All eyes on Micron, as semiconductor manufacturing in India finds no takers

India’s ambition to become an emerging semiconductor giant is running into unanticipated problems. In March, Ministry of Electronics and Information Technology (MeitY) officials had raised expectations that a big announcement for a fab plant would be made in a few weeks. Last week, however, MeitY said it would start accepting fresh applications with an extended deadline that ends in December 2024. MeitY added that existing applicants could also re-apply — and two consortiums, Singapore-based IGSS and Abu Dhabi-led Next Orbit Ventures, said they would do so.

Indeed, 17 months since India announced the $10-billion semiconductor scheme even the publicised Vedanta-Foxconn joint venture, which was seen as a strong contender, has not received approval. This, despite signing, with much fanfare, an agreement for land with the Gujarat government. That’s because it has not yet found a technology partner, a key prerequisite according to sources.

Sceptics argue that the poor response to the scheme the government initially announced in January last year is the result of global chip makers from Intel to TSMC or Samsung sinking billions in semiconductor plants in US and Europe. These majors are unlikely to take a risk in India, which has scant chip-making experience and a non-existent ecosystem.

Building a semiconductor ecosystem is not easy, especially from scratch, even with a generous capital subsidy that the government offered. That is why the government is recalibrating its strategy based on stakeholder feedback. For instance, officials admit that a 45-day window with details of agreements firmed up was unrealistic when it first invited applicants for a fab plant. “We realised that companies sometimes need six months to put together a proposal with clearances from the board. So we decided to have a longer deadline when we invite new players again,” a senior government official explained.

The government also realised that the scheme needed aggressive marketing to global semiconductor CEOs, who are being wooed by competing countries. One big step in that direction was Minister Ashwini Vaishnav’s outreach in San Francisco in April where he met senior executives of leading companies Micron, Intel, Western Digital, Applied Materials and AMD. The meet was followed by a three-day symposium of IT and electronic companies where 40 global companies were invited.

The upshot of this outreach, Vaishnaw said, is that India is being viewed by semiconductor majors as the next big investment destination. Analysts suggest the attraction lies in the fact that making chips in India is 30-40 per cent cheaper than competing destinations. The strategy on chip technology has also been readjusted. Recently, junior MeitY Minister Rajeev Chandraskehar tweeted that the strategy now was to initially encourage more mature nodes of 40 nanometers (which is used in the automobile industry). Earlier, the focus was on 28 nm (which Vedanta was planning to manufacture) and then push them to move down for more advanced and lower nodes.

Closed-door discussions between experts and the government suggested getting some marquee names in the semiconductor space in India to kick-start the process. The problem is that India’s tryst with semiconductors coincides with changing global geopolitical realities. Major countries are now keen to be self-sufficient in semiconductors for which large financial incentives are being extended for companies to invest in specific geographies. The pandemic exposed how chip shortage could impact broad swathes of industry.

So, companies such as Intel, TSMC, Global Foundries, Micron, Samsung and Texas Instruments are putting in over $200 billion collectively to build fab plants in US, France, Germany and Japan, according to analysts Jeffries. They are unlikely to venture into uncharted territory in India.

The US alone accounts for over 80 per cent of the global investment in semiconductors. The subsidies, too, are enormous: The US administration is offering $53 billion through the US Chips Act, Europe is offering $45 billion and South Korea $100 billion till 2030. Clearly India’s share of subsidy looks pretty small. And these countries have robust ecosystems for chip making.

India has made some headway. For instance, Micron plans an assembly testing, marking and packaging (ATMP) project of $1 billion, and talks are on to set up a memory chip plant for captive requirements. An announcement is expected soon, MeitY sources said.

India hopes to leverage the potential of a high-growth chip market that is estimated to hit $64 billion by 2030, from $25-27 billion currently, according to IESA.

But experts said local sourcing (purchase orders generated in India) accounts for just 10 per cent of the market. Most global consumers — mobile device makers and consumer electronics giants — tend to procure globally. Said Satya Gupta, former chairman of IESA: “At best, with the government’s effort local sourcing can be increased to 20 or 25 per cent. But for this we need home-grown product companies in mobiles, consumer electronics, automobiles and white goods, which will locally source chips.”

Gupta added that the growth of local sourcing from global IDM and fabless players like Qualcomm or MediaTek will incentivise them to manufacture their chips in Indian foundries or ATMP units provided they get good quality and better pricing. Until then, despite the promise of a large domestic market, the only viable option for fab companies would be to export.

Given these formidable challenges, the government’s big bang announcement to announce India’s entry in semiconductors, therefore, will be awaited with anticipation. Business Standard