India has endeavored to strengthen its chip manufacturing, following suit with other countries, notably the United States, to curb its reliance on costly imports from Taiwan and China. The Indian government has announced the relaunch of the application process for financial incentives amounting to $10 billion to promote domestic chip manufacturing. The process will remain open-ended, allowing companies to apply until the incentives are depleted. The earlier initiative, which had a 45-day submission deadline in 2022, had only garnered three applicants who have progressed minimally thus far.
Reviving the Domestic Chip Industry
India aims to kick-start a domestic chip industry to reduce its reliance on imports and shift its supply chains. However, the country has yet to attract any large global chip players to establish a base in the country, highlighting the challenges involved in supply chain shifts. The Indian government initially gave companies only 45 days, beginning on January 1, 2022, to apply for financial support. The state pledged to fund up to half the cost of building a chip fabrication plant. However, the short window led to just a few applicants, including a partnership between Vedanta Resources and Taiwan’s Hon Hai Precision Industry, and a consortium that includes Tower Semiconductor.
India’s New Plan for Incentives
India’s latest plan entails granting companies another opportunity to apply for incentives of up to $10 billion until the said amount is exhausted. As such, Vedanta and Tower Semiconductor may no longer remain as the sole contenders vying for federal backing in the establishment of chip manufacturing plants. Tata Group, a prominent Indian conglomerate with an extensive range of products and services from salt to software, has publicly announced its ambitions to enter the chipmaking industry. To be eligible for the full 50% state support, firms are required to utilize the comparatively sophisticated 28-nanometer technology or more advanced techniques
Challenges in Semiconductor Production
Semiconductor production poses a formidable challenge for Vedanta and Hon Hai, neither of which boasts significant experience in chip manufacturing. Additionally, Vedanta is grappling with an onerous debt burden, thereby necessitating governmental assistance to actualize its plans to establish a chip plant. Qualifying for government support, however, entails comprehensive disclosures, including the revelation of unambiguous, binding agreements with a technology partner for production, financial plans consisting of both equity and debt arrangements, specification of the type of semiconductors they will produce, and identification of their targeted customer base.
Difficulties in Setting Up Semiconductor Plants
Vedanta‘s predicaments serve as a poignant reminder of the formidable challenges that arise when establishing fresh semiconductor plants. These colossal complexes require exorbitant investments running into billions and necessitate a very specialized skill set for effective operation. In addition, the success of such facilities is contingent upon a vast and well-established network of suppliers that cater to a diverse range of needs, ranging from the provision of chemicals and machinery to the supply of electronic components. Regrettably, such an extensive and multifarious ecosystem is yet to fully manifest in the Indian subcontinent.
Rising Chip Consumption in India
India’s consumption of semiconductors is on the rise, as electronic manufacturers are shifting their assembly operations to the country, in order to lessen their reliance on China. According to the recent findings by Counterpoint Research, India’s semiconductor market is predicted to reach a staggering $64 billion by 2026, which is three times what it was in 2019.
Conclusion
India is trying to boost chip production to reduce its dependence on expensive imports from Taiwan and China. However, the country has yet to attract any large global chip players to establish a base in the country, highlighting the challenges involved in supply chain shifts. Vedanta’s difficulties underscore how hard it is to set up new semiconductor plants, which require very specialized expertise to run. Despite the challenges, India’s chip market is expected to triple by 2026 as electronics manufacturers relocate assembly operations to the country to reduce reliance on China.
