Did Foxconn tie-up with Vedanta just for favours from BJP-led government?
Vedanta’s Anil Agarwal has always been close to the BJP. During the Vajpayee regime, he acquired public sector aluminium company BALCO almost for a song and then a majority stake in Hindustan Zinc
It may be early to predict the future of Vedanta-Foxconn’s proposed $22-billion joint venture project in India for an integrated display and semiconductor fabrication ecosystem. The promoters have already got themselves enmeshed in a political controversy over a sudden change in the project location — from Maharashtra to Gujarat.
Significantly, the location change came just three months before the Gujarat assembly election. The promoters were in dialogue with the Maharashtra government for several months. The deal was about to be signed and sealed when Vedanta-Foxconn changed their mind to locate the project in Gujarat.
Clearly, the choice may be more political than economic. Gujarat has little background in electronics manufacturing.
The Bharatiya Janata Party (BJP) won the Gujarat Assembly polls for the sixth straight time in 2017. It aspires to win again this year. The election is due in December. A hi-tech greenfield semiconductor project of this nature, having large downstream business and employment potentials, is expected to substantially influence the public sentiment in favour of BJP in Gujarat.
Incidentally, ever since Narendra Modi became India’s PM in May, 2014, Gujarat became a preferred destination for foreign project investments, apparently for political reasons. Lately, the state achieved the top position in the Centre’s ‘Ease of Doing Business’ ranking.
The proposed Vedanta-Foxconn project will be the largest greenfield investment ever in India’s high technology sector. For the joint venture promoters, it may be important to be on the right side of the national government offering massive incentives to semiconductor projects.
The government has committed as much as US$ 30-billion support to position India as a global hub for electronics manufacturing with semiconductors as the foundational building block.
On paper, the Maharashtra government’s proposed assistance to the semiconductor project appears to be better than Gujarat’s. For instance, Gujarat offered a Rs 28,000-crore capital subsidy to Vedanta-Foxconn’s semiconductor unit as against Maharashtra’s Rs 40,000 crore. Gujarat has reportedly offered 200 acres of land at Dholera in Ahmedabad at 75 percent of the going rate. Maharashtra offered 1,100 acres of land at Talegaon Phase IV in Pune district, of which 400 acres were offered free of cost and the remaining 700 acres at 75 percent of the current rate.
Amid the political row, Vedanta chairman Anil Agarwal said the promoters chose Gujarat on professional and independent advice.
Other key incentives offered by the two rival bidders for the Vedanta-Foxconn project include the electricity cost – Rs 2 per unit for 10 years by Gujarat against Maharashtra’s offer of 1,200 MW of electricity at Rs.3 per unit for 20 years with a waiver of 7.5 percent electricity duty for 10 years. Maharashtra also offered a Rs 337 crore water subsidy and a Rs 812 crore waste management subsidy.
Notably, a tweet by Vedanta chairman’s said: "We decided on Gujarat a few months ago as it met our expectations. But in the July meeting with Maharashtra leadership, they made a huge effort to outbid other states with a competitive offer. We have to start in one place and based on professional and independent advice, we chose Gujarat.”
Both Foxconn and Vedanta’s Anil Agarwal have long experience in dealing with political powers in host countries. During Donald Trump’s presidency in the US, Foxconn planned a $10-billion unit in Wisconsin. The project was announced by Trump himself at the White House in 2017, boasting of it as an example of his ‘America First’ agenda to revive technology manufacturing in the US. The US too offered massive incentives to Foxconn to set up the project in Wisconsin.
However, within months of Trump’s defeat in the US presidential election in November, 2020, Foxconn drastically pruned the project profile. The planned investment was reduced to merely $672 million, slashing the number of new jobs from originally promised 13,000 to only 1,454.
Be it in Gujarat or Maharashtra, India, one of the world’s largest consumers of electronics chips, would wholeheartedly welcome a full-scale semiconductor project which is much overdue in the country. Earlier this year, India’s Minister of State for Electronics and IT Rajeev Chandrasekhar stated in Parliament that electronic chips worth Rs 1.1 lakh crore were consumed in the country in 2020. He acknowledged that the country’s entire demand was met through imports as there was no domestic microchip manufacturing facility.
Going by the ministry’s roadmap, India plans to achieve $300-billion worth domestic electronics production by 2026. Official estimates show that $74.7 billion of domestic electronic production requires semiconductors imports worth $14.5 billion. A $300-billion domestic electronic production will need upwards of $58-billion import of semiconductors. A Next Orbit Ventures study in association with Frost and Sullivan estimated the demand of Analog, Memory and Logic chips for India in the 10nm-180nm process nodes at around $51.9 billion in 2025.
Going merely by commercial logic, the proposed Foxconn project is expected to do well in India. Foxconn’s project also makes diplomatic sense for the company following Taiwan’s deteriorating ties with China. The world's largest technology manufacturer and service provider, Foxconn is the biggest private employer in the People's Republic of China and one of the largest employers worldwide.
Foxconn has already started contract manufacturing for Apple’s iPhone in its factory, near Chennai. Apple considers the Indian market as the next key growth driver. It is an important milestone for Apple in building a non-Chinese iPhone site. Maybe, both Apple and Foxconn are trying to reduce the geopolitical impacts on supply and consider the Indian market an important one.
Ironically, Vedanta’s Anil Agarwal was the biggest business beneficiary of the previous BJP government at the Centre, under Atal Behari Vajpayee, acquiring the country’s biggest public sector aluminium company, BALCO, almost for a song. The very next year, he managed to take over a majority stake in state-run Hindustan Zinc (HZL) to be eventually known as a nonferrous metal king.
Beginning as a small metal trader at an early age, Agarwal has over the years become a big deal maker expanding his business empire from metals to mining and energy. Now, 68-year-old Agarwal’s proposed entry into hi-tech semiconductors manufacturing in India as a majority partner of Taiwan’s $215-billion Hon Hai Technology Group, internationally known as Foxconn, probably brings the most surprising turn of event in his long and chequered business career.
However, it is difficult to understand why Foxconn, the 22nd ranked Fortune Global 500 company, needs the shoulder of Anil Agarwal’s Vedanta to enter India for semiconductor manufacturing when the government allows up to 100 percent foreign holding in this hi-tech sector.
Could there be a political reason on Foxconn’s part to tie-up with Vedanta to ensure best incentive deals from a BJP-governed state? Or, is there an understanding on Vedanta’s part to exit in favour of Foxconn after the project gets started? Time alone can tell the future of the project.
India has tried and failed many times to build a base in semiconductor manufacturing. Hopefully, this time it will be different.
Views are personal