India’s Micron deal follows a curious business model

The agreement formed between Micron, while Indian Prime Minister Narendra Modi was on his visit to the United States, has received a lot of attention as a significant advancement in technology and a fresh start for India's chip manufacturing sector.

Implied within this celebration for the Micron agreement is the notion that India has entirely overlooked essential technologies in chip production. Those well-versed in technology would acknowledge that the Micron deal solely pertains to the packaging, assembly, and testing of chips, which constitutes a less sophisticated segment within the electronics sector.

This blog section does not delve into the fundamental techniques involved in chip design and manufacturing, nor does it discuss the ultimate goal: the lithographic machines which play a crucial role in chip fabrication.

Relations between the United States and India had encountered a bumpy phase, as India declined to impose penalties on Russia or associate itself with the West and Group of Seven in promoting a "rules-based global order" that is primarily determined by Western powers.

As Prime Minister Modi and President Joe Biden approach potentially challenging elections, they are in dire need of a fresh start in the relationship between the United States and India. India aims to acquire advanced technology for crucial sectors and establish a renewed era of progress. On the other hand, for Biden, India plays a significant role in minimizing risks and implementing a long-term strategy to reduce dependence on Chinese industries and markets.

After much delay, the Modi government is slowly realizing that technology cannot simply be purchased from abroad with enough money. It is a valuable resource possessed by specific companies and nations.

In the present day, electronics play a crucial role in various aspects of life, encompassing everything from warfare and artificial intelligence to household appliances and high-end aerial combat aircraft.

In the conflict happening in Ukraine, the fundamental components that have significant importance range from low-cost drones to sophisticated aircraft and missiles. Alongside tanks and artillery, missiles and drones are seamlessly incorporated, revolutionizing the contemporary battlefield. Moreover, real-time data accessed through radar systems and satellites are crucial for strategists managing the battles.

Contemporary electronic chips serve as the intelligent core of all this equipment, just like they do in nearly every sector and gadget.

In order to uphold its independence in worldwide matters, India must contemplate the future of its electronics sector. Crucial to this industry's core is the capability to produce cutting-edge chips.

India must take action immediately because it failed to seize the opportunity to develop a chip fabrication facility called the SemiConductor Complex in Mohali, Punjab state. This plant was crucial for India's independence in the field of electronics. However, it was inexplicably destroyed in a fire incident in 1989.

Micron holds a prominent position in the production of memory chips, which has contributed to its global leadership in the semiconductor sector. Unlike the highly celebrated Foxconn-Vedanta proposal, in which Foxconn lacks expertise in chip manufacturing, Micron possesses the required qualifications to establish a memory fabrication plant in India.

However, Micron's proposal differs from that. It has put forth the idea of establishing a facility in the Gujarat region solely to "assemble, package, and examine" chips that were manufactured by Micron in different locations.

Micron possesses chip production facilities in both the United States and China, with the items themselves being packaged and assessed in India. Thus, while India may have desired chip manufacturing capabilities, the agreement with Micron does not fulfill that objective. Instead, what India will receive is the simplest form of chip production technology, involving the assembly and testing of chips that have been manufactured elsewhere.

India is not pitting itself against the United States, China, South Korea, and Japan in the race for chip manufacturing dominance. Instead, its competition lies in countries such as Malaysia. Malaysia has already taken a significant lead in this field, possessing approximately 13% of the global market share for OSAT (outsourced semiconductor assembly and test).

Finding these factories in Malaysia and now India will be a way for US companies to reduce risks. They plan to move the production of low-quality chips to other countries while promoting the establishment of advanced chip manufacturing plants in the United States. For example, Micron's massive $100 billion chip factory in Clay, Washington aims to bring high-quality chip production back to the US.

Let's examine the investments required to establish the Micron facility and who is covering the expenses.

According to estimates, it is projected that the entire setup expenses for the plant will amount to $2.75 billion. The central government of India has agreed to offer a subsidy of 50%, while the Gujarat state government will contribute an additional 20%. Micron, on the other hand, will only invest 30% of the overall capital.

Put simply, Micron will have complete control over a factory that has a price tag of $2.75 billion, despite only investing $825 million. Even reputable sources in the industry, like eeNews Europe, describe this as a remarkably high level of financial assistance.

To improve Modi's reputation, which has been damaged by the Bharatiya Janata Party's defeat in Karnataka and the ongoing conflicts in Manipur, this is a strategy to enhance public perception. When we examine this agreement to acquire basic technology - assembly and testing - India is essentially providing financial support to a prominent American manufacturer, enabling them to assemble and test chips produced in Micron's advanced facilities in the United States and China.

India is not the sole nation extending financial assistance to technology and establishing factories. The United States and China are also partaking in this practice. In fact, the United States boasts a governmental reserve of $52 billion specifically earmarked for supporting chip production and other vital undertakings. On the other hand, China possesses a National Fund in addition to the Big Fund (commonly known as the National Integrated Circuits Industry Development Investment Fund), collectively injecting a substantial sum of $73 billion into China's chip fabrication sector.

However, both of these nations are providing financial support for the uppermost sector of the electronics technology framework. This includes advanced chip production, electronic devices, computer-aided design tools, lithographic machines, and similar areas. Conversely, they allocate negligible resources, accounting for only approximately 5%, towards the assembly and testing of chips.

Even when they decide to put money into something, they allocate smaller sums and only a portion of the overall expense. As stated by the South China Morning Post, cited by Yahoo Finance, China has provided $1.75 billion in financial aid to 190 companies based in China. Among them, Semiconductor Manufacturing International Corp (SMIC), the leading chip manufacturer in China, has received approximately 20% of that sum.

It is undeniable that India, after failing to seize the opportunity in chip-making, must enhance its aspirations and establish a chip-manufacturing sector from scratch. To accomplish this triumphantly, a well-defined strategy is essential: determining where to allocate investments, deciding the appropriate amount of investment, and identifying the optimal moment for investment.

Indeed, a reversion to traditional planning is necessary, a notion that has been disregarded by the ideologists of the BJP-RSS who label it as "socialism." Furthermore, it is crucial to acknowledge that every nation strategically outlines its science and technology objectives, encompassing the cultivation of its human resources, which is fundamental to the progress of technology.

Instead, what is the way ahead for India, and what are its requirements? Providing 70% of the expenses along with offering land and inexpensive workforce, allowing a US firm to attain complete ownership in a field where countries like Malaysia have excelled significantly, is not a genuine investment in technology. It is merely a public relations maneuver.

This blog post was created through a collaboration between Newsclick and Globetrotter, who have shared it with Asia Times.

Prabir Purkayastha founded Newsclick.in, an online media platform. He is an advocate for scientific advancement and the open-source software movement.