Lok Sabha Question No. 1767 (UNSTARRED), answered on 2016-05-04
Subject: Semiconductor Wafer Fabrication Unit
Ministry: COMMUNICATIONS AND INFORMATION TECHNOLOGY
Asked by: SANTOSH AHLAWAT, SUMEDHANAND SARASWATI

## GOVERNMENT OF INDIA MINISTRY OF COMMUNICATIONS AND INFORMATION TECHNOLOGY (DEPARTMENT OF ELECTRONICS & INFORMATION TECHNOLOGY)

## LOK SABHA UNSTARRED QUESTION No.  1767

TO BE ANSWERED ON: 04.05.2016

## SEMICONDUCTOR WAFER FABRICATION UNIT

## 1767.    SHRIMATI  SANTOSH  AHLAWAT: SHRI  SUMEDHANAND SARSWAT:

Will the Minister of Communications & Information Technology be pleased to state: -

- (a) whether  the  Government  intends  to  attract  investment  for  Semiconductor  Wafer Fabrication units in the country and if so, the details thereof;
- (b) whether any empowered committee was set up in this regard;
- (c) if so, the salient features of the recommendation of the said committee;
- (d) whether  the  Government  will  provide  Viability  Gap  Funding  (VGF)  in  the  form  of interest free loan for a period of ten years; and
- (e) if, so the details thereof and other incentives proposed for these units?

## ANSWER

## MINISTER FOR COMMUNICATIONS AND INFORMATION TECHNOLOGY (SHRI RAVI SHANKAR PRASAD)

(a)  to  (e):    The  Union  Cabinet,  in  its  meeting  held  on  20.04.2011  decided  to  set  up  an Empowered Committee (EC) with the mandate, inter-alia ,  to  identify technology and potential investors for setting up Semiconductor Wafer Fabrication (FAB) manufacturing facilities in the country,  and  to  recommend  nature  and  quantum  of  Government  support.  The  Empowered Committee adopted a proposal-based initiative for inviting Expression of Interest (EoI) with the aim of attracting investments for setting up of FAB facilities in the country.

In  response to the EoI,  proposals were received from two business consortia, one led by M/s. Jaiprakash  Associates  Limited  (with  IBM,  USA  and  Tower  Semiconductor  Limited,  Israel  as partners) and the other led by M/s. HSMC  Technologies India Pvt. Ltd. (with ST Microelectronics  and  Silterra  Malaysia  Sdn.  Bhd.  as  partners).  Empowered  Committee,  after detailed  appraisal  of  the  two  proposals  submitted  its  recommendations  in  its  report  of  March 2013. Based on the report, the Union Cabinet, in its meeting held on 12.09.2013, accorded 'inprinciple' approval to the recommendations of the Empowered Committee including, inter-alia , the package of incentives for setting up two FAB facilities in the country. In furtherance of the decision taken by Cabinet, Letters of 'In-Principle' approval dated 09.10.2013 were issued to the two consortia wherein the broad terms and conditions of the approval were indicated. In response to the Letters of 'in-principle' approvals, the two consortia, in the Demonstration of Intent made certain requests. These requests were considered by the Empowered Committee and recommendations on the same were made in the 2 nd report of the Empowered Committee dated 21.01.2014.

The Union Cabinet in its meeting held on 12.02.2014 accorded approval to the two proposals and accepted the recommendations of the Empowered Committee made in pursuance of the Cabinet decision in  its  meeting  held  on  12.09.2013,  in  the  matter  of  establishing  the  FAB  facilities  in India.  The  Union  Cabinet  also  authorized  the  Empowered  Committee  to  take  all  decisions  to implement the FAB projects in furtherance of the decision of the Cabinet. The Union Cabinet in its meeting held on 28.01.2015   reconstituted the Empowered Committee.

The salient features of the recommendations of the reconstituted Empowered Committee are as under:

- (i) Establishing  Semiconductor  Wafer  Fabrication  facilities  in  India  is  a  critical,  strategic and economic imperative for India.
- (ii) Government should proceed with further steps in respect of both the proposals received for  establishing  Fabs,  viz.,  from  the  consortia  of  (i)  Jaiprakash  Associates,  IBM  and Tower Semiconductor and (ii) HSMC, ST Microelectronics and Silterra.
- (iii) Existence  of  two  fabs  will  bring  in  competitiveness  in  a  large  and  diverse  market  like India.
- (iv) The fab project would be viable only if an appropriate set of incentives and support are provided by the Government and recommended the same.

The Government will provide Viability Gap Funding (VGF) in the form of Interest Free Loan (IFL) which will be calculated so as to arrive at an Equity  Internal Rate of Return (EIRR) of 14.5%  and  be  capped  at  20%  of  the  capital  expenditure  [as  admissible  under  the  Modified Special  Incentive  Package  Scheme  (M-SIPS)].  On  commencement  of  commercial  operations, part  of  the  VGF,  in  the  form  of  IFL,  would  be  converted  into  11%  equity  at  face  value.  The balance of the IFL shall have a moratorium of 10 years from commissioning of respective phases or  the  year  of  break  even,  whichever  is  earlier,  and  repayable  in  5  equal  annual  instalments thereafter. Besides IFL, the following main incentives will be extended:

- (i) Subsidy on capital expenditure as admissible under the M-SIPS
- (ii) Exemption of Basic Customs Duty (BCD) for non-covered capital items
- (iii) Deduction for expenditure on R&D as admissible under Section 35(2AB) of the Income Tax Act

## (iv) Investment linked deduction under Section 35AD of the Income Tax Act

Letters  of  Intent  (LoI)  dated  19.03.2014  were  issued  to  the  two  consortia.  Both  M/s.  HSMC Technologies  India  Pvt.  Ltd.  and  M/s.  Jaiprakash  Associates  Ltd.  had  sought  extension  on multiple occasions for submission of deficiencies in Detailed Project Reports (DPRs) and other documents  required  for  demonstration  of  commitment,  which  were  provided  to  them  by  the Empowered  Committee.  While  the  consortium  led  by  M/s.  Jaiprakash  Associates  Ltd.  has withdrawn from the aforesaid project, consortium led by M/s. HSMC Technologies India Pvt. Ltd.  needs  to  address  the  shortcomings  already  communicated  and  furnish  other  requisite documents/ information required for demonstration of commitment, as per LoI, by 30.04.2016.

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