A planned $3 billion semiconductor facility in India by chip consortium, ISMC, that counted Israeli chipmaker, Tower, as a tech partner has been stalled due to the company's ongoing takeover by Intel, three sources said, dashing India's chip making plans.

A second mega $19.5 billion plan to build chips locally by a joint venture between Vedanta and Foxconn is also proceeding slowly as their talks to rope in European chipmaker, STMicroelectronics, as a partner are deadlocked, a fourth source with direct knowledge said.

The challenges faced by the companies deal a major setback to Prime Minister Narendra Modi, who has made chipmaking a top priority as he wants to "usher in a new era in electronics manufacturing" by luring global companies.

India, which expects its semiconductor market to be worth $63 billion by 2026, last year received three applications to set up plants under a $10 billion incentive scheme. They were from the Vedanta-Foxconn JV; ISMC that counts Tower Semiconductor as a tech partner; and from Singapore-based IGSS Ventures.

The Vedanta JV plant is to come up in Modi's home state of Gujarat, while ISMC and IGSS each committed $3 billion for plants in two separate southern States.

Also read: Vedanta signs MoUs with 30 Japanese technology firms to develop semicon business

Three sources with direct knowledge of the strategy said ISMC's $3 billion chipmaking facility plans are currently on hold as Tower could not proceed to sign binding agreements as things remain under review after Intel acquired it for $5.4 billion last year. The deal is pending regulatory approvals.

Talking about India's semiconductor ambitions, India's IT minister Rajeev Chandrasekhar told Reuters in a May 19 interview ISMC "could not proceed" due to Intel acquiring Tower, and IGSS "wanted to re-submit (the application)" for incentives. The "two of them had to drop out," he said, without elaborating.

Tower is likely to re-evaluate taking part in the venture based on how its deal talks with Intel pan out, two of the sources said.

ISMC consortium partner, Next Orbit Ventures, did not respond to a request for comment and Tower declined to comment. Intel also declined to comment.

Singapore-based IGSS did not respond, and neither did India's Union ministry.

Also read: Budget 2023: ₹3,000 cr allocated for the semiconductor ecosystem

Setback for Vedanta

Most of the world's chip output is limited to a few countries like Taiwan, and India is a late entrant. Amid much fanfare, in September, the Vedanta-Foxconn JV announced its chipmaking plans in Gujarat. Modi called the $19.5 billion plan "an important step" in boosting India's chipmaking ambitions.

But things haven't gone smoothly as the JV tries to hunt for a tech partner. The fourth source said Vedanta-Foxconn had got on board STMicroelectronics for licensing technology, but India's government had conveyed it wants STMicro to have "more skin in the game" - like a stake in the partnership.

STMicro is not keen on that and the talks remain in limbo, the source added. "From STM's perspective, that proposal doesn't make sense because they want India market to first be more mature," said the person.

Also read: Semiconductor industry will double from current $600 billion to $1 trillion plus: Ashwini Vaishnaw

IT minister Chandrasekhar told Reuters during the May 19 interview the Vedanta-Foxconn JV was "struggling currently to tie up with a technology partner."

STMicro declined to comment.

In a statement, Vedanta-Foxconn JV CEO, David Reed, said they have an agreement with a technology partner to transfer technology with licenses, but declined to comment further.

In a move seen to revive investor interest, India's IT ministry, on Wednesday, said the country will start re-inviting applications for chipmaking incentives. This time the companies can apply until December next year, as opposed to the initial phase where there was only a 45 day window.

"It is expected that some of the current applicants will reapply and new fresh investors will also apply," Minister Chandrasekhar said on Twitter.

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