The government has made a fresh bid to attract major global chip manufacturers into the country. At the Semicon India summit last Friday, Prime Minister Narendra Modi told prospective investors that the government had drawn on their suggestions after the first such conference last year, and taken pro-active decisions to address areas of concern. Apart from low corporate tax rates and sops for all new manufacturing projects, he said the incentives offered to tech firms to set up production facilities under India’s semiconductor programme have been scaled up to 50% financial assistance. So, essentially, the government would bear half of the typically large investment outlays that companies commit to undertake. Ahead of Mr. Modi’s U.S. State visit, the decks were cleared for a $2.75 billion assembly, testing, marking and packaging facility in Gujarat proposed by the U.S.-based Micron Technology. The deal, perhaps nudged by the two countries’ cooperation pact to build a semiconductors supply chain, has piqued investor interest and spurred Micron’s suppliers to explore the option of co-located facilities.
With several countries seeking to de-risk themselves from the dominance of China in the chips manufacturing supply-chain through collaborative or ‘friendshoring’ arrangements, the rationale for the enhanced pitch to investors is unquestionable. But the competition is already fierce. The $52 billion financing support announced by the U.S. for semiconductor makers in 2021 has drawn over $200 billion in commitments. Wooed by an array of subsidies, Intel alone has committed $80 billion in outlays across the European Union. In India, a $10 billion production-linked incentive scheme was unveiled for chip makers in late 2021. A $20 billion venture announced by Vedanta and Foxconn last year has, however, come undone. It is critical that the Micron investment is hand-held till fruition to create an effective exemplar effect. Apart from incentives, investors also need to see evidence of a stable operating environment with a predictable policy framework that is not amenable to knee-jerk deviations such as export curbs to cope with shortages. They would also compare India’s trade linkages with world markets through bilateral or multilateral compacts and its approach to tariffs on myriad components that may need to be shipped in. The Prime Minister’s assurance of understanding the needs of the global chip supply chain needs to be matched by actions to assuage such concerns. There could still be many a slip between the lip and the chip.