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A ‘fab’ulous dream indeed

EM News Bureau ,  Thursday, October 10, 2013, 16:25 Hrs  [IST]

The Indian government’s recent approval to setting up two silicon wafer fabrication facilities in the private sector is indeed a very big development for the electronic system design and manufacturing (ESDM) industry. The investment entailed, at around Rs.25,000 crore, is unprecedented, at least in the manufacturing sector.

A “fab”, which is how silicon wafer fabrication is referred to as, indeed bridges an important gap in the ESDM space. When completed, it could reduce India’s dependence on imports. At the psychological level, it sends out a very strong signal to the world because Fabs have largely been the enterprise of only the developed world.

At this stage, the proposed fabs are mere announcements and it will be quite some time before tangible implementation on the projects sets in. This is when daunting challenges could set in. Firstly, a fab needs tremendous investment. Even when the Centre has assured financial help, the modalities are being worked out. Although there need not be many extraordinary complexities at the project execution stage, production of silicon wafers is a very energy- and water-intensive activity. Assured supplies of these crucial inputs needs to be ascertained.

The biggest test is to ensure that silicon wafers produced by India are cost-effective. Much of this will depend on how much technical and commercial efficiency the fabs can establish. This aspect will be most critical to the success of these proposed fabs.

Frankly, India has been a late entrant in this business. China, over the past twenty years or so, has created so much efficiency in silicon wafer fabrication that is improbable for any country—not just India—to come anywhere close to China’s feat. An Indian consumer of silicon wafers needs to find sufficient merit in preferring domestic wafers over imported ones. Two factors could however still go in favour of domestic wafers. First, the weakening rupee could make imports even costlier with time, and second, local fabs could insulate India from any irregularity in foreign supplies. All the same, how much the domestic techno-commercial advantage would be cannot be ascertained now.

It must be remembered that for India, the two proposed fabs represent a second attempt at the same target. In 2006, a similar proposal was mooted but the plan briskly fell through.

India has never compromised on the grandiosity of its announcements; the fab project is only further evidence. Implementation is all that matter and implementation is sadly all that we lack.
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