India's cabinet has approved U.S. chipmaker Micron Technology's (MU.O) $2.7 billion plan for a new semiconductor testing and packaging unit, a senior government source said on Tuesday ahead of Prime Minister Narendra Modi's state visit to the U.S.
The government agreed production-linked incentives worth 110 billion rupees ($1.34 billion) for the plant, which is set to be built in Modi's home state of Gujarat, the Indian official added. He declined to be identified ahead of a planned announcement during Modi's visit.
Cabinet approval was required due to the size of the incentive package, the source added. Micron's plan had been previously reported but not the approval by cabinet.
Spokespeople for Micron and the Indian government, including its technology ministry, did not respond to requests for comment.
During his visit, which starts on Tuesday, Modi will meet the chief executives of a number of top American companies, including FedEx (FDX.N) and MasterCard (MA.N), and will be hosted at a state dinner in the White House on June 22.
Micron Technology's plans come as the White House presses U.S. chip companies to invest in India with talks ongoing about possible further investments, U.S. administration officials told Reuters.
Biden wants domestic companies to decrease the risks of doing business in China while better integrating the U.S. economy with that of the world's largest democracy, one U.S. official said.
A senior Biden administration official said the White House was "encouraged" by the number of U.S. firms considering India investments.
An Indian industry source familiar with Micron's approvals said the so-called Assembly Testing Marking and Packaging will be built in the city of Sanand.
Such units test and pack semiconductor chips, but do not manufacture them. Micron could procure and package chip for clients at the plant, or other companies could send their chips for testing before shipping.
The source added that Micron's India plant would boost Modi's vision of making India a semiconductor base but true success would require actual manufacturing.
Reuters reported this month that three big companies, including a Foxconn joint venture, that bid for Indian semiconductor incentives were struggling due to the lack of a technology partner.
The Micron deal "helps the vision but not in a phenomenal way because still the major part of puzzle lies in setting India as a semiconductor base," said the industry source.
