NEW DELHI: Whilst the government recently doled out huge financial incentives to encourage global chipmakers to set up fab units in India, leading global IT research firm Gartner in a recent report titled ‘Roadblocks Ahead for Indian Fabs’ has given the India’s much-debated chip policy a thumbs down.

According to the report, India’s semiconductor policy has evoked a cold response from global semiconductor vendors, at whom it was mainly targeted. The Indian Semiconductor Association, however, disagrees.

Currently, SemIndia, Hindustan Semiconductor Manufacturing Co. (HSMC), Nanotech Silicon India, Network Systems and Technologies, and Videocon have evinced interest in setting up units in India. Players such as Intel and Texas Instruments ruled out any plans for semiconductor manufacturing facilities in India, at least in the near future. ISA, however, maintains that policy was never targeted at specific companies.

According to Gartner’s report India’s domestic semiconductor demand is less than 1% of the global consumption currently. Gartner principal research analyst Ganesh Ramamoorthy said: “Sourcing for the Indian market from Indian fabs is not an economical move for equipment manufacturers.”

“Whilst the chip policy of the government has generated considerable interest from startups, companies interested in setting up fabs should adopt a wait-and-watch approach,” suggests Ramamoorthy. Gartner’s report lists two major issues facing Indian fabs whilst suggesting this wait & watch approach. “There is complete lack of incentive to source from Indian fabs, at present.

“A device’s geographic source is not as relevant as the contribution of its pricing and properties. The challenge is in convincing the few select global electronic equipment manufacturers who drive tier I silicon specifications and already have relationships with a leading global fab, to work with an Indian fab,” the report adds.

Another major roadblock is the lack of adequate infrastructure for fabs’ growth. “India faces a peak power shortage of around 12% and the industrial segment subsidises the power to the agriculture sector, making power costly for industrial customers. Less than 2% of India’s road networks are freeways or expressways, and less than 70% of the population has access to clean water,” Mr Ramamoorthy adds. Fab units are big water guzzlers, and on an average, manufacturing of one computer chip requires 10 gallons of water.

ISA president Poornima Shenoy defends the government’s fab policy: “We strongly disagrees with Gartner’s views. The policy has evoked strong response from solar fabs and companies interested in setting up units to test and assemble chips in India. Chip fabs take larger investments and they will surely come up.”