India Will Pay 70% Of Cost But Micron Will Own 100% Of Plant: A Curious Business Model – OpEd

Prabir Purkayastha

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The deal with Micron during PM Modi’s visit to the United States has made headlines as a major technological breakthrough and a new dawn for India’s electronics 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 electronic chip making.

And for 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 of chip-making technology: the lithographic machines that are central to chip fabrication.

The U.S.-India ties had hit a rocky patch, with India refusing to sanction Russia or aligning with the West and G-7 on a “rule-based international order.” Where the West makes all the rules. With Prime Minister Modi and President Biden both facing what could be difficult elections soon, they both urgently needed a reset in U.S.-India ties. For India, it is getting technology for critical sectors in India and declaring a new dawn. For Biden, India is part of its derisking 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 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 it is in almost any industry and device.

If India has to maintain its autonomy in global affairs, 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. If not today, then at least tomorrow. And we need to start today, as we missed the chip-making bus when we decided not to rebuild the chip fabrication plant—the SemiConductor Complex—we had built in Mohali. The plant, a critical component of our self-reliance in electronics, had mysteriously burnt down in 1989.

So 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 to only “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, the chips will be packaged and tested in India. So if chip-making was India’s goal, it would not be delivered through the Micron deal. What we are getting is the lowest end of the chip-making technology, assembling and testing chips that have been made elsewhere. We are not competing with the United States, China, South Korea, and Japan on chip making but with countries like Malaysia. Malaysia is already streets ahead of us in this area, with about 13 percent of the world’s in OSAT outsourcing market. Locating such plants in Malaysia and now India would be a part of the de-risking strategy of the U.S. companies, where they shift the low end of the chip production to countries like Malaysia and India while encouraging new high-end chip fabrication to the United States, such as Micron’s $100 billion mega-fab in Clay, Washington.

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 government providing a 50 percent subsidy and the Gujarat state government throwing in another 20 percent. Micron is investing only 30 percent of the total capital! In other words, Micron will hold 100 percent ownership in a plant costing $2.75 billion, in which they would have invested would have invested only 0.825 billion! Even industry reports—e.g., eeNews Europe—calls this an “extreme level of subsidy.” In other words, to burnish Modi’s image, tarnished by BJP’s loss in Karnataka and the continuing riots in Manipur, this is a part of the public relations exercise that his team is doing. If we look at this deal for getting low-level technology—assembly and testing—we are “subsiding” a leading U.S. manufacturer so that we 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 United States and China. The United States has a $52 billion government kitty for subsiding 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 tools, lithographic machines, etc., virtually nothing (only about 5 percent) in the assembling and testing of chips. Even when they do invest, they do much lower amounts and also as a fraction of the total cost. According to the South China Morning Post, quoted by Yahoo Finance, China gave $1.75 billion in subsidies to 190 Chinese firms, with China’s leading chip fabricator SMIC, receiving roughly about 20 percent 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. Not one-off shots and driven by which companies come and what they offer. Instead, what is our path forward, and what do we need? And paying 70 percent of the cost while offering our land, cheap labor so that a U.S. company can get 100 percent of the ownership, in a segment where countries like Malaysia are streets ahead of us, is not investing in technology. It is simply a PR exercise.

Source: This article was produced in partnership by Newsclick and Globetrotter.