India’s ambitions to create a domestic semiconductor manufacturing capability got a boost with this week’s announcement of a $ 19.5 billion investment by Taiwanese electronic company Foxconn and local conglomerate Vedanta.

The companies will set up manufacturing facilities for producing the chips in Prime Minister Narendra Modi’s home state, Gujarat. The plants are expected to be operational by 2024.

Modi called the agreement an important step in “accelerating India’s semi-conductor manufacturing ambitions” in a tweet Tuesday following the announcement.

India has joined the global race to make the chips at the heart of modern electronic devices from smartphones to cars, but for which there have been global shortages since the COVID-19 pandemic caused supply chain constraints.

India announced a $10 billion economic package in December to attract semiconductor makers as it looks to become a production hub for the critical components. It has also promised to expand incentives.

So far manufacturers in a small number of East Asian countries, led by China, Taiwan and South Korea, have supplied most of the world’s semiconductors. Several countries now want to reduce their dependence on global supply chains in critical technologies after the pandemic as well as Russia’s war in Ukraine and growing tensions between Western countries and China highlighted the risks of relying on limited sources of production.

“There are growing concerns of economic wars in the future and overdependence on China, especially for crucial components. So, India is trying to emerge as a production hub for semiconductors,” Sreeram Chaulia, dean of the Jindal School of International Affairs.

“The government believes that India can fill a niche as some countries and companies look to alternatives to China,” he told VOA.

While India has forged ahead in the software technology sector, which does not require physical infrastructure, it has lagged behind in electronic manufacturing partly due to poor infrastructure. The most difficult issue facing manufacturers is the unavailability of large tracts of land.

India also offers some advantages, though, such as the the thousands of semiconductor design engineers working for global companies with research and development offices in the country.

“I can confidently say that within the next five to six years, we will become a great semiconductor design capital of the world. We will use that capability to feed into our semiconductor manufacturing also,” Ashwini Vaishnav, India’s information technology and electronics minister, told a business conference last month.

The Foxconn and Vedanta announcement is the biggest announced in the sector so far.

“India’s own Silicon Valley is a step closer now,” Vedanta group chairman Anil Agarwal tweeted Tuesday. The project is expected to create 100,000 jobs in India.

“The improving infrastructure and the government’s active and strong support increases confidence in setting up a semiconductor factory,” Foxconn Vice President Brian Ho said in a statement.

Singaporean group IGSS Ventures has also signed a memorandum of understanding for a semiconductor plant in Tamil Nadu state.

“Many countries will be a lot more comfortable relying on India, so that gives the government a sense that this could just be the beginning of a flow of foreign funds to promote chip manufacturing,” Chaulia said.

“There also have been discussions at the level of the Quad and other forums for finding reliable sources for some of these components,”  he said, referring to the grouping of India, the United States, Japan and Australia.

The push to make semiconductors is also part of a “Make in India” campaign promoted by Modi since he took office eight years ago.

His aim to emulate China’s success in manufacturing had met with a tepid response according to business experts.

New Delhi hopes that will change as companies look at diversifying production bases especially in areas of critical technologies.
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