Spread over about 355 square miles, the cluster of 22 villages in Dholera in India’s western state of Gujarat is a pet project of PM Modi. When he was the state’s chief minister, he envisioned developing unused land in the country’s north to make Shenzhen the manufacturing hub of southern China.
The site has now been identified as the potential home of a nearly $20 billion semiconductor fabrication plant to be built by Taiwan’s Hon Hai Technology Group, also known as Foxconn, in a tie-up with India-focused Apple already manufactures iPhones in the country. Commodities powerhouse Vedanta Group. The Foxconn-Vedanta deal will represent the largest corporate investment in India and its first privately owned fab.
Indian officials are expecting construction to begin next year and operations to begin around 2025.
When India’s junior technology minister, Rajeev Chandrasekhar, announced the deal in September, “It’s opening a door to several decades of huge opportunities.”
The Modi government’s entry into the global semiconductor race is part of a concerted effort to boost high-value manufacturing in India, which has long lagged behind regional rivals due to concerns over the country’s challenging bureaucracy, protectionist regulations and poor infrastructure. Is. Driven by a desire to expand its economy, create jobs and strengthen supply chain security, India has added tens of billions of dollars of output over the past two years to attract investments in key sectors ranging from large-scale electronics manufacturing. Incentives have been announced. , for batteries and automobiles, for solar panels.
Producers can claim the money based on how much they increase their production compared to the previous year. It has also focused its efforts on streamlining the myriad procedures for obtaining various licenses required to operate in India.
The efforts have produced some encouraging results at a time when geopolitical tensions and pandemic supply chain disruptions have prompted Western companies to look beyond China. Foreign direct investment in India exceeded $80 billion last year, a record and Apple, seen as India’s barometer in the global tech supply chain, fast-tracked production of its new iPhone 14 in India Is.
India’s exports are set to exceed $400 billion in its fiscal year ending March 31, 2022, up 35% from two years ago before the first stimulus was announced.
Semiconductor production will be the biggest test of India’s capabilities so far. Chip fabs take years to build, years more to perfect, and depend on highly trained workers. Flickers in power supplies can cause long delays and cost millions of dollars.
That complexity has also seen China struggling to bridge the gap with Taiwan’s TSMC, the world’s biggest contract chip maker.
“The geopolitical situation now is that everybody wants the ability to manufacture some level of semiconductors domestically,” said Paul Triolo, a senior associate at the Washington-DC-based Center for Strategic and International Studies. And so India is no different. In a sense, but they are even further behind the curve than China was when they decided to get involved.”
Despite progress in local automobile and smartphone production, India remains largely unproven in high-tech manufacturing and has struggled to shed its tag as a difficult jurisdiction to do business. State officials responsible for the Dholera development acknowledge the challenge ahead, but hope this project will change that perception.
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Harit Shukla, Managing Director, Dholera Industrial City Development, said, “To be honest, I don’t know in India if you can compare this project with any other project anywhere in the country, scale, size, execution capabilities or infrastructure level connectivity.” Ltd., the agency overseeing the development. He added that a dedicated power distribution network was already in place which would have multiple redundancies to ensure continuous power supply.
India has made several unsuccessful attempts in the past to produce semiconductors locally. However, industry experts and government officials say this time is different due to a confluence of global factors that have strengthened Indian political resolve.
“The government’s earlier efforts were very piecemeal, they were either targeting just one fab or sometimes just one assembly plant,” said Pranay Kotasthane, deputy director of the Takshashila Institution, a think tank in Bengaluru. On the current policy, it is trying to support the entire ecosystem, be it design, manufacturing, assembly. It’s a massive push.”
India’s strained relations with China had already prompted it to reduce dependence on electronics imports from its biggest strategic rival. The coronavirus pandemic has wreaked havoc on global supply chains and led to shortages of chips in industries from automobiles to medical devices, raising global concerns. The US, a leader in chip design and advanced chip-making equipment, is now trying to reclaim manufacturing ground ceded to Asian tech firms, while also undermining China’s ability to grow as a chip developer.
India’s semiconductor demand is expected to more than double to $64 billion by 2026, according to the India Electronics and Semiconductor Association, with electronics now its second biggest import cost after energy.
“If you don’t do something, there is a huge risk, basically because of the geopolitical situation,” said Vivek Tyagi, president of the India Electronics and Semiconductor Association. “Today we depend on one or two countries for a lot of the supply of electronics and semiconductors.”
The $10 billion stimulus for the semiconductor industry is more generous than that of phone makers, with the Modi government offering to reimburse half the cost of capital investment in advance. There are also incentives in the value chain including design, assembly, testing and packaging.
However, India is competing with large players such as the US, EU and Japan and has had to moderate its expectations. Initially targeting more funding for cutting-edge chips projects, in September it adjusted incentives for producers of trailing-edge semiconductors.
Industry experts say that the production of chips with the established technology would be more suitable for India’s existing production capabilities. While the smallest chips are at the forefront of smartphone and laptop computer innovation, there is just as much need for the larger chips that go into electronics like LED lights and home appliances.
“I don’t think India will be successful if they try to node a very advanced process,” said Bengaluru-based Sanjay Palasamudram, a venture capitalist focusing on semiconductor investments. “It may sound sexy but it doesn’t need to be.”
However, a main criticism of India’s manufacturing incentives is that they are often undercut by tariffs to promote local sourcing, potentially at the expense of driving down globally competitive exports. According to the Semiconductor Industry Association, a US lobby group, the typical semiconductor production process involves a hyper-globalized supply chain, where components travel thousands of miles.
Shri Kotasthane of Takshashila Institution said that India should focus on becoming exceptionally good in only one or two segments of the semiconductor supply chain. India already designs around 20% of semiconductors, but mostly for foreign companies that own the intellectual property. “For India, the comparative advantage lies in the semiconductor design segment,” he said.
Foxconn said the semiconductor fab was just a starting point in the Indian government’s overall vision of enabling customers and the supply chain ecosystem to come to India.
“The group actively sees its growth in India moving in a positive direction and the overall industry environment in India is improving,” the group said in a statement.
Singapore-based IGSS Ventures and Mumbai consortium Indian Semiconductor Manufacturing Corporation have also signed preliminary agreements with Indian states.
Although the concept of Dholera as a futuristic industrial hub was first publicized in 2005, according to Mr. Shukla, ground work began in 2018. Today, the infrastructure for the first phase of the development covering approximately 9 square miles is complete, ready for connection with utilities and freshly painted signs and lane markings with new roads ready for the spring of the megafactory Huh.
However, the long time taken to set up a semiconductor fab means that it will be years before India knows whether its effort will be successful.
“At some point it all makes business sense,” Mr. Triolo said. sustainable.”