Success with chips will take much more effort

Source: The post is based on articles

“Success with chips will take much more effort” published in Live Mint on 1^st August 2023 and

“Chip tactics: on India’s bid to attract major global chip manufacturers” published in The Hindu on 1^st August 2023.

Syllabus: GS 3 – Industrial Policy

Relevance: challenges associated with establishing semiconductor industry in India

News: Taiwan has been a cause of tussle between China and the West, due to its significance in manufacturing advanced microchips for digital devices. India has also entered into the race to become a supplier of advanced microchips.

How is India trying to become a supplier?

Despite the setbacks faced by India in failed Foxconn-Vendanta venture, the PM has still taken efforts to move ahead to attract investment for the establishment of semicon fab units.

At the Semicon India 2023 conclave, PM offered 50% financial backing to companies looking to establish chip manufacturing facilities in India including offer for low corporate tax rates.

US-based companies like AMD and Micron have shown interest in investing in India to cover their supply risks. However, looking at the the challenges, it remains uncertain if India can become a significant global player in the chip industry.

What are the challenges with India in becoming a leader in the semiconductor industry?

Lack of Capabilities: Chips are of various kinds and manufacturing of sophisticated chips is dominated by Taiwan Semiconductor Manufacturing Company (TSMC).

While a few other companies can produce these chips, catching up with TSMC’s capabilities is challenging.

Supremacy of the Advanced Economies: The US has shifted away from free trade and adopted an inward industrial policy, under the Chips Act to enforce technology denial to China. China also has its local chip fabrication projects.

The U.S. has also announced $52 billion in financing support and drawing over $200 billion in commitments. Intel alone has committed $80 billion in investments across the European Union.

In India, a $10 billion production-linked incentive scheme was introduced, however, a $20 billion venture by Vedanta and Foxconn failed.

Therefore, while India has an opportunity to establish a modest chip-making ecosystem, becoming a global supplier would remain a challenging task given the geo-strategic interests of the advanced economies.

Must Read: Semiconductor manufacturing in India: significance and challenges

What can be the way ahead?

Diplomacy: Diplomacy could play a significant role in India’s bid to join the global chip race. Indian Foreign Minister S. Jaishankar encouraged global chip investors to optimize globalization by investing in chip fabrication units in India, combining the advantages of offshore production with risk reduction goals.

However, India’s best chance of becoming a major player in the chip industry lies in its own R&D efforts.

Efficient Policy Framework: To encourage semiconductor investments and attract other investors, India must support Micron through its incentives. Additionally, India also needs a stable operating environment with predictable policies framework and trade linkages with global markets to attract investors.