TN puts all its chips on semiconductors – ET Auto


While manufacturers are being lured by capital subsidies, TN is leveraging its unique ‘payroll subsidy’ to lure chip design multinationals and startups to create jobs in the state.

After emerging as India’s top electronics exporter in 2023, Tamil Nadu has set itself the ambitious goal of moving up the electronics value chain. For this, the state came out with a Semiconductor and Advanced Electronics Policy, 2024, last week. The policy aims at TN contributing 40% of India’s electronics exports by 2030 (from 30% now) and creating a skilled talent pool of two lakh people by 2030.

While electronics manufacturing services (EMS) companies create jobs at scale in the state, the value addition is just around 8-10%. TN is, thus, looking at manufacturing electronic components and creating a semiconductor ecosystem that contributes to both higher domestic value addition and creation of high quality jobs.

Chris Miller, author of Chip War, a recent bestseller on the geopolitics around the semiconductor sector, believes that while Tamil Nadu, Karnataka and Gujarat are all early movers , TN’s new policy with a strong focus on chip design will work well for it.

The policy does strike a balance between manufacturing and design of chipsets. Under it, TN will also offer up to 50% of additional subsidy to semiconductor manufacturing projects selected by the Centre under its $10 billion chip subsidy plan. These projects will also get incentives for training, product testing and prototyping, stamp duty and electricity, besides other sops. Further, selected chip design entities will be eligible for payroll reimbursement of 30% (year 1), 25% (year 2), and 20% (year 3) if they employ TN residents. This payroll subsidy shall be capped at `20,000 per employee a month.

Analysts and industry players TOI spoke to said capital subsidies and production-linked incentives are more lucrative than peer policies, and will help attract foreign and domestic investors. The 50% capex incentive offered by Tamil Nadu is higher than the 40% offered by Gujarat government, but Gujarat has a head start in terms of the Micron plant, and talks with conglomerates including the Tata Group, analysts note.

“Dholera Special Investment Region in Gujarat has much of the infrastructure for a fab readymade and that may make it more attractive,” says Arun Mampazhy, an independent semiconductor analyst. “However, it is a good that TN now has a well defined policy,” he adds.

Eswara Rao Nandam, founder-president of opto semiconductors maker Polymatech, says this has long been the expectation of industry from a progressive state such as Tamil Nadu. “Automotive, smartphones, and IT hardware sectors are major end users of chips. TN being a hub for these, a well-defined policy on semiconductor helps,” he says. Polymatech will soon initiate talks with the government for expansion of its manufacturing facility in Sriperumbudur, he adds.

While manufacturers are being lured by capital subsidies, TN is leveraging its unique ‘payroll subsidy’ to lure chip design multinationals and startups to create jobs in the state.

V Kamakoti, director of IIT-Madras, and the man behind India’s first indigenous computer microprocessor Shakti, says the move to reimburse part of salary will help fabless startups as cost of quality chip design talent is quite prohibitive. “Overall, there should be a consortium approach to grow this sector. If enough markets for India chips are created, the governments can also help block slots in large fabs for our chip design players,” he says. Fabs are microchip manufacturing plants mostly concentrated in Taiwan and the US. Waiting time for getting a batch of chips made at these giants runs to months.

G S Madhusudan, CEO, InCore Semiconductors, a fabless semiconductor product startup working out of IIT-M research park, says the policy is a good start. “However, for fabless entities (i.e. chip design and product companies) the policy misses out support systems around prototyping facilities, PCB [printed circuit board] testing and access to other tools,” he says.

Shashwath T R, co-founder and CEO, of IIT-M incubated chip startup Mindgrove Technologies, says TN has a human capital edge given the academic strengths of IIT-Madras and Anna University and the soft power and influence of Tamilians who dominate the chip industry globally. But, he stresses that the policy should specifically address the skills gap in the areas of chip design and integrated circuits (IC) in its next iteration.

On the payroll subsidy, a semiconductor executive says salary is perhaps the least of the problems of chip design startups as venture capitalists are very keen to fund them. “What’s needed are interventions by the state government to create a chip cluster like Tirupur is for textiles,” says the executive.

  • Published On Jan 15, 2024 at 10:30 AM IST

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