By 2020, current cost trends will lead to an average cost of between $15 billion and $20 billion for a leading-edge fab, according to the report. By 2016, the minimum capital expenditure budget needed to justify the building of a new fab will range from $8 billion to $10 billion for logic, $3.5 billion to $4.5 billion for DRAM and $6 billion to $7 billion for NAND flash, according to a report.
It is Expensive
Every company which wants to setup a fab in India wants the government to finance a significant portion of the fab cost. i.e. At current rates, the government should spend around Rs 70,000 Crores to get a fab at the current technology node.
The cost of doing an infrastructure project in India is at least twice that of rest of the world so the Fab cost will exceed 140,000 Crore.
Bureaucracy
There is a very small window in which a fab can win business. Once every 2–3 years companies on the leading technology edge move to the next technology node. If you want them to come to your fab instead of say GF, TSMC or Samsung you should be agile and be ready to target that window of 2–6 months where the foundry decision is being made… By the time to government appointed
expert committee to recommend action based on the inputs from expert committee which was setup to review the financial feasibility of the proposal given by expert committee setup to check the technical feasibility report is available, this window would have closed.
Corruption
While setting up the fab your equipment has the tendency to get stuck in customs until certain “fees” are paid, all these can lead to loss of crucial ramp up time leading to loss of customer’s, penalties etc.
Political extortion
Even if the current government allowed you to setup the fab and facilitated everything, in a few years elections will be held and a new government sworn in, The concerned minister may call for a “review” of your project, its environment clearance, its compliance with various laws etc. If you fail to grease the right palms you might find that the fab is not compliant with some law or the other and needs to be shut down! (good luck spending the next 10 years fighting it out in the court…
)
International laws If you grease the right palms, and get your fab running you would have violated various international anti-corruption laws, So be ready to find your top management behind bars soon.
Summing it up
These are the reasons you would find that every 3–4 years some or the other company makes a hue and cry about coming to India but does not. The risk of setting up a capital intensive business in India is very high. These problems are generic, They are not only related to Fabs. Take a look at the MoU’s signed at the various “Investor meets” across the country in the past decade and check how many of them were actually executed, Take a look at the various industrial parks in India. Most of them are empty!
Look around at all the FDI that has entered India and you will find that almost all of them are “low capital, low risk” and in most of the case even the capital is taken on loan from Indian bank with the Indian operations assets built using this capital as surety
- IT: Labor Intensive, Buildings are mostly leased, computers are leased, investment is in people, non people investment may at most be double the salary cost.
- Mining:Labor intensive, capital is used for trucks, earthmovers etc.
- FMCG: Cola, Chips, soaps etc.. cost of production and equipment is negligible, strength is in distribution and logistics.
- Fast Food: Franchise model, the outlets etc are owned by Indians, the brand owner takes a fees and a cut in profit for the use of his brand name and “consultation.
The reason you do not see Fab’s in India is the same reason you do not see any other multi-billion dollar capital investment in India.