When a deal takes place between two parties, it is supposed to be fruitful for both. But the recent deal with Micron, signed on PM Modi’s visit to the US and initially hailed as a major technological breakthrough, seems to be falling flat of its tall promises.
Micron is one of the leading manufacturers of chips. And as per the deal it has offered to set up a plant in Gujarat to “assemble, package and test” chips that it fabricates in other places like the US and China. It is these chips that it would be bringing to India to test and package.
And so this is not going to help India’s semiconductor industry much. In fact, we are getting the lowest end of the chip-making technology, which would certainly employ low-skilled labour but would not be able to fulfil India’s ambitions in the semiconductor industry.
What Micron is doing is employing a de-risking strategy, where it is shifting the low end of the production to other countries like Malaysia and India, while keeping the high-end fabrication in the US. Interestingly, Malaysia is already way ahead of India in this right now, acquiring about 13% of the world’s outsourced semiconductor assembly and test market.
On the cost front, the total cost of the facility is estimated at US$2.75 billion, with a 50% subsidy from the Central Government and a 20% subsidy from the Gujarat state government. That means Micron is going to invest just 30% of the total capital in this project. But still, it will have 100% ownership! In other words, India will pay 70% of the cost, while the ownership and eventual profits will go to the US firm.
So why this extreme subsidy? Is it just a PR exercise to show some results after the PM’s US visit, or would it yield any other benefits?
The question is what does the semiconductor industry need?
India’s dream of becoming a global semiconductor leader was conceived way back in 1976, when the Indira Gandhi Cabinet, approved the formation of a semiconductor complex. The time was appropriate as China, Israel, Korea etc were nowhere in the scene.
Semiconductor Complex Ltd (SCL), started production in 1984 as a 100% Govt owned enterprise in Mohali, Punjab. But it burned down mysteriously, when a fire broke out in 1989, causing heavy losses to equipment and facilities.
Instead of re-starting, it was restructured as a research & development centre within the Department of Space in 2006.
In another blow to India’s semiconductor industry, Foxconn has pulled out of the Vedanta chip plan worth $19.5 billion. This pact was signed with Vedanta last year, to set up a semiconductor and display production plant in Gujrat, which now stands cancelled.
From defence to high-tech industries, cutting-edge chips are essential. And India needs a strategy to access technology transfer, and not rely on its cheap labour and subsidies at the cost of taxpayer’s money.
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