Tatas, Tower apply to set up chip foundries in India: Will the country finally get a semiconductor manufacturing plant?

India is competing with some of its key allies – the US and Europe – to attract chipmakers. It is offering a 50% capital expenditure subsidy to successful applicants at the central level under its $10 billion incentive scheme, with state governments sweetening the deal further at their own end.

What are the proposals currently on the table?

India’s chip incentive scheme broadly covers three aspects of the ecosystem – full-blown foundries that can manufacture chips; packaging plants called ATMP facilities; and assembly and testing projects called OSAT plants. So far, US-based Micron Technology has cleared its proposal to set up a $2.75 billion ATMP plant, with the facility coming up in Gujarat.

In the foundry space, Chandrasekhar said the Tata Group and Tower Semiconductor have sent two separate proposals. “The two fab proposals that have been received by India, and represent a total investment of about $22 billion, are one from Tata and the other from Tower Semiconductor,” he said during the Mumbai Tech Week organised by Tech Entrepreneurs Association of India (Team) on Monday (February 19).

The Indian Express had earlier reported about Tower’s proposal to set up a plant worth $8 billion where it aims to produce 65 nm, 40 nm and 28 nm chips. The Tata Group is understood to be partnering with Taiwan based United Microelectronics Corporation (UMC) or the Powerchip Semiconductor Manufacturing Corporation (PSMC). Chandrasekhar said the collective value of the proposals is $22 billion.

In the OSAT space, CG Power and Industrial Solutions has said it has entered into a joint venture (JV) agreement with Renesas Electronics America and Thailand-based Stars Microelectronics to set up a semiconductor assembly and testing plant in India. Kaynes Technology has also sent a proposal to set up an OSAT plant.

The Tata Group is understood to have also applied for an ATMP plant. Apart from that, HCL is learnt to have partnered with Foxconn in its application for setting up a similar plant.

What had happened to the earlier fab proposals?

A joint venture between Foxconn, best known as the manufacturer of iPhones, and Vedanta to set up a $19.5 billion chip plant came to an abrupt halt last year. Foxconn announced it was pulling out of the joint venture with Vedanta. While government sources maintain the two could apply separately, there has been no movement so far.

Tower had earlier applied to the scheme to set up a $3 billion plant in Karnataka in partnership with international consortium ISMC. The plan, however, got stuck due to the company’s then impending merger with Intel. Last August, Intel cancelled its plan to acquire Tower Semiconductor for $5.4 billion due to regulatory issues.

The planned merger between Intel and Tower, announced in February 2022, passed an antitrust review in the United States and several other geographies. But it ran into a lengthy delay in China, where regulators review mergers of companies that earn a certain amount of revenue in the country.

There was a third fab proposal by Singapore-based IGSS Venture, but it was not found up to the mark by the advisory committee of the government.

Why is India focusing on semiconductor manufacturing?

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.