Blueprint for Semicon Diplomacy

Blueprint for Semicon Diplomacy

Semiconductors are the basic building blocks that serve as the heart and brain of all modern electronics. These semiconductor chips are now an integral part of contemporary automobiles, household gadgets and essential medical devices such as ECG machines.

India in the last few years has put its special focus towards the domestic manufacturing of semiconductor chips in
India. Although a plethora of initiatives in this regard are appreciable, it is not sufficient. To become self-sufficient
in chip manufacturing India needs a Semiconductor Diplomacy Action Plan.

Significance of Semiconductors:
• Semiconductor chips are the lifeblood of the modern information age. They enable electronic products to compute and control actions that simplify our lives.
• The process of making semiconductor chips is an example of how globally the world is interlinked. For example, it would not be difficult to imagine that the chip in the devices that we use are made by a Japanese engineer working on Dutch machinery in an American foundry in Taiwan to produce wafers which were shipped to Malaysia for packaging before being sent to India as a finished product.
• These semiconductor chips are the drivers for ICT (Information and Communication Technologies) development and one of the key reasons for the current flattening of the world.
• Semiconductors are used in critical infrastructures such as communication, power transmission etc., that have implications for national security.
• Development of the semiconductor and display ecosystem will have a multiplier effect across different sectors of the economy with deeper integration to the global value chain.

What must India do to seize opportunities in this industry?
• Placing semicon diplomacy at the heart of India’s foreign policy is essential both strategically and economically. The establishment of the value chain for semiconductors would ensure a multiplier effect on the entire economy.
• Further, since electronics items form one of the most highly imported items after oil and petroleum products, domestic production would be saving forex and reducing the balance of payments, especially vis a vis China.
• The current decade presents a unique opportunity to India as companies are looking to diversify supply chain and dependence on China. The chip shortages due to Covid-19 have hit automakers with a revenue loss of $110 billion in 2021.
• The Russia-Ukraine conflict and its subsequent impact on raw materials supplies for semi-conductor value chain has also poised chipmakers to invest in strengthening the semicon supply chain.
• Semicon diplomacy is pivotal to India’s Act East Policy, which aims to build resilient ties in the Asia Pacific region. Considering that the semiconductor manufacturing and testing bases are heavily concentrated in East Asia, the Act East policy provides an opportunity to connect and strengthen ties with key players in the region.
• We can also leverage the potential of QUAD here. For example, Australia being rich in raw materials required for semiconductors can be an important supplier to fill in India’s deficits. The Quad Semiconductor Supply Chain Initiative is a good starting point; India shall push for a Quad Supply Chain Resilience Fund to immunise the supply chain from geopolitical and geographic risks.
• Strengthening engagement with semicon hubs such as Vietnam and Taiwan which are home to several technical research and academic institutes in the area of microchip design is equally important.

Issues concerning Domestic Manufacturing of Semiconductors:
• Concentration of industry in fewer geographies
• Nearly all leading edge (sub 10nm) semiconductor manufacturing capacity is limited to Taiwan and South Korea, with nearly 92% located in the former.
• Further, 75% of the semiconductor manufacturing capacity is concentrated in East Asia and China.
• The concentration of capacities poses many challenges, leading several countries to be vulnerable to a few.
• Pursuing Western Companies
• Although India has a decent chip design talent, it never built up chip fab capacity. It would also require convincing western companies to set up advance silicon fabs in India.
• However, the coming of several semiconductor fabs to India is not sufficient. It would also require maintaining a balance between pursuing globalisation in this field while ensuring that the vision of AtmaNirbhar Bharat is not undermined.

Way Forward
• Considering that the global semiconductor market is projected to be $1.2 trillion by 2030, India needs to be well-positioned to capture it.
• The recently announced Semicon India programme which provides $10 bn fisca fiscal measures is a step in the right direction.
• Due to the USA’s allegations on China for worsening Covid developments because of it, numerous multinational companies (MNCs) are shifting thei China. This is the right opportunity to establish India as the right choice for setting up production houses for semicon chips.