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When a major investment project is announced, it is natural for state governments to vie to get it located in their respective territories, offering incentives, in the hope of being able to tell voters how committed they are to ‘development’. In one such competition, Maharashtra has lost out to Gujarat for a Vedanta-Foxconn project that proposes to invest 1.54 lakh crore to produce semiconductors and displays. This has led to political wrangling, with accusations ranging from incompetence on the part of the new political leadership of the Maharashtra government to the Centre directing investment to poll-bound Gujarat. It would be useful to take a step back and see things in perspective.

A few things stand out.

One, it is a good thing for India, and for the chip-starved world economy, that a new manufacturing plant for semiconductor chips is being set up.

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Two, semiconductor fabs are capital-, rather than labour-, intensive. A new $4 billion Global Foundries plant in Singapore to manufacture 450,000 chips will employ just 1,000 people. The numbers would be slightly different in the Indian context. Global Foundries already has a packaging and testing unit in Singapore for its existing fabs, and would not need to set up one from scratch for that final part of chip making. Packaging the silicon and testing it employ more people than the earlier, automated, stages of chip making. The Gujarat unit also has a display component, which would employ additional people, but again would be relatively capital-intensive in nature.

Three, the real employment potential is in downstream industries that make use of the semiconductors. If Vedanta lives up to its promise to set up large-scale electronic manufacturing in Maharashtra, the state’s government might end up creating more jobs per incentive rupee than from setting up the silicon fab.

Four, it would be wrong on the part of the Centre to intervene in companies’ choice of investment destination from among alternative sites in different states. Of course, there is no evidence that the Centre did dabble in playing favourites in the present case. The basis for this suspicion is the demand contained in a letter written by the chairman of Vedanta to the Maharashtra government, seeking alignment with the Centre for the project. This might reflect more industrialists’ desire to be in the good books of the Centre than any actual indication on the Centre’s part of any locational preference for the proposed investment. Vedanta has later claimed that its site selection was based on expert advice and not political considerations.

India’s chip-making journey began early but got derailed with a mysterious fire at the Semiconductor Complex at Mohali in 1989, five years after it was set up, as part of a vision to make India ready for the 21st century. India has been content to rely on imports for not just chips but for most electronics after that. Now, with advanced semiconductors becoming a differentiator between the strategic haves and the have-nots, and the imports of chips rivalling the imports of oil as a spender of foreign exchange, India cannot put off creating its own chip-making capacity.

It is worth noting that the Chips 4 alliance that the US forged this March includes, besides itself, Taiwan, Japan and South Korea. India, despite its chip design and software capability, has not been taken seriously enough to be part of any technological alliance. India’s defence ties with Russia–India and Russia jointly produce the Brahmos missiles in India for sale to third countries—might play on US strategic minds as well, when deciding on candidates for any such alliance.

India needs to not just make chips but also develop the capacity to automate electronic design, create the machinery to etch nano-metre wide grooves on semiconductor wafers for ultra-thin circuitry, deposit vaporized metal in those grooves to form the intricate circuits and pack millions of transistors on tiny wafers. These technologies are not available off the shelf and now require licensing clearance in the US.

Instead of wasting time on one particular semiconductor project, Indian states would do well to crystallise other chunks of the semiconductor ecosystem, both to create high-value jobs and to build the prerequisites of true strategic autonomy.

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