India and the US-China chips war

Source: The post is based on the article “India and the US-China chips war” published in The Indian Express on 30^th June 2023.

Syllabus: GS 2 – International Relations – Effect of Policies & Politics of Developed & Developing Countries on India’s Interests

Relevance: concerns with the semiconductor industry

News: The article explains about the concerns associated with the semiconductor industry.

What are the geopolitical issues involved with the semiconductors?

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How is the US trying to control the dominance of China and increase its dominance in the semiconductor industry?

The US has – 1) denied semiconductor technology to China to prevent it from gaining high tech dominance over the world, and 2) pumped up its own domestic capacity for making chips.

During the Trump Administration, Chinese telecom giant Huawei and its several ancillaries were deemed as a threat to US national security, leading to restrictions on their access to chips from US companies.

The Biden Administration maintained restrictions and introduced its own measure, which cut the world’s largest manufacturer of 5G phones and other Chinese companies from accessing semiconductors made using American tools and software.

The US has also collaborated with key partners to limit China’s access to chip technology.

According to the data, China’s chip imports from Japan, South Korea, and Taiwan (members of the US-led “Chip 4 Alliance”) have declined by 20% in the first five months of 2023.

The US also passed the CHIPS and Science Act, which allocated $280 billion in new funding for domestic semiconductor research and manufacturing.

The US has moved towards semiconductor friendshoring in the Quad, where the members committed themselves to building “resilient, diverse and secure supply chains of critical and emerging technologies”.

How is the US and India partnering in the field of semiconductors?

Both nations have announced the US-India Initiative on Critical and Emerging Technologies (iCET)

The two countries have also agreed to strengthen bilateral collaboration on resilient supply chains, support the development of a semiconductor design, manufacturing, and fabrication ecosystem in India, etc.

An MoU was signed between the two nations on Semiconductor Supply Chain and Innovation Partnership to promote commercial opportunities, research, talent, and skill development.

As part of these developments, Micron Technology, a leading US semiconductor firm, announced a proposed investment of up to $825 million to build a facility in India, with the Indian government combined investment value to $2.75 billion.

What are the challenges with India in manufacturing chips?

Currently, India lacks the capability to provide 24×7 power and consistent water supply, essential for chip making industry. There is also a lack of skilled workforce.

The Indian government has also shown reluctance in pursuing a free trade agreement and a bilateral investment agreement with Taiwan, which is hindering to attract investments from TSMC, the world’s biggest chip maker.

Hence, the absence of a complete “chip ecosystem” is one of the reasons why major international chip makers have not yet shown interest in establishing operations in India, despite the government’s willingness to promote the industry.

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What can be the way ahead for India?

It could take India 10-20 years to establish itself as a serious player in the semiconductor industry. However, India has positioned itself in the global chip competition by forging a technology partnership with the US to a new level.