Struggles to find the right technology, an applicant running out of contention due to a delayed merger, and an unviable proposal – India’s ambition of manufacturing semiconductor chips seem to have run into a wall. Three entities that had applied to build the chips are all facing hurdles in setting up their plants – potentially delaying their manufacturing bases by months, if not years, and impacting the country’s ambitious target of becoming a global semiconductor hub in the next five years. On Wednesday, the Ministry of Electronics and IT (MeitY) announced that it will reopen the window for applying to its Rs 76,000 crore semiconductor manufacturing plan after the first window failed to attract any major names. The Centre, which expects its semiconductor market to be worth $63 billion by 2026, had received three proposals to set up a fab (standing for 'fabrication' or production) in the country – from a Vedanta-Foxconn joint venture, international consortium ISMC which included Israel-based Tower Semiconductor, and Singapore-based IGSS Ventures. Rajeev Chandrasekhar, Minister of State for Electronics and IT, told The Indian Express the window for re-applying to the scheme was extended further so that the government can receive more proposals after it had sweetened the scheme last September by allowing for uniform fiscal support of 50 per cent of project cost for semiconductor fabs across technology nodes and display manufacturing. The new window, set to open on June 1, will remain until December 2024. It will be critical that India receives additional applications under the fresh window since the previous three proposals it had received are all struggling due to various reasons. Vedanta-Foxconn struggle to find a tech partner At the moment, the Vedanta-Foxconn proposal is the only one that the Centre has on its table, and even that has been unable to find a partner that could licence them the technology to manufacture 28-nanometre chips. Vedanta-Foxconn, it is learnt, had initially applied for a 28-nanometre semiconductor manufacturing plant in January 2022, but it has yet to communicate to the government whether it has secured the technology. Neither Vedanta nor Foxconn have the technology to manufacture such chips and will need to licence it from another company. Vedanta, the metals and mining conglomerate, is struggling to reduce its debt. Without having a technology partner, the joint venture’s proposal to set up a 28 nanometre fab which could cost around $10 billion is unlikely to be cleared by the Centre. Vedanta will have to re-apply to the manufacturing scheme detailing its plan of producing chips with a node size of 40 nanometres, a senior government official said, requesting anonymity. The joint venture has indicated to the government that it is in the process of licensing manufacturing-grade technology for the node size from either the Netherlands-based STMicroelectronics or GlobalFoundries. It is learnt that Vedanta’s conversations with STMicroelectronics are currently under a deadlock over the latter’s level of participation in the joint venture – whether it will only licence its technology or acquire a stake in the consortium. The smaller the node, the more challenging it is to manufacture chips – as a general principle, a number of transistors need to be attached to a certain surface area which makes the manufacture of smaller nodes a more complicated process – and significantly more expensive – than the higher end legacy nodes. The higher end nodes are typically used for applications ranging from automotive, telecom, and lower-end laptops and desktops. According to the government, this segment constitutes around 50 per cent of the total semiconductor market. If the joint venture manages to secure the right technology partners for the project, its 40-nanometre plant is expected to cost around $3.5 billion to $4 billion – more than half of what it would cost for a 28 nanometer process. According to the official, after accounting for the Centre’s support and subsidies offered by the Gujarat government, the plant is expected to cost the joint venture around $1.2 billion. Vedanta did not respond to a request for comment until publication. A delayed merger between Intel and Tower ISMC, backed by Abu Dhabi-based Next Orbit and Israel’s Tower Semiconductor, has asked the Centre not to consider its proposal owing to a pending merger between Intel and Tower Semiconductor. The merger continues to be delayed more than a year after its first announcement. The consortium had initially said that it would set up a $3 billion semiconductor fab in Karnataka. Their proposal, however, is not expected to move further until Intel’s merger with Tower is complete. Unattractive proposal Singapore-based IGSS Venture’s proposal was not found to be up to the mark by the government’s advisory committee and, as a result, is on the backburner, it is learnt. Why the reboot is crucial for India India has identified electronics manufacturing as a key sector to boost its growth in the coming years by producing goods not just for the domestic market, but also for exporting to the world. While some manufacturing schemes, such as that for smartphone manufacturing, have taken off in the country with Apple taking a lead, the entire process is largely centred around assembling various components that are imported from elsewhere. Prime Minister Narendra Modi has made chip manufacturing a top priority for India's economic strategy as he wants to "usher in a new era in electronics manufacturing" by luring global companies. It is, therefore, clear that building semiconductors domestically is crucial for the government’s vision to develop a domestic electronics supply chain and eventually reduce its imports from foreign countries, especially China – which despite its own challenges remains to be the number one destination for such manufacturing. It is a pressing time for India to venture into electronics manufacturing, with chips being an important part of the puzzle – all electronics items have semiconductor chips in them, and as more companies try to diversify their bases from China, India has an opportunity to emerge as a reliable destination. The United States of America also passed the CHIPS Act last August, providing subsidies of around $280 billion for manufacturing chips in the country. It has also imposed additional restrictions and sanctions on the Chinese semiconductor industry.
