[Answered] Placing Semicon diplomacy at the heart of India’s foreign policy is essential both strategically and economically. Discuss.

The semiconductor is the cornerstone of all electronic products of the modern information age. They enable electronic products to compute and control actions that simplify our lives. The trusted sources of semiconductors have a strategic importance in current geopolitical scenario and are vital for security of the critical information infrastructure.

How it is essential?

• National Security: Semiconductors are used in critical infrastructures such as communication, power transmission etc., that have implications for national security.
• Saving forex: The establishment of the value chain for semiconductors would ensure a multiplier effect on the entire economy. Since the electronics items form one of the most imported items after oil and petroleum products, the domestic production can save forex and reduce the balance of payments.
• Role of Quad: Australia is rich in the raw materials required for semiconductors. So it can be an important supplier for India. The advanced semiconductor technology of US and Japan can be leveraged for capacity building.
• Act East Policy: the Act East policy provides an opportunity to strengthen ties in the region as semiconductor manufacturing and testing bases are heavily concentrated in East Asia. At the same time, frequent technological exchanges between a regional bloc like ASEAN, East Asia Summit will be beneficial.

Challenges:

• High investments:A semiconductor fabrication facility can cost multiples of a billion dollars to set up even on a relatively small scale.
• Poor fiscal support:The investments typically required to set up manufacturing capacities in the various sub sectors of the semiconductor industry are very high but minimal support is provided by the govt.
• Resource Inefficient Sector:Chip fabrication requires millions of litres of clean water, an extremely stable power supply, a lot of land and a highly skilled workforce.
• Alternate to China: Indian companies are looking to diversify their supply chain and for alternatives to their bases in China after the pandemic as they suffered huge losses.
• The Russia-Ukraineconflict and its implications for raw material supplies have also demotivated chipmakers to invest in strengthening the semiconductor supply chain.

Way forward:

• Multilateral and bilateral cooperation should be done across the value chain of semiconductors design, manufacturing, and packaging.
• The Semicon India programme which provides $10 bn fiscal support and other non-fiscal measures shows strong political will and is a step in the right direction.