India - Semi-conductor projects galore

The Indian semi-conductor industry lobbied hard and eventually obtained an elaborate package of incentives from the government to enable India to secure a foothold in the global semi-conductor play. But market forces have caused a range of private projects to be announced, and action has been taken on some of them even before any incentives have been sanctioned! Over a dozen proposals have been announced, proposing a massive investment of Rs 1,36,000 crore. Work has already started on a couple of projects which are likely to go on stream by 2010. Thus, in the field of semi-conductors, which lie at the heart of information technology and in the manufacture of which India has so far been a non-starter, the train has left the platform — without any of the incentives which were controversial when they were announced, because many considered them unnecessary, for two very good reasons: the industry is hugely capital-intensive and delivers low margins, and what it produces is easily imported. So why spend vast sums of pubic money in bolstering up such an industry?

The rapid progress has happened mostly because of the way oil prices have skyrocketed in the last couple of years, making the whole world and India, as one of the major emerging consumers of energy, take a fresh hard look at renewable energy. Most of the proposals aired so far relate to the production of solar panels and target photo-voltaics and poly-silicon. The latter is used to manufacture photo-voltaic modules that make up arrays or solar panels. Prominent companies which are serious players include Moser Baer and Tata BP Solar. Activity has taken off in this segment of the semi-conductor space because of two reasons. The manufacture of poly-silicon in India is now considered viable in view of the current high global prices, which are the result of a global shortage of capacity. On the other hand, those who are going in for the manufacture of photo-voltaics with imported poly-silicon are hoping that the price of the latter will go down once several projects under construction all over the world come on stream.
The sanctioning of incentives has not yet taken place as it is an elaborate process in view of the fact that the government has decided that only current technology will qualify for public help. The semi-conductor industry requires huge investments, which can run into billions of dollars, while the technology changes every several years. Thus there have been global examples of governments announcing large packages to attract semi-conductor fabrication units, or fabs, and the manufacturers dismantling an existing plant in one location and putting it up at a new one, to pocket the incentives on offer. This is something that the government should be seeking to avoid, in keeping with the general thrust that opposes subsidies. Right now solar power is far costlier than conventional thermal power generated by burning fossil fuels. But there is zero environmental cost to solar power and, what is more, the fuel for it comes free, blessed as India is with almost perennial sunshine. Over time, as the capital costs of solar power go down with technological progress, the cost of power from conventional fuels is likely to go up, especially if the environmental costs get factored into costs. Most governments expect solar power to achieve grid parity with conventional power by around 2015. Hence the incentive to be in the game and absorb technology as it changes. Once the first solar power projects take off, that journey will have begun.