India remains regional chipmaking hub after Foxconn loss.

First came the plaudits. The Union government had maneuvered deftly to ensure Gujarat got the $19.4 billion Foxconn- Vedanta’s semiconductor chip manufacturing facility. Then came the recrimination as Maharashtra’s opposition parties cried foul alleging the state had been unfairly done out of the deal. And finally the cul-de-sac!

All the brouhaha was a waste. Foxconn has now pulled the plug on the joint venture. The project was moving slowly, but the snapping of relations came as a surprise blow. The reasons are grainy, but it appears the Taiwanese electronics contractor was not happy with Vedanta’s heavy debt and doubted its ability to pay for the project’s technology.

In the follow-up, both the JV partners have vowed to independently pursue chip-making in India. Vedanta’s chief Anil Aggarwal said his company would work with other partners to transform India into a semiconductor and display glass manufacturing hub. Foxconn too in a separate statement has reaffirmed it will continue to invest in India and will apply afresh under the government’s subsidy programme. The government has said the break-up would not impact the country’s plans.

Despite all the brave talk, there is no doubt it is a setback. The project was expected to be a huge magnet for attracting talent and was slated to generate 1 lakh jobs. Assessing the worldwide shortage of semiconductor chips and the decline of China as a hub, the Indian government had, towards the end of 2021, announced Rs 76,000 crore in investments to drive the India Semiconductor Mission (IS M). The Foxconn- Vedanta venture would have given a good start. Now, things are back to the drawing board.\

Good domestic demand

The industry has therefore limited capacity and is facing surging demand. Further complexities are being added by the geopolitical crisis that is disrupting supply chains. To add to the potent mix is the fact that the industry is highly capital-intensive requiring as much as $10 billion for setting up a single unit. The thinking therefore is veering around to the view that rather than global supply chains, the semiconductor industry must move to a new format: of regional supply chains.

A $160 billion industry is too big to put all its eggs in a few baskets. India has a huge domestic market too. We import 94% of our electronics and 100% of our semiconductors. This was endorsed by Vedanta’s Anil Aggarwal, who at a recent shareholder meeting said the opportunity was in-house: India imports $100 billion worth of electronics every year.

This includes $30 billion worth of semiconductor and display glass. The Foxconn-Vedanta JV may have dissolved and the Micron Technology investment is only for packaging chips. But if India stays the course, and provides infrastructure investment to international chipmakers, it is only a matter of time before she emerges as a regional hub.