semiconductor manufacturing: Time to get a chip off the new block

Foxconn and Vedanta are dissolving their semiconductor manufacturing joint venture as both seek technology partners to benefit from a revised incentive scheme for chip units. GoI altered its policy after the venture was announced in an attempt to widen the field. The modified semiconductor policy offers bigger sops to smaller chips that the Foxconn-Vedanta venture did not have the technology to manufacture. These chips are central to the ecosystem, feeding into industries from automobiles to consumer electronics. Production incentives are designed to direct investments into these technologically demanding wafers that involve bigger upfront capital and value chain development. GoI’s rethink alters the investment scenario for chipmakers in India and the Foxconn-Vedanta venture is a casualty.

From GoI’s perspective, though, this is not a big setback. None of the three proposals for setting up fabrication plants received last year have made progress due to reasons like sourcing technology, delay over corporate action and unattractive planning. Another, more recent, proposal by Micron to set up a memory chip-testing facility is on the table after China dialled up the rhetoric on the US withholding transfer of technology.

As Beijing imposes tit-for-tat export controls over minerals used to manufacture chips, producers are likely to accelerate plans to make supply chains more resilient. India could benefit from this as well as Washington’s new-found comfort in sharing technology with it. The US sees a role for India in its plan to bring chip-making home. On its part, India must seed the ecosystem with policy that incorporates US plans for its local industry. India has a lot of catching up to do in technology and infrastructure, and US incentives for local chip-making dwarf those announced by New Delhi. A pragmatic reassessment of the policy tries to improve outcomes in terms of technology and ecosystem. As escalating trade tension tilts the scales for India, it must get the sophisticated infrastructure needed by chipmakers up to speed.