In a major setback for Prime Minister Narendra Modi's hopes for Indian chip manufacturing, Taiwan's Foxconn has canceled a $19.5 billion semiconductor joint venture with Indian metals-to-oil behemoth Vedanta.

The largest manufacturer of contract electronics in the world, Foxconn, and Vedanta agreed to establish semiconductor and display manufacturing facilities in Gujarat, Prime Minister Modi's home state, last year.

“Foxconn has determined it will not move forward on the joint venture with Vedanta,” in the words of Foxconn.

The company claimed it had been collaborating with Vedanta for more than a year to "bring a great semiconductor idea to life," but they had mutually agreed to discontinue the joint venture, and it will remove its name from a firm that is now wholly controlled by Vedanta.

To usher in a new era in electronics manufacturing, Modi has made chip manufacturing a main priority for India's economic strategy. Foxconn's decision is a setback to his hopes of persuading foreign firms to start making chips locally.

Although Foxconn is best known for building iPhones and other Apple goods, it has recently started to diversify its business by focusing more on the chip industry.

A few nations, including Taiwan, produce the majority of the world's chips; India is a late entry. In Gujarat last September, the Vedanta-Foxconn joint venture unveiled its plans to manufacture chips. Modi referred to the initiative as an important step in advancing India's chip manufacturing aspirations.

But the execution of his plan had been sluggish. Deadlocked negotiations to include European chipmaker STMicroelectronics as a technology partner were among the issues the Vedanta-Foxconn project ran into, according to a prior report from Reuters.

Even though STMicro agreed to a technology licensing deal with Vedanta-Foxconn, the Indian government had made it plain that it wanted the European company to have more "skin in the game" by taking a stake in the collaboration.

According to the Indian government, chip manufacturing would continue to draw in investment. Last month, Micron announced that, rather than for manufacturing, it will invest up to $825 million in a chip testing and packaging operation. The overall investment will be $2.75 billion, with help from Gujarat and the national government of India.

Three applications to establish facilities under a $10 billion incentive program were received last year from India, which anticipates that its semiconductor market will 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 because the business intended to reapply.