Editorial: Chip dream going sour

Foxconn development has raised questions over loopholes in the government’s incentive policy

Despite being the front-runner for India’s semiconductor manufacturing incentive scheme, Foxconn has pulled out of the joint venture with the Vedanta Group, dashing the country’s dreams of swiftly emerging as a global hub for chip manufacturing. Under the $19.5-billion joint venture announced last year, the two firms were supposed to jointly invest in a fabrication plant in Gujarat, which would make 28-nanometre semiconductors. The development has raised questions over loopholes in the government’s incentive policy, ostensibly aimed at promoting semiconductor manufacturing facilities in the country to reduce the current dependence on China. A cloud of uncertainty had been hanging over the joint venture amid reports that the firms were not able to fulfil the government’s push for more technology transfer and investment from European firm STMicroelectronics. While Vedanta-Foxconn managed to get STMicro on board for licensing technology, the central government had made clear it wanted the European company to have more “skin in the game”, such as a stake in the partnership. The anti-climax also highlighted how the short window of just 45 days that the Centre offered for the incentive scheme forced the applicants into making hasty decisions. It must be pointed out that both companies have no prior semiconductor experience or technology and were expected to source technology from a partner. Taiwan-based Foxconn is best known for assembling iPhones and other Apple products but in recent years it has been expanding into chips to diversify its business. The Foxconn-Vedanta deal falling through is certainly a setback to the ‘Make in India’ push.

Prime Minister Narendra Modi has made chips making a top priority for India’s economic strategy in pursuit of a new era in electronics manufacturing and Foxconn’s latest move comes as a blow to the ambitions of luring foreign investors to make chips locally for the first time. Most of the world’s chip output is limited to a few countries, such as Taiwan and China, with India being a late entrant. India’s semiconductor market is expected to reach $63 billion by 2026. Under the $10-billion incentive scheme, three applications were received last year: Vedanta-Foxconn joint venture, Singapore-based IGSS Ventures and global consortium ISMC, which counts Tower Semiconductor as a tech partner. The $3-billion ISMC project has stalled, too, owing to Tower being acquired by Intel, while another $3-billion plan by IGSS was also halted because it wanted to re-submit its application. India has re-invited applications for the incentive scheme and the new window, which opened on June 1, will remain until December 2024. The response this time will be critical for the development of the semiconductor industry. Building semiconductors domestically is important for India’s vision to emerge as an electronics manufacturing hub and eventually reduce its imports from foreign countries especially China, which remains the number one destination for the sector.

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