India's Position in the Global Chip War: US-India Technology Partnership and Challenges

India's Position in the Global Chip War: US-India Technology Partnership and Challenges
Posted on 01-07-2023

India's Position in the Global Chip War: US-India Technology Partnership and Challenges in Semiconductor Industry

The recent visit of the Indian Prime Minister to Washington DC has solidified the new US-India technology partnership, which recognizes technology as the new geopolitical frontier. One crucial aspect of this partnership is the aim to diversify the global semiconductor supply chain, which has become the focal point of the rivalry between the United States and China.

Semiconductors, commonly known as chips, are made of silicon and are crucial components found in a wide range of products such as computers, smartphones, appliances, gaming hardware, and medical equipment. They play a vital role in nearly every modern device, including advanced defense systems and AI-powered machines. However, only a few countries possess the capability to manufacture chips, which are among the world's most advanced technologies, and even among chip-making countries, specialization exists.

In the 20th century, oil dominated global geopolitics, while in the 21st century, chips have emerged as the new "oil." The US has been actively taking measures since 2020 to deny semiconductor technology to China, preventing it from gaining dominance in high-tech industries worldwide. Simultaneously, the US has been strengthening its domestic chip manufacturing capacity. For instance, the Trump Administration designated Chinese telecom giant Huawei and its affiliates as threats to US national security, and the Biden Administration has maintained restrictions on Huawei. China, through its "Made in China 2025" plan, launched in 2019, aimed to achieve self-sufficiency in semiconductors. However, export controls imposed by the US have made China's mission challenging. In response, China has banned US chipmaker Micron from vital infrastructure projects.

To further bolster its domestic chip industry, the US Congress passed the CHIPS and Science Act in 2022, providing $280 billion in funding for research and manufacturing of semiconductors in the US. Japan has also announced restrictions on semiconductor exports to China, which will take effect from July. This has resulted in a 20% decline in China's chip imports from Japan, South Korea, and Taiwan—members of the US-led "Chip 4 Alliance"—during the first five months of 2023. Additionally, the US is lobbying the Netherlands to take similar steps since the Dutch company ASML is the sole manufacturer of deep ultraviolet lithography machines required for certain types of chips.

In this ongoing chip war, India sees an opportunity to position itself as an alternative to China. Despite not having a native semiconductor industry, India aims to attract foreign chipmakers by offering incentives and various benefits. The Indian government has announced a $10 billion incentive plan to boost semiconductor manufacturing in the country. While this presents an opportunity for India to become a global player in the semiconductor sector, success is not guaranteed. The Indian government must provide financial and material support to its domestic industry and strike a balance between accepting the US partnership and not allowing Washington to dictate terms.

In line with the focus on critical and emerging technologies, including semiconductors, the leaders of Australia, Japan, India, and the US, known as the Quad, have committed to building resilient, diverse, and secure supply chains. To elevate and expand the strategic technology partnership between India and the US, the Initiative on Critical and Emerging Technology (iCET) was launched in May 2022. Resilient semiconductor supply chains are one of the six identified focus areas for co-development and co-production under iCET. A joint task force, comprising the US Semiconductor Industry Association, India Electronics Semiconductor Association, and the government's Semiconductor Mission, has been established to assess readiness, identify opportunities and challenges, and facilitate India's role in the global semiconductor value chain.

During the Indian Prime Minister's visit to the US, an MoU on Semiconductor Supply Chain and Innovation Partnership was signed, aiming to promote commercial opportunities, research, talent, and skill development. Leading US semiconductor firm Micron Technology announced a proposed investment of up to 825 million dollar to build a facility in India, with the Indian government contributing to raise the combined investment value to 2.75 billion dollar. This investment is expected to create thousands of direct and indirect job opportunities. Lam Research has also proposed training 60,000 Indian engineers through its Semiverse Solution virtual fabrication platform, and Applied Materials plans to invest $400 million to establish a collaborative engineering center in India.

However, India faces several challenges in the chip industry. Previous attempts by companies to set up fabrication plants in India have failed for various reasons. Setting up semiconductor fabs is expensive, requiring billions of dollars even on a small scale, and India lacks the necessary infrastructure, including stable power and water supply, as well as a highly skilled workforce. Additionally, the absence of a robust "chip ecosystem" has deterred international chip makers from showing interest in India. Taiwan has been pushing for trade and investment agreements with India to attract TSMC, the world's largest chip maker, but India has been reluctant to pursue such agreements.

It is clear that India lags behind in the chip industry, and it may take the country 10 to 20 years to establish itself as a significant player in the semiconductor sector. Nevertheless, India has positioned itself in the global chip war through its technology partnership with the US, which has the potential to elevate bilateral ties to a new level.

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