Billionaire Anil Agarwal's chip dreams stymied as govt set to deny funding

India’s government is poised to deny crucial funding for billionaire Anil Agarwal’s chip venture, a setback for a $19 billion push to make semiconductors in the country.

The government is likely to tell the venture between Agarwal’s Vedanta Resources Ltd. and Taiwan’s Hon Hai Precision Industry Co. it won’t get incentives to make 28-nanometer chips, people familiar with the matter said. The venture has applied for such assistance, potentially worth billions of dollars, but hasn’t met the criteria set by the government.

While Vedanta and Hon Hai can apply again, a rejection would mean delays for Agarwal’s ambition to establish India’s first major chipmaking operation, even as his metals and mining conglomerate struggles to reduce a heavy debt load.

Nine months after Agarwal announced the chip partnership to build India’s “own Silicon Valley,” the project is yet to find a technology partner or license manufacturing-grade technology for the 28nm chips it was seeking to build, the people said. At least one of those steps is needed for the venture to get government assistance.

Vedanta and Hon Hai, the assembler of a bulk of the world’s iPhones, have no previous significant experience in chipmaking. Their difficulty in finding production-ready technology underscores how hard it is to set up new semiconductor plants, massive complexes that cost billions to build and require very specialized expertise to run.

A representative for Vedanta said the company was awaiting the outcome of its application from the government. Hon Hai, widely known as Foxconn, didn’t respond to an email seeking comment.

Prime Minister Narendra Modi has pledged $10 billion to woo chipmakers to India, promising his administration will bear half the cost of setting up all semiconductor sites.

Vedanta has previously said its partner Hon Hai had secured “production-grade, high-volume” 40nm technology and “development-grade” technology for relatively more sophisticated 28nm chips. That’s likely not enough for the government to award the funding, as the venture had applied to actually produce 28nm chips, the people said.

The federal government may soon ask Vedanta to submit a new application for financial support to make 40nm chips, and give a revised capital expenditure estimate. Such a bid could be considered after New Delhi reopens the application process for incentives, part of a push to lure prospective chipmakers into the country that’s yielded little success so far.

India’s technology ministry didn’t respond to a request for comment.

Vedanta had previously submitted a capital expenditure estimate of $10 billion to India. Financial help from the state is crucial for Agarwal, whose Vedanta is working to reduce gross borrowings of $6.8 billion as of April.

Vedanta has been in talks with STMicroelectronics NV to license chip fabrication technology, Bloomberg News reported previously. It has yet to publicly name a partner.