The Indian cabinet has approved Micron Technology's $2.7 billion plan for a semiconductor testing and packaging business, a senior government official said as Prime Minister Narendra Modi arrived in the United States.

The cabinet has also approved production-linked incentives worth 110 billion rupees ($1.34 billion) for the facility, which is set to be built in Gujarat, according to an unnamed official.

During Modi's current tour to the United States, a formal announcement is expected.

According to the source, the need for cabinet approval derives from the size of the incentive package. While rumours of Micron's plan had previously surfaced, the expected cabinet approval is a significant development.

PM Modi is set to meet with top executives from major American corporations, including FedEx and MasterCard, during his visit, which began on Tuesday. He will also be honoured at a state banquet held by the White House on June 22.

The investment by Micron Technology coincides with the White House's efforts to encourage US chip companies to invest in India. Discussions on potential additional investments are ongoing, according to officials from the US government who spoke.

According to one US source, President Biden's goal is to lessen the risks involved with doing business in China for American companies while also encouraging deeper integration between the US economy and that of the world's largest democracy.