India’s Chipmaking Dream Kicks-off

India’s big dream of emerging as a global supplier of semiconductors broke ground as US giant Micron kickstarted the construction of its $2.75 billion chip packaging plant at Sanand in Gujarat. And true to form, the government is euphoric about its $10 billion mission in spite of the fact that the industry itself is sanguine over its growth prospects. 

The global semiconductor market, which was valued at $528 billion in 2021 is projected to grow at a CAGR of around 12% from $574 billion in 2022 to about $1380 billion in 2029. Earlier this year, Micron itself had revealed its plan to invest $100 billion in a chip factory in New York, $3.5 billion in a fabrication facility in Japan, both receiving considerable government subsidies. 

This also happens to be the format of the company’s deal with India whereby out of the $2.5 billion Micron is investing $825 million while it receives $500 million from the Gujarat government and the remaining $1.25 billion from the Union Government. The project was fast-tracked in spite of industry experts questioning the viability of the project. 

Govt. has been saved some blushes 

However, Union IT and Electronics minister Ashwini Vaishnaw is euphoric and believes that two more such proposals could be fructifying in the next few months. And this would establish India as a manufacturing leader in some niche semiconductor products, the minister has been quoted as saying in an article published in the ET. 

Vaishnaw spoke on behalf of the global chipmaking industry claiming these upcoming plants would reinforce India as a global leader in this market segment. However, experts argue that the events leading to Micron’s approvals could have caused the government to agree to terms that weren’t in its favor, at least not at this moment. 

However, there are questions around it

The shareholding around the project, which is supposed to generate 5000 jobs, would mean that each job could cost the central and state government $386,000, whereas Micron virtually gets the land free and only pays for the construction and equipment. More importantly, the money is being spent on assembly, testing and packaging, not in design and manufacturing. 

Which is where Micron seems to have clearly differentiated between its investments at Clay in  New York and Hiroshima in Japan. One is a chip making plant and the other is a fabrication unit, both requiring higher skill sets compared with what the company would require while setting up the Sanand unit. Investments in design and manufacturing would stand India in the long run where advanced logic chips are fast becoming the norm, rather than the exception. 

It’s a first step that sets the game up

Of course, the government believes that deal in itself would set the ball rolling for India’s emergence as a trusted partner in the global electronics value chain. Minister of state for electronics and IT Rajeev Chandrasekhar believes the fast-tracking of the Micron project would encourage others to invest in India. 

The project’s first phase involves building 500,000 square feet of planned cleanroom space while the second phase should start in the second half of the decade, which would mean post 2025 in the very least. Chandrasekhar wants us to believe that the fast progress around Micron would depict India’s vision of semiconductor design, research and talent development. 

For now, the company has hired a few staff for the unit that is expected to produce packaged chips by the end of 2024, focusing initially on exports. During this period, the government is also looking to create ancillary industries that would assist faster growth of the semiconductor business for Micron, which is reportedly eyeing other locations for further expansion. 

All things said, Micron’s quick move seems to have benefited it from an early mover perspective while for the Modi government it has saved them some blushes, given the fiasco involving Foxconn and the Vedanta group.