India’s chips are up

Private players have responded, but infrastructure challenges are daunting

India’s chips are up
With this flurry of activity, there is the prospect of a glut in capacities at a time adverse headwinds are slowing the overall pace of global economic expansion.

The government will doubtlessly be elated at the response from private players to its $10 billion scheme for promoting semiconductors and display manufacturing through capital support and production-linked incentives. The government took this strategic initiative last December to minimise dependence on China as post-Covid-19 disruptions in the global supply chain impacted the domestic auto industry which found itself short of chips. India’s decision also comes amidst heightened US-China rivalry with efforts to decouple supply chains from the dragon. In this milieu, India seeks to position itself as an attractive destination for companies seeking to relocate from the mainland. The US is the leader in chip design and outsourced manufacture to fabrication facilities in Taiwan, South Korea and China. In July, the US passed the Chips and Science Act with $52 billion in subsidies to push chip making and R&D at home. It has exerted pressure on its companies to desist from supplying high-end processors and technology to China. The European Union, too, is hoping to build its capabilities with a 43 billion euro Chips Act. With this flurry of activity, there is the prospect of a glut in capacities at a time adverse headwinds are slowing the overall pace of global economic expansion.

Also Read: Data Drive: Muted oil demand ahead

The response to NDA’s semiconductor drive is led by the Vedanta Group —they have a joint venture with leading contract electronics manufacturer Foxconn—to set up a fabrication and display unit and an assembling and testing unit in Gujarat. The plant will start production in two years and aims to break even in 4-5 years according to the chairman of the natural resources group, Anil Agarwal. “Most of the technology work will be done by Foxconn”, he told the Financial Times although it is unclear what expertise Foxconn has to produce semiconductors. Are they going to rope in a technology partner from the outside? However, both have capabilities in display glass: Vedanta has facilities in Japan, South Korea, and Taiwan, while Foxconn’s subsidiary, Innolux Corp, is a display fab leader. Besides Vedanta, other players, too, have evinced interest in setting up chip fabrication facilities. A group led by Singapore-based IGSS Ventures has signed a MoU with Tamil Nadu. International Semiconductor Consortium, a JV between Abu Dhabi-based NextOrbit Ventures and Israel’s Tower Semiconductor, has also inked an MoU with the Karnataka state government.

The big question naturally is whether India’s semiconductor gamble will pay off. It bears mention that earlier efforts to attract chip makers in 2017 and 2020 did not take-off. To be sure, India has a strong edge in design because of its software capability. Around 2,000 chips are annually designed and 90% of semiconductor companies have a design footprint in the country according to Intel India’s MD. However, pushing capital-intensive fabrication facilities is a different ballgame altogether as it entails facilitating infrastructure and expertise in precision manufacturing. There is a need for continuous power and water supply as these facilities run 24×7. Chip manufacturing also requires a pollution-free environment. All of this is a big challenge considering the reality of roiling power cuts and stress in groundwater supply. Making semiconductors is also an extremely complex process entailing hundreds of precisely controlled steps over several months to make a chip. While the domestic opportunity is huge, all eyes will naturally be on how the response of private players unfolds in the period ahead.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.