India Is Making A Massive Push To Become Global Semiconductor Powerhouse

India is looking to set up its first semiconductor fabrication facility with the aim of enhancing self-reliance in its chip supply, and a joint venture by Indian mining firm Vedanta and Taiwanese chipmaker Foxconn is leading the bid for the government's incentive scheme on the same.

Indian IT Minister Ashwini Vaishnav said in March that the country is well-positioned to develop a vibrant chip industry, thanks to the government's robust policies and efforts to strengthen the nation's manufacturing ecosystem.

Often known as chips, semiconductors are thumbnail-sized building blocks found in electronic products such as computers, smartphones and several other appliances as well as medical equipment. The chip-making process is highly complex and precise, with multiple steps involved such as chip-designing, software-designing and patenting through core Intellectual Property (IP) rights.

The global chip-making industry is highly concentrated with South Korea, Taiwan and the U.S. serving as the major players. Taiwan accounts for over 90% of the world's semiconductor manufacturing, followed by the Netherlands and South Korea. India is moving to reduce its dependence on imports and enhance its domestic resilience.

Production and supply of semiconductor chips have zoomed into focus globally over the last few months as the U.S. tries to cut off China's access to cutting-edge chip-making technology and free its own market of the dependence on Beijing for the chip supply chain.

Disruptions in global semiconductor supply have created a chip crisis for companies ranging from electronics to car manufacturers. In India, for instance, car maker Maruti Suzuki is unable to fulfill a large number of orders owing to the global chip shortage.

Boosting its local chip manufacturing can help India reduce its dependence on imports and reinforce its positioning as a manufacturing destination amid the ongoing global supply chain disruptions. There is the added advantage that this will help India generate employment opportunities and promote economic growth.

In December 2021, India announced its $10 billion production-linked incentive (PLI) scheme with the aim of encouraging semiconductor and display manufacturing in the country. As of now, the three leading companies eyeing to secure financial support include International Semiconductor Consortium (ISMC), Singapore's IGSS Ventures and Vedanta-Foxconn joint venture.

The joint venture led by Indian oil-to-metals conglomerate Vedanta and Taiwanese chipmaker Foxconn signed an MoU in September last year to set up a $20 billion semiconductor plant in Prime Minister Narendra Modi's home state, Gujarat, and the company is progressively working toward the plan. In November, Vedanta Resources chairman Anil Agarwal said production will start within two and a half years.

The ISMC, a consortium of Israel's Tower Semiconductor and Abu Dhabi-based Next Orbit Ventures, signed an MoU with the Karnataka government for a $3 billion fabrication plant in the south Indian state. Singapore's IGSS Ventures has also planned a $3.5 billion plant in the neighboring Tamil Nadu state.

These players are still waiting for complete official approvals to set up the fabs, and Vaishnav said a decision on their applications will be made in the next few weeks.

There are multiple parameters on which the Indian government is evaluating these applications. The four primary criteria include manufacturing grade technology (license), manufacturing (fab) expertise, funds and getting business for fabs.

Among the three competing entities, only one company will receive funding and Vedanta-Foxconn's proposal appears to be the most promising one.

The Indian government is offering a range of financial and infrastructure benefits as part of the incentives to lure global companies to establish semiconductor fabs in the country. It will provide financial support covering 50% of the costs of the fab construction project "to applicants who are found eligible and have the technology as well as the capacity to execute such highly capital and resource intensive projects," India's Ministry of Electronics and Information Technology said in a statement September.

India's central government is working closely with state governments to set up high-tech clusters with requisite infrastructure for semiconductor-grade water, high-quality power, logistics and research ecosystem to "approve applications for setting up at least two greenfield semiconductor fabs and two display fabs in the country," the statement added.

"There is no doubt that Foxconn-Vedanta's proposal is impressive with the former's technical expertise and the latter's background in mining. The project is going to bring huge investments in India," independent semiconductor analyst Shankar Verma told International Business Times.

The Vedanta-Foxconn joint venture is partnering with European chipmaker STMicroelectronics for the chip manufacturing unit and if all goes well, it will fortify Vedanta's semiconductor proposal. Vedanta, which is the main partner in the joint venture, has also hired David Reed as the CEO of its semiconductor business. With 35 years in the semiconductor industry, Reed will be responsible for setting up a state-of-the-art semiconductor fab unit for the JV in India. According to industry experts, Reed can also help the joint venture in securing the deal and leading fabs for production-grade licenses.

"India has taken a number of measures to diversify its semiconductor market over the past few months. Noting that there is a massive shortage of semiconductors in the market, local production is the need of the hour," Verma said.

He said the government's active role and support have increased the confidence of many local and international players to set up semiconductor plants in the country. "India will become a production hub for semiconductors in the near future as it looks to find alternatives to China for chip manufacturing," he added.

In January, India's Electronic and Semiconductor Association partnered with the U.S. Semiconductor Industry Association to establish a task force for manufacturing semiconductors. As part of this collaboration, they signed an MoU to boost foreign direct investment (FDI) in semiconductors in India. With this partnership, the two countries also aim to mitigate the near monopoly of Taiwan and South Korea over the global semiconductor industry.

The $500-$600 billion global semiconductor industry today caters to the world electronics industry valued at about $3 trillion. The Indian semiconductor market is projected to reach $55 billion by 2026, according to a Deloitte report, with over 60% of the market accounted for by smartphones and wearables and automotive components.

Meanwhile, Foxconn is in discussions with the Indian government to set up a semiconductor plant without any federal incentives, an Economic Times report said earlier this month. Led by chairman Young Liu, a high-powered team also held discussions with the governments of the southern Indian states of Karnataka and Telangana.