In a setback to Prime Minister Narendra Modi's goal for India's manufacturing of semiconductors, Taiwan's Foxconn has pulled out of a $19.5 billion semiconductor joint venture with Indian metals-to-oil behemoth Vedanta, it was announced on Monday. The world's largest contract electronics maker signed a pact with Vedanta last year to set up semiconductor and display production plants in Modi's home state of Gujarat.

The alliance was formerly thought to be ahead of two other consortia in the race for receiving the perks as it intended to establish India's first chip manufacturing facility under a $10 billion government-backed financial incentive program.

"Foxconn has determined it will not move forward on the joint venture with Vedanta," a Foxconn statement said without elaborating on the reasons.

The company said it had worked with Vedanta for more than a year to bring "a great semiconductor idea to reality", but they had mutually decided to end the joint venture and it will remove its name from an entity that is now fully owned by Vedanta.

Vedanta said it is fully committed to its semiconductor project and had "lined up other partners to set up India’s first foundry". "Vedanta has redoubled its efforts" to fulfil Modi's vision, it added in a statement.

“Both companies are fully committed to developing India’s semiconductor industry, and they’re fully committed to Make in India,” Minister of electronics and information technology Ashwini Vaishnaw said, noting the announcements will not impact India’s semiconductor mission.

To usher in a "new era" in electronics manufacturing, prime minister Narendra Modi has prioritized chipmaking for India's economic plan, and 

Foxconn's decision is a setback to his hopes of recruiting international companies to produce chips domestically for the first time.

The majority of the world's production of chipsets is concentrated in a few countries, mainly Taiwan. Due to the threat of China and Taiwan war, there is a major issue of chipset shortage in the future. Last September Vedanta and Foxconn announced their chipmaking plan in Gujarat. Prime Minister Narendra Modi called it an important step in the process of becoming a global manufacturing hub.

But his plan had been slow to take off. Among other problems encountered by the Vedanta-Foxconn project were deadlocked talks to involve European chipmaker STMicroelectronics as a tech partner, Press has previously reported.

While Vedanta-Foxconn managed to get STMicro on board for licensing technology, India's government had made clear it wanted the European company to have more "skin in the game", such as a stake in the partnership.

STMicro was not keen on that and the talks remained in limbo, a source has said.

According to the Indian government, chip manufacturing would continue to draw in investment. Last month, Micron announced it will spend up to $825 million on a semiconductor testing and packaging facility rather than on-chip production. The overall investment will be $2.75 billion, including help from Gujarat and the national government of India.

Three proposals to establish facilities under a $10 billion incentive program were submitted last year from India, which anticipates that its semiconductor industry would be worth $63 billion by 2026.

These came from the joint venture between Vedanta and Foxconn, Singapore's IGSS Ventures, and the international group ISMC, which counts Tower Semiconductor as a tech partner.

Due to Tower's acquisition by Intel, the $3 billion ISMC project has also been put on hold, and IGSS's $3 billion plan was also shelved since the organization wished to reapply.

Applications from companies for the incentive program have been requested again by India.