By S.G. Vombatkere

Karnataka’s State High-level Clearance Committee cleared establishment of Karnataka’s first semiconductor project (fab unit) at a cost of Rs.3.4K crore, in a 234-acre electronics manufacturing cluster near Mysuru. [Ref.1] It is reportedly based upon investment by Zoho-backed Silectric Semiconductor Manufacturing Pvt. Ltd. The fab unit is thus a government-investor joint venture.

Centre has invested Rs.126K crore for semiconductor fabrication projects in Gujarat and Assam, including “India’s first commercial fab unit” at Dholera, [Ref.2] at an estimated cost of Rs. 91K crore. It is a joint venture between Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corp. In 3-4 years, it is to produce 50,000 wafers/month (with about 500 chips per wafer) using 65, 40 and 28-nanometer technology.

Business planning would include calculating the capital investment required for the planned scale of operations, which in turn depends upon expected markets for the product. Thus, in view of other investments for fab units in India and general information on semiconductor fabrication available, the production scale of a Rs.3.4K crore fab unit — a small fraction of the cost of the Dholera fab unit — may not be effectively competitive, especially when the cost of equipment is about 75% of factory capital costs. Being competitive in this ultra-high-tech field is necessary for business survival and safety of investment. Obviously, this being a very small unit may find it difficult to compete with other giants in Gujarat and Assam. 

This is not to question the technical-financial competence of either Government of Karnataka planners or the investor, but to take an overview.

Semiconductor chip fabrication

As an indication, the capital cost of a laser lithography machine [Ref.3] to etch the silicon wafer was US$40M (Rs.0.34K crore) and US$100M (Rs.0.85K crore) for 65nm-55nm technology and 28nm-16nm technology, respectively, in 2022.  A production output of 40,000 wafers/month, may require 20 lithography machines, with infrastructure for this scale of output costing about $300M (Rs.2.5K crore).

The cost of equipment is 70 – 80% of factory capital costs, and a back-of-the-envelope figure for a 40,000 wafers/month fab unit would be Rs.10K crore for the machines plus Rs.4K crore for infrastructure. Rs. 3.4K crore investment for Mysuru’s fab unit is just a quarter of Rs.14K crore and this may justify reviewing the planning parameters and assumptions for economic viability.

Financial viability

Investment of Rs. 3.4K crore appears impossibly small to produce a financially viable production unit. Further, since the main investors are not from Karnataka, it is unlikely that the profits, if any, will be ploughed back for the betterment of the region.

Social and environmental costs 

The social, environmental and financial cost of externalities to the investor, which government will provide according to terms of a MoU, are:

1. Municipal water supply: A fab unit demands 99.99999% ultrapure water (UPW) for washing of wafers and each litre of UPW demands 1.25-litres of municipal water. Municipal water is already insufficient for the Mysuru-Nanjangud conurbation and the fab unit’s water demand estimated at 15MLD, may place a challenge on Mysuru-Nanjangud municipal drinking water and other water demands, with consequent public health, social and political repercussions. Municipal water for the fab unit’s UPW will inevitably be at the cost of water available for people, and will add to the existing water-stress situation.

2. Pollution: The effects of surface and ground water pollution with heavy metals and air pollution due to production processes, ultimately impacts the health and welfare of people.

3. Dedicated grid power: The MoU-  agreed electrical energy tariff for the fab unit may well increase energy costs for existing and future domestic and industrial consumers in the Mysuru-Nanjangud conurbation.

4. Employment: Directly created 460 jobs [Ref.1] will be at the discretion of the investor. How many jobs indirectly created in the feeder small scale industries within and outside the electronic manufacturing cluster, will be available to local people? This may become a sticking point in local politics and affect the establishment, operation and production of  the fab unit.

5. Finance: What component of the Rs.3.4K crore investment will be budgeted by Government of Karnataka and what is government’s share of financial profit from the fab unit?

People matter

The advantages that the proposed fab unit may provide to the State, needs to be balanced by the cost that people will bear, for its establishment and operation.

Government owes it to the people of the Mysuru-Nanjangud conurbation, to reveal details of planning norms adopted for establishing the fab unit near Mysuru. Government’s MoU with Silectric Semiconductor Manufacturing Pvt. Ltd, needs to be placed in the public domain and also made available to RTI queries. This will allay fears that the proposed fab unit may become a ‘white elephant’.

References already hyperlinked in the text:

1. Sonal Choudhary; “K’taka’s first Rs.3.4k-cr semicon project in Mysuru gets approval”; <https://www.deccanherald.com/india/karnataka/karnatakas-first-rs-34k-crore-semiconductor-project-in-mysuru-gets-approval-3330163>; Deccan Herald; 24.12.2024.

2. Gyanendra Keshri; “Centre clears 3 semiconductor plants with investment with investment of 1.26 lakh crore”; Deccan Herald; <https://www.deccanherald.com/india/government-clears-3-semiconductor-plants-with-investment-of-rs-126-lakh-crore-2915845>; 29.2.2024. 

3. Ayush Jain; “Estimating cost to set up semiconductor fabrication in India?”; <https://analyticsindiamag.com/ai-origins-evolution/how-much-does-it-cost-to-set-up-semiconductor-fab-in-india/>; Analytics India Magazine; November 12, 2022.]

[Columnist Major General S.G. Vombatkere, VSM (Retd.), holds a Ph.D (Civil Structural Dynamics) from IIT (Madras). He may be contacted via e-mail: [email protected] or Mob: 94804-75925.]