Centre’s subsidy to Vedanta-Foxconn plant amounts to ‘freebies’, say experts

Vedanta-Foxconn’s Rs 38,831 crore semiconductor manufacturing hub in Gujarat and Singapore’s ISMC’s Rs 22,900 crore projects in Karnataka may become the first beneficiaries of the Union government’s policy offering 50 per cent subsidy on the project cost. 

The government on Wednesday announced tweaks to its Rs 76,000 crore incentive scheme for semiconductors and display manufacturing units, saying it was meant to woo global players though existing applicants are expected to take full benefit.

The announcement of the heavy sops has led to criticism from various quarters with some comparing the subsidies to the ‘revadi culture’ or ‘freebies’ controversy. 

In his latest column ‘Swamispeak’ published in The Economic Times, Swaminathan S Anklesaria Aiyar wrote, “The government’s 50 per cent subsidy for Vedanta’s silicon fabrication plant in Gujarat will amount to Rs 80,000 crore. This is more than the entire central allocation of Rs 73,000 crore for MGNREGA.”  

The government said on Wednesday that the earlier fiscal support had been revised to 50 per cent of project cost on a pari passu basis from the previously proposed financial support level of up to 50 per cent of project cost (subject to a cap of Rs 12,000 crore per display fab).

The question that many economists are raising is if projects like Vedanta-Foxconn and ISMC will end up swallowing a large chunk of the government’s allocation for subsidies. The point being made is that this will then not really have India wooing semiconductor and display makers to the country but ensuring financial incentives for just a select few.

Raghuram Rajan, former RBI governor, is among those who have questioned what would stop manufacturers from shifting to other countries when the subsidy and performance linked incentive schemes end. 

“Manufacturers could also continue production but also demand continued tariff and subsidy protection,” he has been quoted as saying.

Aiyar, in his column, notes that if a single project like Vedanta-Foxconn costs $20 billion, it threatens to swallow the entire government allocation of $ 10 billion. “What about the four or five other fabs that are to follow? If each gets a similar subsidy, where will the money come from,” he asks.

Industry observers say that the scheme offers financial support to companies that want to manufacture a range of semiconductor goods in India. It will bring down the production costs of companies manufacturing such goods, and thus encourage them to set up new factories and other facilities. 

“It can be viewed as an effort to establish a powerful semiconductor sector that would remove the nation's dependence on imports. But then, India’s attempts to lure chipmakers in 2017 and 2020 didn’t bear fruit either. Intel, Samsung, TSMC have not revealed their interest yet,” one such observer said.

The government has disclosed that the businesses like Vedanta-Foxconn that have chosen Gujarat over Maharashtra will produce goods using methods ranging from 28 nm to 65 nm, with a combined monthly production of 120,00 wafers.

In a report, The Register, a global online enterprise technology news publication, said that leading players like Intel, Samsung, and TSMC make their most advanced products at 10nm or below, while global semiconductor 200mm wafer capacity currently exceeds 6.6 million a month. “Even if all of India's investments come off, it will add around two per cent to global current capacity – a decent entry to the global market from a standing start. But the 28nm kit India hopes to make is one of the few markets currently not experiencing product shortages. And 120,000 wafers a month is not a big addition to supply by current standards: Intel already has more than a million wafers a month of new capacity either under construction or on the drawing board. Samsung, TSMC, and others have also revealed plans to add capacity. By the time India's efforts come online, they may be less significant,” it said.

Semiconductor industry veteran Arun Mampazhy said, “Though in a nutshell, this is good news for genuine applicants like manufacturers of 65nm vs 28nm wafer capacity, I am also a bit concerned about dilution for even older nodes like 250 nm wafer capacity ones. Also, this will be a challenge now for the Ministry of Electronics and Information Technology to evaluate the genuineness of applicants, especially in the area of packaging.”