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Planning Commission spurns Department of Electronics's Rs 25,000-crore fab manufacturing plan

NEW DELHI: The Planning Commission has shot down the Department of Electronics and IT's Rs25,000-crore plan to set up dedicated fab manufacturing units in the country, citing possible subsidy outgo to the private sector, dealing a big blow to the industry. "This would amount to giving subsidy to a private company... This is not how the government works," said a Planning Commission official, requesting anonymity. 

The Department of Electronics and IT had proposed to set up semiconductor wafer fabrication manufacturing units in the country with an investment of around Rs25,000 crore, most of it through government funding, either as equity, grant or subsidy --in physical or financial terms. 

But the Plan panel has now asked the department to re-work its entire proposal, and has expressed reservations over investing so much money in a sector that sees rapid technology changes. Sending back the proposal to the department of electronics, the panel stressed on the use of excess capacity available the world over, besides developing electronics before setting up fabrication units. 

"Subsidising fabrication units for 10 years when there is excess capacity doesn't make any sense," the official said. "The proposal is not acceptable in its present form as the department is now asking for M-SIP plus, over and above the M-SIP that we have already given them," another senior official said, adding that it's a huge subsidy, and is not a priority for the government. 

The Plan panel's objection comes at a time when the department is in talks with two players for setting up these units based on the recommendations of the 
Sam Pitroda Committee. These include Jaypee Group that has tied up with International Business Machines Corp. (IBM) as its technology partner, and the chip-maker Hindustan Semiconductor Manufacturing(HSMC), which has teamed up with Geneva-based STMicroelectronics. In the beginning of this year, the government had announced a $4-billion modified special incentive package (M-SIP) scheme for setting up units to manufacture computer chips, electronics, solar photo-voltaic cells, and telecom equipment in the country. 

But the Plan Panel's refusal could upset the plans for the sector, especially after finance minister 
P Chidambaram had promised incentives for the electronics industry. "The government would provide appropriate incentives to semiconductor wafer manufacturing facility including zero custom duty for plant and machinery," Chidambaram had said while presenting the Budget for 2013-14. 

The Union Cabinet had also approved the setting up of two semiconductor plants in the country at an estimated investment of around Rs25,000 crore in 2011, with the aim of boosting innovation and R&D, especially in electronics, which would have helped in creating around three crore (direct and indirect) jobs by 2020. 

The semiconductor or electronic chips form the basis of all electronic products such as mobile phones, computers as well as equipment used in telecom networks, defence and so on.