A $10 billion push to make semiconductors in India is on shaky ground. Its collapse will expose a major fault line in Prime Minister Narendra Modi’s campaign for greater economic self-reliance.
To that end, a likely rejection by the government of incentives for the 28-nanometer chip unit proposed by Indian billionaire Anil Agarwal’s Vedanta Resources Ltd. and Taiwan’s Hon Hai Precision Industry Co., also known as Foxconn, is not a good look.
It isn’t just the Vedanta-Foxconn project that has hit a rough patch. A $3 billion proposal that had Israeli foundry Tower Semiconductor Ltd. as a tech partner has also stalled, while a third plan is stuck because Singapore-based IGSS Ventures Pte wants to resubmit its application for incentives, Reuters reported this week. With that, state-assisted chipmaking may be back to the drawing board.
Although the Covid-19 disruptions finally convinced widget makers of the virtues of a “China+1” strategy, bureaucrats in New Delhi were viewing the deepening chasm between Beijing and Washington as a once-in-a-generation opportunity even before the pandemic. But instead of focusing attention on making a 400-million-plus workforce more productive, the Modi government decided to emulate the Trump administration’s jingoistic approach to trade. In 2018, it announced a “calibrated departure” from a two-decade-old policy of reducing protectionism and raised import duties on mobile phones to 20% from 15%. The 2019 electronics policy adopted net positive balance of payments as one of its goals.
The “Make in India” campaign appears to have worked for mobile phones. From being a net importer to the tune of $3.3 billion five years ago, the most-populous nation is now a net exporter. The difference between what it now garners from selling phones to the rest of the world and what it spends on buying them from China is a cool $9.8 billion.
On each phone assembled locally, the government pays the likes of Foxconn and Wistron Corp., another Taiwanese contract manufacturer for Apple Inc., up to 6% of the invoice price. In the absence of data, Rajan and his colleagues wonder if the handout, coupled with other subsidies, actually outweighs the value added.
But if five years of high tariff walls and nearly three years of subsidies haven’t encouraged indigenous production of simple parts, how will handouts help with more complex manufacturing?
Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper
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