ElectronicsRising electronics import, has a worried Indian government approve proposals to setup two semiconductor Fabs in the country.

The cabinet approval on Thursday will pave way for semiconductor Fabs led by consortiums to be set up India. The consortiums are led by the Jaypee Group and Hindustan Semiconductor Manufacturing (HSMC).

India is looking to cut down on its IT hardware import bill, as it fears that import costs will surpass fuel import costs by 2020. Demand for electronics hardware in the country is expected to increase from $45 bn in 2009 to $400 bn by then. Current import bill of semiconductors is around $7 bn per year, growing 22% annually.

Fabs are an expensive proposition, but a critical piece in the semiconductor ecosystem. An investment of nearly $5 bn would be needed to setup these plants.

Other Steps by the Government

During his 2013 budget speech, Finance Minister P Chidambaram announced Sops for semiconductor manufacturing facilities. The government waived off customs duty on import of plant and machinery.

The Indian government has also setup a Modified Special Incentive Package Scheme (M-SIPS) until May 2015 to provide up to $1.8 bn in incentives to electronics manufacturing companies in India. The Government said it will support startups operating in the electronics space by funding 15-25% of their total investment. It plans to go about it by roping in fund managers, banks and large IT companies.

Last year the government had come up with the National Policy On Electronics (NPOE)  in order to fill the gap between domestic demand and production of electronic goods.

Criticism

Earlier, Silicon Valley based lobby group Information Technology Industry Council, has criticized India’s preferential market access policy for electronic goods. The National Policy on Electronics made provisions to provide Preferential Market Access for domestically manufactured/designed electronic products including mobile devices and SIM cards with special emphasis on Indian products for which intellectual property rights reside in India citing strategic and security reasons.

Recommended Read: Why the Cabinet Approval for Semiconductor Fabs is a Big Deal

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