Why is Planning Commission stonewalling semiconductor startup investment proposal? — Medianama

medianama-newA proposal by Walden International to set up a fund for startups in the semi-conductor sector here in partnership with the Indian government has been stuck with the planning commission, that is not in favour of the plan, reports The Hindu BusinessLine.

The US-based investor, with committed capital base of over $1.6 billion, had suggested that it would invest $5-10 million in the country by funding electronics chip design start-ups. The proposal had also suggested that the government could invest 15% of the project, following which a government committee was set up in 2012 to look into it. This committee had concluded that the government should consider the proposal as there is a need for adequate finance for seed-stage and early stage-funding in the Electronic System Design and Manufacturing (ESDM) sector.

Change in government policy

The government’s stance towards electronics manufacturing has changed a lot since Walden International first floated the proposal. It came up with the National Electronics Policy to encourage domestic companies to start manufacturing electronics goods and had even proposed various incentives for companies that invested in electronics manufacturing here under the Modified Special Incentive Package (M-SIPS).

Following these announcement, it had received proposals worth Rs 65,000 crore for manufacturing electronics in the country. The Cabinet had also approved the setting up of two semiconductor wafer fabrication units at a cost of Rs 63,412 crore in India, earlier this year.

Besides this, the government had also set up a corpus sum of Rs 30,000 crores to set up Electronic Manufacturing Clusters (EMCs) last year. It has received applications from several states and as per DeitY website there are 30 EMCs being set up across 13 states in India. However only the Bangalore facility has got the nod until now and the first brownfield EMC will be set up in Electronic City at a cost of Rs 85.15 crore.

Why ignore foreign investments in semiconductor startups?

Though foreign investments can help India, the government has not been very inviting of such investments in semiconductor startups here. National Manufacturing Competitiveness Council (NMCC) had even floated a proposal for creation of a $1 billion fund to encourage manufacturing of telecom equipment and devices in the country.

As per this proposal, the promoter of the company will have full control of management, subject to a review by the expert committee. However, the fund will maintain an equity holding above 51% to prevent any foreign entity from gaining control over the firm.

This could have been the same reason that made the planning commission think twice about Walden’s proposal. The government is not making a smart decision by putting all eggs in a basket and ignoring proposals made by foreign VC firms. We think it should work with such VC firms, apart from having its own programs to encourage companies in India.

Investors such as Walden have invested in semiconductor and hardware companies in US, such as wearable camera manufacturer GoPro, fabless semiconductor companies Inphi and Tilera, makers of low-power SOCs for enterprise Ineda and makers of SoCs for smartgrids Enverv, among others. The experience the firm gained by investing in these companies could help the startups here in ways that money from Indian government cannot.

These policies by the Indian government makes it look two-faced: It wants bigger companies to invest heavily and set up fabs and manufacturing units here, on the other hand it wants nothing to do with foreign investors who want to encourage Indian startups in the field. There is only one conclusion – India is a demo-crazy!

Read the original post at Medianama.

(c) Medianama 2013. This article is brought to you in association with Medianama, the premier source of information and analysis on Digital and Telecom businesses in India.