India's Ambitious Semiconductor and Display Manufacturing Plan Suffers Major Setback as Foxconn Withdraws from Joint Venture with Vedanta

 

India’s ambitious plan to become a global hub for semiconductor and display manufacturing has suffered a major setback as Taiwan’s Foxconn, the world’s largest contract electronics maker and a key supplier to Apple, announced its withdrawal from a $19.5 billion joint venture with Vedanta, an Indian metals-to-oil conglomerate.

The joint venture, which was signed in September 2022, aimed to set up semiconductor and display production plants in the western state of Gujarat, home to Prime Minister Narendra Modi. The project was seen as a significant boost to India’s domestic manufacturing of electronics and a strategic move to reduce its dependence on imports from China and other countries.

However, after more than a year of working on the project, Foxconn said on Monday that it had decided not to move forward with Vedanta, without specifying a reason. “Foxconn has determined it will not move forward on the joint venture with Vedanta,” it said in a statement, adding that the two sides had mutually agreed to end the partnership.

The decision came as a surprise and a disappointment to many in India, especially the government, which has been trying to lure global investors to set up chip and display factories in the country under its flagship Make in India and Production Linked Incentive (PLI) schemes. India currently does not have any operational semiconductor fabrication plants, or fabs, and relies heavily on imports for its demand for chips and displays.

According to industry estimates, India imported $55 billion worth of electronics components in 2020-21, of which $32 billion were semiconductors. The demand for semiconductors is expected to grow exponentially in the coming years as India’s digital economy expands and new applications such as 5G, artificial intelligence, electric vehicles and internet of things emerge.

The government had hoped that the Foxconn-Vedanta joint venture would help kickstart India’s chip and display ecosystem and attract other players to follow suit. The project was also expected to create thousands of jobs and boost India’s exports.

However, the joint venture faced several challenges and delays since its inception. One of the main hurdles was finding a technology partner who could provide the know-how and expertise for setting up the complex and capital-intensive fabs. Foxconn and Vedanta had reportedly approached European chipmaker STMicroelectronics for licensing technology, but the talks stalled as India’s government wanted STMicro to have more skin in the game, such as a stake in the partnership.

Another challenge was securing land and environmental clearances for the project, which required large tracts of land and huge amounts of water and power. The joint venture had identified two sites in Gujarat for the fabs, but faced opposition from local farmers and activists over land acquisition and environmental issues.

The joint venture also faced regulatory scrutiny from India’s market regulator, which fined Vedanta for breaching disclosure rules by publishing a press release that made it appear it had partnered with Foxconn to make semiconductors in India, when in fact the deal was with Vedanta’s holding company.

The withdrawal of Foxconn from the joint venture is a big blow to India’s chip and display ambitions, but not necessarily the end of the road. The government has said that it is still committed to supporting the sector and has received expressions of interest from other potential investors. Some of these include Abu Dhabi’s Mubadala Investment Company, which has partnered with Indian conglomerate Reliance Industries to explore chip manufacturing in India; Israel’s Tower Semiconductor, which has signed a memorandum of understanding with Indian Institute of Technology Bombay to set up a nanoelectronics research center; and Japan’s Renesas Electronics, which has expressed interest in setting up a design center in India.

India still has a long way to go before it can catch up with global leaders such as Taiwan, South Korea, China and the US in chip and display manufacturing. But it also has some advantages that could help it overcome the challenges. These include its large domestic market, its skilled talent pool, its strong software capabilities, its strategic location and its geopolitical importance.

As Deputy IT Minister Chandrasekhar said after Foxconn’s exit: "It is always a bad idea to bet against India.