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A 50-year-old mining giant with no chip experience is an unlikely contender in India’s race for semiconductor independence

April 2, 2022, 2:00 AM UTC

Indian mining and metals group Vedanta has earned a reputation for staging turnarounds. In the past two decades, the company has taken over obscure state enterprises like manufacturer Hindustan Zinc and Bharat Aluminum Co., or Balco, and transformed them into money spinners.

But all of its past challenges pale compared with its latest ambition: building up enough semiconductor manufacturing capacity to meet the demand of an Indian market that currently spends $25 billion a year importing every single chip it uses. In February, Vedanta signed a pact to form a joint venture with Taiwan-based Foxconn group, a major Apple supplier, to produce semiconductors in India, and—it hopes—fulfill India’s goal of gaining chip independence. 

The Indian government on Dec. 15 announced a $10 billion program to help fund the domestic production of semiconductors over the next five to six years. “In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure,” a government statement said.

Three companies have submitted proposals to take advantage of the government’s funding for semiconductor manufacturing—Vedanta, technology company Singapore-based IGSS Ventures, and India Semiconductor Manufacturing Corp., a partnership between Abu Dhabi–based Next Orbit Ventures and Israel’s Tower Semiconductor. But only Vedanta has announced the details of its plan—a $15 billion investment over 10 years—publicly, putting it in pole position in the race to manufacture chips domestically, industry officials say. The company is expected to receive funding from the federal government as well as incentives such as land concessions from the government of the state where it builds its chip plant. 

Vedanta’s ambition also dovetails with the Modi government’s vision first outlined two years ago to make India into a manufacturing hub and capitalize on global firms eager to diversify their supply chain away from China. The Indian government has offered financial incentives worth $13 billion to boost manufacturing in 13 sectors, including electronic goods, mobile phones, and electric vehicles, many of which require semiconductors.

The semiconductor industry has a complex value chain that can be roughly broken up into three major components: design, fabrication, and assembly and testing. India is already a hub for the research and design of semiconductors, which require software capability, but does not tick the other two boxes. India meets all of its chip needs with imports from countries like Singapore and Taiwan. The government expects the Indian semiconductor market to reach $63 billion by 2026, more than a twofold increase from 2020.

Vedanta Group, a nearly 50-year-old Mumbai-based conglomerate whose flagship Vedanta Ltd. reported net sales of $11.42 billion in the most recent fiscal year, is an unlikely firm to carry India’s dreams of semiconductor self-sufficiency. 

Anil Agarwal, now Vedanta’s chairman and India’s 61st richest man, founded the Vedanta Group in 1976. Agarwal, then a scrap metal trader, started the business by buying Shamsher Sterlite Cable Co., a near-bankrupt manufacturer of power and control cables. Its business boomed a decade later when the Indian government allowed private companies to make telephone cables for the first time. In the 1990s, it acquired copper mining assets in Australia and set up a copper smelter—India’s first—to bring more of the cable manufacturing supply chain in-house. 

Vedanta chairman Anil Agarwal
Waldo Swiegers—Bloomberg/Getty Images

Over the years, Agarwal expanded the company into one of the world’s most diversified natural resources groups through acquisitions. The firm purchased majority stakes in several state-run firms as part of the government’s privatization campaign, like aluminum firm Balco in 2001 and Hindustan Zinc in 2002. Before the deals, Balco and Hindustan Zinc were flailing, bogged down by high overhead costs and low output. Agarwal cut costs, infused the businesses with fresh investment, and boosted their production. Now Hindustan Zinc is the world’s second largest producer of zinc, and Balco is one of India’s leading aluminum producers. 

Vedanta ventured into the technology space in 2017 by buying Japanese display glass substrate maker AvanStrate, which produces glass for electronics, but Vedanta has never before manufactured a semiconductor, one of the world’s most advanced and in-demand devices.

Still, Vedanta is confident that government support and Foxconn’s expertise will provide the necessary fillip for launching a semiconductors business, especially since it’s aiming to start small.

Foxconn has the technology to make low-grade 28-nanometer semiconductor chips that can meet most of the needs of Indian manufacturers of basic mobile phones, air conditioners, and TVs for the next seven to eight years. Later on, the company will be able to make smaller, more advanced 16-nm chips at the factory it’s planning to build, says Akarsh Hebbar, global managing director of Vedanta Group’s display and semiconductor business, who did not provide more specifics.

Countries like China have tried to enter the chip manufacturing space with the latest technologies, Hebbar says. “What they are doing is one big bang approach of getting all the technologies into the country,” he says. “We are going [in] phases. We are going according to the consumption of the Indian market.”

The first step toward pumping out those 28-nm chips is the construction of a chip foundry, where the tens to hundreds of billions of transistors that constitute a chip are connected to one another. The factory will produce around 40,000 semiconductor chips per month when it starts production in 2025 and employ over 100,000 people, Hebbar says.

The joint venture is still deciding where it will build the foundry. The Indian states of Telangana, Gujarat, and Maharashtra are all contenders. Vedanta and Foxconn plan to start construction by the end of this year and have the factory up and running within three years, Hebbar says. It will take another eight to 10 months after that to start mass production of chips. 

The foundry alone will cost between $7 billion to $8 billion. The federal government will cover up to half that sum with subsidies; the state government subsidies will fund another 15% to 20%, says Hebbar. 

“We are only going to break even in nine to 10 years,” Hebbar says. “We are looking at a long-term project, which is capital intensive.” 

Semiconductors are one of the world’s most state-of-the-art technologies, and they are advancing so quickly that it’s hard—if not impossible—for newcomers to the sector to catch up.  

The top semiconductor manufacturers of today—like Intel, Taiwan Semiconductor Manufacturing Co. (TSMC), and Samsung—have a decades-long head start on Vedanta and annually pour tens of billions of dollars into chip research and development. For instance, TSMC vowed last year to invest $100 billion over three years to expand chip production capacity and R&D.

China has invested tens of billions of dollars into a yearslong campaign to create its own world-class chip manufacturers, such as the Semiconductor Manufacturing International Corp., but only recently acquired the capability to make 14-nm chips, says Bernard Aw, a Singapore-based economist with Coface, a risk consultancy. The Asian giant still relies on foreign technology, including for higher-end chips such as 5-nm semiconductors.

And while Foxconn can make 28-nm chips, it has never before mass produced the devices to sell to customers. 

“Semiconductor fabrication requires a trained engineering and operations workforce, which may be faster with a partner that has commercialized 28-nm semiconductor production already with existing, qualified customers,” says Randy Abrams, head of Asia semiconductors securities research at Credit Suisse.

Vedanta is not the first firm to take a stab at manufacturing semiconductors in India. In 2007, Intel held talks with the Indian government about building a semiconductor fabrication plant in the country, but it chose China and Vietnam instead because the Indian government took too long to announce incentives. Six years later, two Indian companies, the Jaypee Group and Hindustan Semiconductor Manufacturing Corp., wanted to build chips in the country but could not show proof of funding to the government. 

Vinod Sharma, chairman of the Confederation of Indian Industry, says past efforts by the Indian government to encourage domestic semiconductor manufacturing flopped because of insufficient financial incentives, but the government’s latest move—its biggest pledge of monetary support so far—is a “very bold and positive show of intent,” he says.

Even if India can reduce import dependency on chips to a small degree, it would be a good start, says Sharma.

Others say that India’s aim of chip independence is unachievable, and that its resources would be better spent elsewhere.

“India has a lesson to learn from China’s experience. The goal of self-sufficiency is probably not practical for this industry,” says Manasa Pidatala, senior associate at the Center for Civil Society, a New Delhi–based public policy think tank. “It is better to have realistic dreams. Let us take advantage of our strengths and become a crucial part of the semiconductor supply chain first before attempting to build the entire ecosystem.”

Meanwhile, Rajen Vagadia, president of semiconductor design firm Qualcomm India, takes the view that semiconductors are in such high demand and India’s chip manufacturing field is so wide open that Vedanta might as well take a shot. 

”When the Vedantas of the world come forward, it’s a very welcome thing,” he says. “We need business houses with deep pockets and with foresight and strategy [that extends] over multiple years.”

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