India to reopen process for $10 bn in chip incentives

By Sankalp Phartiyal and Sudhi Ranjan Sen

India is set to revive its effort to lure prospective chipmakers into the country as projects already disclosed, including billionaire Anil Agarwal’s $19 billion plan, are taking time to get off the ground.

New Delhi plans to reopen the application process for $10 billion in incentives and assistance intended to encourage local chipmaking, people familiar with the matter said. It’s also keeping the process open-ended, doing away with a previous 45-day requirement for submission, they said, asking not to be named as the discussions aren’t public. That’s after an initial effort launched last year only attracted three applicants — all of which have made little progress so far.

India is joining countries including the US in trying to boost chip output to reduce reliance on expensive imports and dependence on Taiwan and China. The effort has yet to result in any large global chip player moving base to the South Asian nation, underscoring the major challenge supply chain shifts involve.

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To kick-start a domestic chip industry, Prime Minister Narendra Modi’s government originally gave companies just 45 days, beginning January 1, 2022, to apply for fiscal support. The state pledged to fund as much as half the cost of building a chip fabrication plant. But the short window led to just a few applicants including a partnership between Agarwal’s Vedanta Resources Ltd and Taiwan’s Hon Hai Precision Industry Co, and a consortium that includes Tower Semiconductor Ltd.

India now plans to allow companies to apply again and is set to accept applications until its budgeted $10 billion in incentives is exhausted, the people said. That means the Vedanta and Tower groups might not be the only ones racing to win federal support for chip plants. India’s salt-to-software Tata conglomerate has publicly voiced its ambitions to get into chipmaking.

India’s technology ministry didn’t respond to an email seeking comment.

Semiconductor production is an uphill task for metals and mining group Vedanta and its iPhone maker partner Hon Hai — neither has significant experience in manufacturing chips. Separately, Vedanta is also reeling under a heavy debt burden, which means Agarwal’s dream to build a chip plant hinges on government aid. The company is just weeks away from winning an in-principle or preliminary government nod, but ultimately obtaining the state funding requires further difficult steps, the people said.

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Any chip project, including Vedanta’s, will have to make detailed disclosures including whether it has firm, binding agreements with a technology partner for production, as well as financing plans comprising equity and debt arrangements. The applicants also need to disclose the type of semiconductors they’ll make and their target customers. To qualify for the full 50 per cent state support, a company needs to make chips using the relatively sophisticated 28-nanometer or more advanced technology.

In a statement, David Reed, chief executive officer of Vedanta’s semiconductor business, said the project is “on track,” with the venture breaking ground on a site in the fourth quarter of this year and earning revenue in the first half of 2027. He said partner Hon Hai, also known as Foxconn, has secured “production grade, high volume 40-nanometer technology” for the venture as well as “development grade 28-nanometer technology,” without disclosing where the tech is coming from.

“Foxconn and Vedanta are following the application process issued by the Indian government with confidence and partnership,” Reed said. “We have supplied all relevant information and eagerly wait for the final approval.”

Vedanta has been in talks with GlobalFoundries Inc and STMicroelectronics NV to license chip fabrication technology, Bloomberg News reported previously. But Agarwal’s group is yet to name a tech partner. Also, the government considers Vedanta’s capital expenditure estimate of $10 billion inflated, people familiar with the matter have told Bloomberg News, but the company has said it is on par with other similar projects.

Separately, another chipmaking plan — a $3 billion investment for a fabrication unit in southern Karnataka state — stands stalled as the consortium technology partner Tower Semiconductor awaits guidance from new parent Intel Corp, which is working to complete the acquisition.

Vedanta’s difficulties underscore how hard it is to set up new semiconductor plants, massive complexes that cost billions to construct and require very specialized expertise to run. Such facilities also rely on a large network of suppliers of everything from chemicals and machinery to electronic components, which hasn’t fully developed in India.

Meanwhile India’s consumption of chips is rising as electronics manufacturers are relocating assembly operations to the country to reduce reliance on China. India’s chip market is set to reach about $64 billion in 2026, triple what it was in 2019, according to Counterpoint Research.