Vedanta and Foxconn to invest $19.5b in Gujarat state for chip

Vedanta Ltd and Taiwan’s Foxconn will invest $19.5 billion under pacts signed on Tuesday to set up semiconductor and display production plants in Gujarat, the home state of Indian Prime Minister Narendra Modi.

Reuters was first to report on Monday that the joint venture obtained subsidies including on capital expenditure and electricity from Gujarat to set up units near the western state’s largest city, Ahmedabad.

The showpiece investment of Rs1.54 trillion, which Gujarat said was the largest ever by any group in an Indian state, comes ahead of key local elections in the state where Modi’s ruling group is facing a tough challenge from opposition parties.

The companies on Tuesday said the Vedanta-Foxconn joint venture project will create more than 100,000 jobs in Gujarat.

Most of the world’s chip output is limited to a few countries like Taiwan and late entrant India is now actively luring companies to “usher in a new era in electronics manufacturing” as it seeks for ways to have seamless access to chips.

The Vedanta venture aims to start manufacturing display and chip products within two years, Vedanta Chairman Anil Agarwal told a public event in Gujarat, where an agreement was signed with the state officials.

“India’s own Silicon Valley is a step closer now,” Agarwal said in a tweet after the event.

Vedanta will setup a display manufacturing unit with an investment of Rs945 billion ($11.95 billion) and separate chip-related production units by investing Rs600 billion ($7.58 billion), the state government said in its statement.

Vedanta and Foxconn will work closely with the state government to establish high-tech clusters with requisite infrastructure, including land, semiconductor grade water and power, the statement added.

Gujarat pipped India’s richest state, Maharashtra, in a close race to win the plant location.

Foxconn is acting as the technical partner, while oil-to-metals conglomerate Vedanta is financing the project.

Foxconn said in a statement that the state’s infrastructure and the government’s active support “increases confidence in setting up a semiconductor factory”.

The Indian government has said it will expand incentives beyond an initial $10 billion plan for those investing in semiconductor manufacturing, as it aims to become a key player in the global supply chain for chips.

Vedanta is the third company to announce a chip plant location in India after international consortium ISMC and Singapore-based IGSS Ventures, which are setting up in the southern states Karnataka and Tamil Nadu, respectively.

Meanwhile the Indian rupee rose to an over one-month high against the US currency on Tuesday, spurred by foreign inflows into local debt and equity markets.

The rupee closed at 79.1475 per US dollar, compared with the previous close of 79.5225, notching up its best session this month.

The local currency reached 79.0350 around the middle of the session, its highest level since Aug.5. By comparison, the Chinese yuan and the Indonesian rupiah were barely changed.

A trader at a Mumbai-based state-run bank said the rupee managing to open above the key 79.40 level was an additional trigger for the USD/INR pair slipping closer to the 79 level.

Hopes of an inclusion of Indian bonds in global indexes and lower oil prices also supported the rupee.

“The rupee continues to be an outperformer as FPI (foreign portfolio inflows) supports the pair,” said Anindya Banerjee, the head research - FX and interest rates - at Kotak Securities.