India's plan to become a semiconductor maker, received another big jolt

India had made grand plans to foray into the big ticket area of chipmaking. However, these plans are  likely to face some real problems in the months ahead. As now two big chip plans in India running into billions of dollars are virtually on hold for want of partners. The much talked about chip deal worth $19 billion between Vedanta and Foxconn is under a cloud as is another deal by a global consortium ISMC. The latter is worth around $3 billion. In both the cases, it is the lack of partners that is stalling the entire process. In the case of ISMC, the technology partner was supposed to be Tower of Israel. However, that plan is on hold with Intel taking over Tower of Israel. As a result, its India plans are currently on hold.

Even the Vedanta Foxconn deal is facing typical teething problems. They had planned to set up a mega billion dollar plant in Gujarat to manufacture microchips. In this case, the technology partner was supposed to be STMicroelectronics of Europe. However, with most European companies facing slowdown blues, this deal is also on hold for now. While these may look like roadblocks to the big chip dreams that India has nurtured, experts are of the view that these are teething problems which should be automatically addressed once there is greater comfort level in the entire process flows. But we have to wait for that to happen. At least, for now, the deal is running into a lot of problems.

For India, the foray into chips was a logical extension. India was not just the country with the best alternative to China in terms of scale, but India also offered a massive captive market for such microchips. Today, the chips are the intelligent processors that go into everything from mobile phones, laptops, white goods, air conditioners, play stations and even cars. Indian semiconductor market is expected to touch $63 billion by the year 2026. ISMC and Vedanta Foxconn were looking to make the best of the incentives offered by production linked incentive (PLI) scheme for such ventures. IGSS of Singapore is the third major players planning a foray into microchips in the Indian market.

While the Vedanta Foxconn project was to come up in Gujarat, the plants of ISMC and IGSS were to come up in South India. As of now, ISMC has put its plans on hold after Intel acquired Tower of Israel for $5.4 billion in the previous year. As of date, the company is awaiting regulatory and other approvals and not much progress is likely to happen till the merger formalities are completed in right earnest. On the other hand, IGSS wanted to re-submit its application for the incentives under the PLI scheme. For now, these two companies have dropped out of the chip race. Clearly, the chip making act appears to be a lot more complicated than originally envisaged.

While there is not much heard from IGSS on its decision to put off its India plans, in the case of ISMC, it is clearly linked to the decision of Intel to acquire Tower of Israel, which is the technology partner for the venture. There is some role played by a rigid policy related issues also. For instance, STMicroelectronics of Europe was supposed to be the technology partner, but the Indian government wanted a much longer term commitment and involvement from STMicroelectronics. The government wanted the tech partner to either have a stake or partnership, something the latter was not prepared for. Due to the very reason, the deal with Foxconn Vedanta is also in the limbo.

So, where does that leave the grand chip plans of the Indian economy. Most likely, this is just a hiccup that will get sorted out. However, the big challenge for India is to create the kind of chip ecosystem that countries like Taiwan have created. Meanwhile, the government is now planning to re-invite chip bids but that would still take a lot of time to fructify. The bidding round will open the gates for existing investors and for new investors. Hopefully, that should get India closer to its chip dreams.