Foxconns exit from Vedanta JV not the end of Indias chip ambitions

Foxconn's exit from Vedanta JV not the end of India's chip ambitions

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The fallout of the cancellation of the joint venture between the world’s largest tech and service provider, Foxconn, and Indian multinational mining company Vedanta, to set up a $19.5 billion semiconductor plant, raises some critical issues in the areas of foreign investments, political manoeuvrings, and the technological ambitions of India.

The partnership between Foxconn and Vedanta, once seen as a promising step towards propelling India into high-tech manufacturing and fulfilling Prime Minister Narendra Modi’s ambitious “Make in India” initiative, has encountered a major roadblock.

Foxconn’s decision to withdraw from the joint venture is significant. The project’s scope was considerable, with an anticipated investment of $19.5 billion. Foxconn was the technical partner in the venture, tasked with leveraging its expertise in semiconductor production to establish a local manufacturing base in India.

Also read: Foxconn pulls out of JV with Vedanta for semiconductor plant in Gujarat

Foxconn cited various difficulties, including a slower-than-anticipated pace of progress and “external factors” contributing to these challenges. One of the sticking points was the involvement of European chipmaker STMicroelectronics. The Indian government reportedly wanted STMicro to have a more significant role in the partnership, including stake ownership, which STMicro was not interested in. The requirement may have been designed to ensure that the joint venture had adequate technical expertise, particularly given the complexity and capital intensity of semiconductor manufacturing.

Foxconn remains committed to India

This impasse and potential concerns about cost estimates submitted for government incentives may have influenced Foxconn’s decision to exit the venture. However, Foxconn remains committed to India and is considering alternative investments, including smartphone manufacturing and display production.

There have been reports about Vedanta’s financial situation that might have contributed to Foxconn’s exit from the joint venture, but that could have been resolved had the issue been raised with the government.

The Federal Webinar: Is India capable of making semiconductor chips?

On the other hand, Vedanta seems undeterred by Foxconn’s departure. Despite the setback, Vedanta said it is committed to establishing India’s first semiconductor fabrication unit and has lined up other partners to support this endeavour. The company said it possesses a production-grade technology license for 40 nm from a prominent Integrated Device Manufacturer (IDM) and is also looking to acquire a 28 nm license.

Notably, this joint venture was initially intended to be based in Maharashtra but was moved to Gujarat amid political tensions and allegedly more lucrative land-related incentives offered by the Gujarat government. This move sparked criticism and political controversy, particularly as it was believed to support BJP’s electoral efforts in Gujarat.

Mega semiconductor market 

While Foxconn’s withdrawal marks a setback for India’s chip-making ambitions, the country’s semiconductor market is still forecast to be worth $63 billion by 2026. The Government is optimistic about attracting investors for chipmaking, and new players such as Micron have shown interest in investing in the country, albeit not in manufacturing.

The situation is a stark reminder of the complexities and challenges in establishing high-tech manufacturing bases in emerging markets, particularly in industries such as semiconductors, which require significant capital, advanced technical expertise, and supportive regulatory environments.

Also read: Foxconn plans to start manufacturing iPhones at Bengaluru plant by April 2024: Minister Patil

This situation underscores the complexities of executing large-scale technology projects, particularly in semiconductors, which are capital-intensive, technologically demanding, and sensitive to geopolitical shifts. India urgently needs to expand its semiconductor production to decrease reliance on imports, especially given the global chip shortage and escalating trade tensions. The Indian Government’s ambitious incentive scheme aims to attract domestic and international partners to this goal.

Regarding Foxconn’s future involvement in India, their statements suggest a continuing interest in supporting India’s semiconductor ambitions, albeit with different strategic partnerships. The company’s planned investments in display manufacturing indicate a pivot towards a sector where they have substantial experience and can achieve quicker results. It also indicates Foxconn’s intent to further its stake in the Indian electronics market, leveraging the “Make in India” policy that promotes domestic manufacturing.

Despite the setback, Vedanta said it is determined to create India’s first semiconductor foundry, with commitments from other undisclosed partners. They have also secured technology licenses for semiconductor production, which signify their intent to proceed despite the Foxconn withdrawal.

Govt’s vision of making India a major player 

The Government’s reaction, emphasising no derailment of India’s semiconductor goals, makes it clear that they are putting up a brave front hoping that this case does not derail any future attempts by other multinationals to pick India to set up a semiconductor plant. However, this issue does underline the challenges facing India’s semiconductor aspirations. Not only does it require huge capital outlays and deep technical expertise, but it also necessitates the navigation of complex regulatory landscapes and political dynamics, as evident from the Maharashtra-Gujarat issue.

Also read: Committed to set up manufacturing facility in Telangana: Foxconn

The government may now have to refresh its strategy with clearer guidelines on stakeholder involvement, faster clearances, and a balanced approach to investor incentives. This way, it can ensure that its vision of becoming a major player in the global semiconductor industry remains on track.

While the Foxconn-Vedanta joint venture’s dissolution is a setback for India’s semiconductor production ambitions, it does not spell the end for these efforts. Both companies said they remain committed to investing in India, and new partnerships and investments will likely emerge to fill the gap left by Foxconn.

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