By Krishna Barot

The Gujarat government’s bid to establish itself as a semiconductor hub may have succeeded in attracting big-ticket investments but have thus far found few takers amongst the MSME sector. Industry insiders attribute this lack of enthusiasm amongst MSMEs to the stiff conditions set by the government which are proving to be a deterrent for small players.

It may be mentioned that Gujarat has attracted sizeable investments amounting to almost Rs 1.26 lakh crore for the semiconductor industry from four big-ticket companies, including Tata Electronics, Micron and Kaynes and CG Power . Despite that, the lack of participation by MSMEs is being attributed to the substantial minimum investment threshold ranging  from Rs 50 crores to Rs 20,000 crore, depending on the type of plant, required to enter the sector. As per the government policy, a minimum investment of Rs 50 crore is mandatory for setting up an OSAT (outsourced semiconductor assembly and test) plant and a modified assembly marking and packaging unit to Rs 20,000 crore for a semiconductor fabrication plant.

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The investment threshold, coupled with several other factors such as lack of incentivization for R&D makes the ecosystem a high-barrier one for cash-strapped MSMEs, according to industry observers.  

Dr Pankaj Yadav, an Associate Professor at PDEU (Pandit Deendayal Energy University) and founder of private company SATs (Semiconductor Analysis and Testing Solutions) maintains that if semiconductor fabrication units limit themselves to manufacturing nanochips, MSMEs may not be able to establish a foothold in the sector, given the niche and highly specialized processes and technologies involved. For example, Tata Electronics is collaborating with Taiwan’s PSMC (Powerchip Semiconductor Manufacturing Corporation) to manufacture 28 nm chips. “If the ecosystem also promotes the production and manufacturing of microchips, which have widespread application across various electronic devices, it would bolster MSMEs wanting to scale up their operations,” Yadav stated.

Despite the evident hurdles that prevent MSMEs from entering the state’s semiconductor sector, Mona Khandhar (IAS), Principal Secretary – DST (Department of Science & Technology) maintains that there is potential for medium and small companies to enter the sector too, albeit through separate avenues.  “Such enterprises must however conduct a thorough financial analysis due to the substantial minimum investment thresholds involved. MSMEs should also consider focusing on niche areas such as substrate manufacturing, power semiconductors, compound semiconductors and related downstream applications,” she suggested while speaking to FE. ” The scale of operations and technological demands are likely to align better with their capabilities and financial resources. It is important for interested MSMEs to remain competitive and have updated technology,” she added. She also asserted that large projects like the Tata and Micron ones could act as facilitators to create a pathway for MSMEs in terms of third-party contracts and local sourcing to streamline supply chains.

Yadav, however, opined that competitiveness in the semiconductor space remains difficult for MSMEs without appropriate budgetary support. “While educational institutes can avail government funding to further semiconductor research, the same cannot be availed by commercial enterprises and MSMEs,” he said. Although foreign companies such as Nvidia and AMD have established research and design centres across India, the challenge for local MSMEs to obtain government funding and incentives persists.

For instance, textile manufacturing MSME Suchi Industries which has recently forayed into the semiconductor space through its OSAT facility Suchi Semicon, is still waiting government approval for the 20% capital support it has sought along with the Centre’s SPECS (Scheme for Promotion of Manufacturing Electronic Components and Semiconductors) incentive and ISM’s 50% capital support. “Our applications are still under review,” said Ashok Mehta, MD Suchi Semicon. Pending approval, the company has begun production with the help of diverse funding sources, including private investors, banks and company funds.

Presently, the GSEM (Gujarat State Electronics Mission) has been set up as a single-window nodal agency for all semiconductor projects in Gujarat. Speaking to FE, Mission Director Manish Gurwani (IAS), the agency provides fiscal, logistical and infrastructural incentives to companies.”Under Gujarat’s semiconductor policy, we facilitate incentives including land acquisition, water and power subsidies, a 20% capex of the total project cost and single-window clearances. For Tata’s semiconductor fab plant, a project worth USD 11 billion, approval was granted from ISM (Indian Semiconductor Mission) within a matter of 24 hours,” he elaborated.