- Vedanta and Foxconn teamed up to invest $20bn in India's first chips plant in the state of Gujarat.
- Vedanta estimates the project will create 100,000 direct and indirect jobs.
- The Indian government could cover as much as 50% of the plant's total costs.
- Has Gujarat enough skilled workers and water for the plant to be successful?
India will soon get its first private semiconductor and display production plant in the state of Gujarat after Vedanta and Taiwan’s Foxconn signed an agreement earlier this month with the state government to invest $20bn into the project. The scheme was launched with great fanfare, but also presents major challenges, particularly when it comes to sourcing the talent and resources it will need to come to fruition.
According to the plan, which aims to build a semiconductor manufacturing unit in two years, Vedanta will have around a 60% share in a joint venture with Foxconn, which will hold the remaining stake.
Semiconductors are at the heart of most electronic devices in use today including televisions, laptops, smartphones and cars. India’s semiconductor market stood at $27.3bn in 2021 and is expected to more than double to touch $64bn by 2026, according to the Indian Electronics and Semiconductor Association.
However, the country is dependent on imports for its semiconductor supply since it has no manufacturing unit. In 2020, India imported two-thirds of its semiconductor devices supply from China, and the move to set up its own factory comes amid the government’s push to the industry to become self-reliant.
“Our start-ups and entrepreneurs can use these chips as raw materials to produce their electronics – bringing down costs and making them affordable for every citizen of our country,” he said. “Let’s go from being chip takers to chip makers.”
Let’s go from being chip takers to chip makers.
The proposed semiconductor manufacturing fabrication plant (fab) will operate on the 28nm technology nodes and the display manufacturing unit will produce Generation 8 displays catering to small, medium and large applications.
However, many details of the projects are yet to be made officially public. Gujarat Science and Technology Department secretary Vijay Nehra told local news agency PTI that the location of the plant will be finalised in the next couple of weeks and the company is evaluating various sites based on technical aspects, commercial viability and connectivity.
Talent availability is another possible bottleneck – similar mega-projects projects in the US are already dealing with shortages of skilled workers. Vedanta estimates the project will create 100,000 direct and indirect jobs.
India Electronics and Semiconductor Association chairman Vivek Tyagi tells fDi that India already has high skills in designing semiconductor chips because most of the prominent global chip companies have design centres in India. “Our estimate is that 20-25% of the global chip design engineers are working out of India and that's where we have a good edge.”
However, Mr Tyagi adds the country lacks a large pool of skilled workers for the manufacturing of semiconductors. “As we understand, the government is seriously looking into building a pipeline. Some committees are working closely with industry bodies and academia to make a big plan on bridging that skilling gap over the next two to three years. And of course, it'll be an exercise all the way for the next 10 years. But for example, today, there are branches that are taught in India more like generic electronics or computer science. [...] So the engineers would require at least six months to one year worth of training or internship in these areas to get fully geared.”
Beyond human capital, the project will also need to secure the supply of all the other production inputs that go into such an endeavour.
“It is an extremely resource-guzzling activity and involves billions of dollars in terms of fixed costs,” Sanjay Gupta, vice-president and India manager at Netherland-based NXP Semiconductors, tells fDi. The company designs its chips in India, where it has more than 3500 engineers working across four locations, namely Noida, Pune, Bangalore and Hyderabad.
It is an extremely resource-guzzling activity and involves billions of dollars in terms of fixed costs
“It requires gallons and gallons of pure water, uninterrupted electricity supply, access to a lot of chemicals and gases and also, very fast transportation of goods so that all the infrastructure that is required could reach from the ports in a short period of time. A typical fab requires the same amount of water per day as the amount consumed by a city like Delhi per day. So, it is guzzling water and power resources. Operating and fixed costs are huge, and that’s why the entry barrier is so high that not everybody can jump in for a manufacturing fab.”
Political commitment is also required if the project is to become a key milestone in India’s bid for self-sufficiency in chips design, manufacturing and packaging. On paper, the Indian government will provide a 50% subsidy on the total cost for setting up semiconductor fabs. That would amount to roughly $10bn in the case of the Vedanta-Foxconn joint venture in Gujarat. On top of that, the Gujarat government is also expected to provide capital support to the tune of 40% of the money that the federal government will give to Vedanta.
Mr Tyagi tells fDi that incentives would only act as an enabler. There are a host of other factors that would have to fall into place to make the project a success, including creating a pipeline for highly skilled workers at the semiconductor factory.
“It has to be a combination of government policy, market size, local skilled manpower, consistent availability of electricity and water supply and a good transportation system. If incentives were the only factor, then companies would move immediately with any other country offering more incentives than India,” says Mr Tyagi.
There are other attractive deals that the Vedanta group has potentially secured, among them a 75% subsidy on the land cost by the Gujarat government for “the first 200 acres of land required” for the plant. Vedanta will also be eligible to get additional land at a subsidised cost of 50%. The state government has promised uninterrupted power and water supply, which is key to the smooth functioning of semiconductor factories, while providing water at a highly subsidised cost for the first five years once production begins, along with cheap electricity supply for the first 10 years.
“Every country, including Europe and the US, would want India to succeed in this area because if they have 70% dependency on Taiwan, which has heavy Chinese political influence, everybody would like to have alternative options. India holds a viable alternative option,” adds Mr Gupta.
This article first appeared in the October/November 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.