to be fully functional and maybe another two to three years for it to be running at full capacity and each of these pieces of the puzzle of the supply chain need to be enabled at different stages.
Secondly, established fabs who eventually the government of India hopes will set shop in India either directly or through a joint venture with Indian firms, is likely to already have suppliers and contract vendors that they are already used to.
All this is not to say that there are no opportunities for a more than Rs 100 crore or Rs 100-1,000 crore investment in these areas. In fact, they will be there, but the what, when and how will depend on a lot of factors and patience and persistence will also be needed in tonnes. Is this the right time to start exploring? Yes, for sure.
Let us also hope that as the government of India sets up the "India Semiconductor Mission", while a major focus will be to make sure that the $3 billion and the $7 billion kind of fabs take off, there is also enough details and/or personnel available that can guide interested investors with various levels of proposed amounts
A Few Words About The 'Real' PLI Schemes And EMC2.0
The SPECS scheme mentioned in the section before was notified on 1 April 2020 and officially launched on 2 June 2020. Along with that was launched the first production linked incentive (PLI) scheme for "Large Scale Electronics Manufacturing" — see some policy documents here. Practically that meant industries like mobile assembly.
The scheme was quite a success and it was then extended to many more areas including hardware (for example laptops) assembly and other non-electronic areas too. I found this nice summary of the 13 sectors as well as the overlay approved so far by the government — what is listed as number 11 in that list is the one which the government of India first notified in April 2020. Many companies have already started getting the benefits of the scheme and investors can look for opportunities for additional investment or IPOs.
The other scheme notified in April 2020 was the EMC2.0 scheme. To a large extend, this scheme is for the state governments, in facilitating clusters of electronic manufacturing related companies to come up in their states. Many states have offered such clusters already, investors can look for opportunities there or for companies who may have already taken land and other facilities.
If a certain state government has not yet attempted to avail the benefits offered by the central government using the EMC2.0 scheme, it may be worthwhile for the industrial and investor bodies of the state to talk to the corresponding government about the same.
I also had an article published in news4masses a few days after the 'trimurti' schemes were launched in June 2020 which also has the press briefing video embedded.
What Do The $10 Billion Overlay December 2021 Scheme Offer?
The official press release of the scheme launch is available here. Notice that nowhere does it say "PLI". If you see media reporting the scheme as a PLI, I would say that it is a gross underrepresentation. This latest one is much more than just "production linked incentives" — in some sense it is an extension of SPECS, but at a much larger scale keeping in mind a broader ecosystem with emphasis on fabs and design.
Unlike the PLI, much of the incentives are not based on incremental production, but during the bringing up of the factory itself, there are some elements that are PLI like:
A) The gazette notification for the design linked incentive is available here. One of the key objectives here is:
Nurturing 100 domestic companies of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design and facilitating the growth of not less than 20 such companies to achieve turnover of more than ₹1500 Crore in the next 5 years .
This is definitely an area that investors of the Rs 100-Rs 1,000 crore kind can make some serious attempts — yet again, I hope the government will soon have detailed guidelines.
B) The next gazette notification that you may want to take a look at is this. Perhaps, due to the fact the investment thresholds mandated by the government are Rs 50 crore or Rs 100 crore, the fiscal support is up to 30 per cent of Capex, and that these are open for next three years, multiple items are clubbed under this.
By OSAT/ATMP, I believe the government of India is looking for companies of this type — either MNCs directly investing, or through joint ventures with Indian business houses of tech firms, or Indian groups domestically bringing this up perhaps with initial technology help from companies abroad (through licences). As of now, the speculated investment by Tata electronics of about $300 million is believed to be in this segment, but units with even lesser investments too are possible.
Now we get into talking about semiconductor fabs — the factories where the raw wafer goes through various processes to become the processed wafer, from which individual monolithic ICs or chips are then diced and sent for packaging. Under this notification are listed the compound semiconductors (examples are GaN, GaAs, InP, SiC, ...), Silicon Photonics, sensor fabs (like MEMS).
Are Rs 100 - Rs 1,000 crore investments possible in this? By and large, these are likely to be in the Rs 5,000 crore to Rs 20,000 crore range, but perhaps there are opportunities also in the near Rs 1,000 crore range or Rs 1,000-5,000 crore range. Once more, let us await further inputs from "India semiconductor Mission" — there is after all three years of time, and given the complexity of the field, unless you are an expert in the field or a company with experience, "study well and get into it" will be advisable.
(C and D) Finally the big ticket items — display fabs (gazette) and Silicon fabs (gazette). At this point, these are for big players and also, the current application window for this is a 45 day period from 1 January 2022. Opportunities in supply chain as well as perhaps in equities will start opening up at some point. It is never too late to start learning about these.
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