The deal with Micron made during Indian Prime Minister Narendra Modi’s visit to the United States has made headlines as a major technological breakthrough and a new dawn for India’s chip-making industry.
Implicit in this hurrah for the Micron deal is that India has completely missed the bus on the key technologies involved in chip-making. And those who know technology would realize that the Micron deal is only for packaging of the chips, their assembly and testing, a relatively low end of the electronics industry.
It does not touch the core technologies of designing and fabrication of chips, let alone the holy grail: the lithographic machines that are central to chip fabrication.
US-India ties had hit a rocky patch, with India refusing to sanction Russia or align with the West and Group of Seven on a “rules-based international order” where the West makes all the rules.
With Prime Minister Modi and President Joe Biden both facing what could be difficult elections soon, they urgently needed a reset in US-India ties. For India, it is getting technology for critical sectors and declaring a “new dawn.” For Biden, India is part of its de-risking and long-term plan to disengage its industries and market from China.
Late as it already is, the Modi dispensation is finally beginning to understand that technology is not something that, if you have money, you can buy from the global market. It is the closely held knowledge of companies and countries.
Today, it is electronics that drive everything, from the battlefield to artificial intelligence, from your lowly washing machines to the most expensive fighter planes.
In the Ukraine war, a few dollars’ worth of chips are at the core of everything from cheap drones to the most expensive aircraft and missiles. In war, tanks and artillery are also integrated with missiles and drones, shaping the modern battlefield, with radar and satellites providing real-time information to those running the battles.
Modern electronic chips are the “brains” of all of this equipment, just as they are in almost any industry and device.
If India has to maintain its autonomy in global affairs, so it has to start thinking about the future of its electronics industry. What sits at the heart of the electronics industry is the ability to make the latest generation of chips.
And India needs to start today, as it missed the chip-making bus when it decided not to rebuild the chip fabrication plant – the SemiConductor Complex – it had built in Mohali, Punjab state. The plant, a critical component of India’s self-reliance in electronics, mysteriously burned down in 1989.
What is the Micron deal?
Micron is a major manufacturer of memory chips, and it is this realm of business that has made it one of the world’s leaders in the semiconductor industry. It would have the necessary credentials if it decided to set up a memory fabrication plant in India, unlike the Foxconn-Vedanta fabrication proposal greeted with a lot of fanfare, where Foxconn does not have any experience in chip-making.
But that is not what Micron is offering. It has offered to set up a plant in Gujarat state only to “assemble, package and test” chips that Micron has fabricated elsewhere.
Micron has such chip fabrication plants in the United States and also in China, whose products, will be packaged and tested in India. So if chip-making was India’s goal, it will not be delivered through the Micron deal. What India is getting is the lowest end of the chip-making technology, assembling and testing chips that have been made elsewhere.
India is not competing with the United States, China, South Korea and Japan on chip making but with countries like Malaysia. Malaysia is already streets ahead in this area, with about 13% of the world’s OSAT (outsourced semiconductor assembly and test) market.
Locating such plants in Malaysia and now India will be part of the de-risking strategy o US companies, where they shift the low end of chip production to other countries while encouraging new high-end chip fabrication to the United States, such as Micron’s $100 billion mega-fab in Clay, Washington.
Costs vs benefits
Let us look at the investments involved in setting up the Micron plant and who is footing the bill.
The total cost of setting up the plant is estimated to be $2.75 billion, with the central Indian government providing a 50% subsidy and the Gujarat state government throwing in another 20%. Micron is investing only 30% of the total capital.
In other words, Micron will hold 100% ownership of a plant costing $2.75 billion, in which it would have invested only $825 million. Even industry reports, such as eeNews Europe, call this an “extreme level of subsidy.”
In other words, to burnish Modi’s image, tarnished by the Bharatiya Janata Party’s election loss in Karnataka and the continuing riots in Manipur, this is a part of the public relations exercise. If we look at this deal for getting low-level technology – assembly and testing – India is “subsidizing” a leading US manufacturer so that it can assemble and test the chips built in Micron’s high-end plants in the United States and China.
India is not the only country providing subsidies for technology and setting up plants. So are the US and China. The United States has a $52 billion government kitty for subsidizing chip manufacturing and other core activities. China has a National Fund and another popularly called the Big Fund (National Integrated Circuits Industry Development Investment Fund), both investing $73 billion in China’s chip-making industry.
But both these countries are funding the high end of the electronics tech stack, advanced chip-making, devices, CAD (computer-aided design) tools, lithographic machines, and so on, virtually nothing (only about 5%) in the assembly and testing of chips.
Even when they do invest, they spend lower amounts and also as a fraction of the total cost. According to the South China Morning Post, quoted by Yahoo Finance, China has given $1.75 billion in subsidies to 190 Chinese firms, with China’s leading chip fabricator Semiconductor Manufacturing International Corp (SMIC) receiving roughly 20% of that amount.
There is no question that India, having missed the chip-making bus, needs to ramp up its ambitions and bootstrap a chip-making industry. To do this successfully, it has to have a plan, where to invest and how much to invest, and when to invest.
Yes, it has to return to old-fashioned planning, dismissed by BJP-RSS ideologues as “socialism.” And yes, every country plans its science and technology, including how to develop people, the key to technology development.
Instead, what is India’s path forward, and what does it need? Paying 70% of the cost while offering land and cheap labor so that a US company can get 100% of the ownership, in a segment where countries like Malaysia are streets ahead of India, is not investing in technology. It is simply a PR exercise.
This article was produced in partnership by Newsclick and Globetrotter, which provided it to Asia Times.
Prabir Purkayastha is the founding editor of Newsclick.in, a digital media platform. He is an activist for science and the free software movement.