The Foxconn-Vedanta Deal

Chip Manufacturing:

With the increasing advent of EVs, 5G, smartphones, and the adoption of IoT devices the demand and growth of the semiconductor industry in India is expected to flourish. The semiconductor consumption market of India is said to be the fastest growing in the world and is expected to have an annual domestic demand of $110 billion by 2030. However, despite the increase in demand, there have been chip shortages observed. Thus to improve upon this mismatch of basic economic principles of demand-supply, India needs to reduce its external dependence on chip imports, which are 90% of its consumption. Hence the need for attracting in-house chip manufacturing facilities.

The Foxconn-Vedanta deal:

Foxconn and Vedanta didn’t have any expertise or prior experience in chip making, hence they were expected to outsource it. Therefore to make the best of both worlds,
Taiwan-based Hon Hai Technology Group, Foxconn and Vedanta Group together committed to PM Modi’s Make in India policy and also India’s semiconductor program, hence forming the Foxconn-Vedanta joint venture. The agreements were signed in September 2022 to invest $19.5 billion. Thus this semiconductor and display production plant was to be set up in Gujarat.

However in May 2023, the joint venture between both these companies was reported to be struggling.

So what went wrong with the deal?

Foxconn on July 10 quoted that to explore more diverse development opportunities, according to a mutual agreement, it will not move forward on the joint venture with Vedanta. Though Foxconn has not given a direct reason it is anticipated to be because of the inability of Vedanta (already under a heavy debt load) to pay for acquiring new technology which is vital for chip making.

Additionally in a report previously provided by Reuters stated that PM Modi’s Foxconn-Vedanta project was in trouble with both parties proceeding slowly and quarreling over the involvement of European chipmaker STMicroelectronics (STMPA.PA) as a partner. In regards to the same, it was revealed that both Foxconn and Vedanta had gotten STMicro on board for licensing technology. However, the Indian government made it clear that they wanted the European chipmaker to have more skin in the game i.e. more stake in the partnership. Even so, talks about STMicro not being keen on it remained in limbo as a source previously stated.

Therefore Foxconn was found reporting that it had tried working with Vedanta for more than a year now to bring the proclaimed idea of this great semiconductor project into reality. Whereas now, both companies have mutually decided to end the joint venture, and that the company would remove its name from what is now a fully-owned Vedanta entity.

Additionally, capital markets regulator, SEBI had recently fined Vedanta last month for breaching disclosure rules for publishing a press statement that made it seem like it had partnered with Foxconn to make semiconductors in India, because the deal was with Vedanta's holding company.

What would’ve been?

The controversial chatter is also going around on Vedanta’s decision of choosing Gujarat over Maharashtra as it could be the reason for Foxconn’s withdrawal from the venture.

MLA Aaditya Thackeray has stated that the project could’ve been feasible in Maharashtra. Claims have been made that the project could’ve easily propelled this growth story for India if it was executed in Talegaon, Pune instead of the ‘inconvenient’ place of Dholera, Gujarat where it was later shifted. It is said that the shift was done under central government pressure despite Maharashtra providing more capital subsidies and concessions. Hence, a political firestorm of blame game has begun amongst Maharashtra regarding the withdrawal; however both the companies had not made any statement in this regard.

Vedanta’s Statement:

In a statement given that was not directed towards Foxconn, Vedanta said that it would forge ahead with different partners. They said that they would continue to grow their Semiconductor team and that they have the license for production-grade technology for 40nm (chips) from a prominent Integrated Device Manufacturer (IDM). They also quoted that India remains as pivotal in repositioning their global semiconductor supply chains and that they have redoubled efforts to fulfill PM Modi’s vision for semiconductors.

Foxconn’s Statement:

 Foxconn has very carefully stated that it is not breaking away from the Indian semiconductor space entirely and that it is still supporting the Indian government’s domestic chip-making efforts. The firm said that it would like to establish a diversity of local partnerships that would better cater to the needs of stakeholders.

India’s semiconductor goals:

The importance of semiconductor manufacturing is immense in India. It is not only going to elevate India’s position in the global manufacturing and value chain ecosystem but it will also provide a great opportunity of creating jobs, boosting economic growth, and also establishing India as a leading player in the global tech market. India is said to become a hub for chip technology in the coming years.

Talking about the Foxconn-Vedanta fallout, Rajeev Chandrasekhar (Minister of State for Electronics and Information Technology) has given a statement on Twitter that Foxconn exiting the joint venture wouldn’t impact the greater ambitions of India’s semiconductor industry. If not together then both of these companies would independently pursue their respective strategies of working in India and with their appropriate technology partners, he added.

Alternatively, apart from the Foxconn-Vedanta proposal, India has other opportunities for its $10 billion chip incentive scheme. The other available options include the ISMC project, backed by Abu Dhabi-based Next Orbit, and also Israel’s Tower Semiconductor. Therefore the opportunity for the Indian semiconductor market to prosper is massive.