By Abhisht Chaturvedi
India's strategic initiative to establish a domestic semiconductor industry represents a significant shift in its technological and economic policy, with the government approved a substantial investment of 1.26 trillion rupees (approximately $15.2 billion USD, with 1 USD = 83.3 INR). This move is aimed at reducing dependency on semiconductor imports, notably from China, and fostering an indigenous manufacturing ecosystem will come with a substantial government subsidy (nearly half of the invested value). The hope is that this subsidy will place India on a strong footing in the global semi-conductor supply chain in particular and global technology supply chains in general.
The plan includes setting up three semiconductor chip-making plants and to inaugurate them by July-August, 2024. The largest of these, a collaboration between Tata and Taiwan's Powerchip, will see a combined private and public investment of 910 billion rupees (approximately $10.92 billion USD) in Gujarat's Dholera. Furthermore, CG Power will partner with Japan's Renesas Electronics Corp and Thailand's Stars Microelectronics to establish a 76 billion rupees (approximately $912 million USD) chip packaging plant, also in Gujarat. The third facility, with a combined investment of 270 billion rupees (approximately $3.24 billion USD), will be a chip packaging plant set up in Assam by Tata Semiconductor Assembly and Test Pvt Ltd.
Economic Implications
Indian Electronics Minister Ashwini Vaishnaw indicated that construction for these plants would start between June to August 2023, focusing on sectors like defense, electronic automobiles, and telecommunications. This development is not just an economic endeavor but a testament to India's aspirations for technological self-reliance and enhanced economic security.
Yet there are other direct and indirect economic benefits involved. The semiconductor industry is labor-intensive, requiring a vast array of skilled labor. Thus, establishing local manufacturing will likely spur job creation across various sectors, including engineering, manufacturing, research, and development. This job growth extends beyond the immediate semiconductor industry, potentially benefiting ancillary sectors such as logistics, construction, and services.
Moreover, the need for a sophisticated semiconductor manufacturing base will drive substantial investments in research and development, fostering an environment ripe for innovation and technological advancement. This could not only spur the growth of India's broader technology ecosystem but also facilitate knowledge transfer and collaboration with global semiconductor powerhouses.
A thriving semiconductor industry could significantly contribute to India's GDP growth, enhancing manufacturing output, stimulating domestic demand for electronic products, and reducing import dependency. The industry's expansion might attract foreign direct investment (FDI), bolstering India's position in the global electronics market and contributing to overall economic resilience.
From a supply chain perspective, localizing semiconductor production aims to diversify India's supply chain, reducing economic vulnerabilities associated with import dependencies and enhancing national economic stability. This strategic shift could shield the country from global supply chain disruptions, as witnessed during the COVID-19 pandemic, which highlighted the risks of heavy reliance on semiconductor imports.
In Comparative Terms
Comparing India's efforts with those of established players like the United States, South Korea, and China provides a broader perspective on its ambitions. The U.S. has a mature semiconductor industry, supported by government funding and a focus on innovation, while South Korea's government-backed policies have fostered a robust semiconductor ecosystem. China, on the other hand, has aggressively pursued semiconductor self-sufficiency through substantial state investments and technology acquisitions.
India's venture into semiconductor manufacturing, though in its infancy, is critical for its strategic and economic aspirations. Unlike the established semiconductor markets, India faces challenges such as infrastructure development, skill shortages, and funding needs. However, the strategic significance of this initiative lies in its potential to bolster national security, support strategic industries, and enhance technological sovereignty.
Moreover, India's semiconductor initiative can be seen as a move to mitigate geopolitical risks associated with over-reliance on foreign technology and supply chains. The global semiconductor supply chain is highly concentrated, with major manufacturing hubs located in geopolitically sensitive regions. By developing its semiconductor industry, India seeks to reduce its vulnerability to international tensions and supply chain disruptions.
Moreover, this initiative aligns with India's broader economic and strategic goals, such as the "Make in India" campaign, aimed at transforming India into a global manufacturing hub. It also reflects a strategic calculus to balance economic growth with national security concerns, ensuring a stable supply of critical components for key sectors like defense, telecommunications, and healthcare.
Conclusion
Realizing the vision of a self-reliant semiconductor industry requires navigating complex challenges, including aligning policy frameworks, ensuring sustained investment, and developing the necessary infrastructure and skilled workforce. It also requires careful management of international relations, as building a domestic semiconductor industry might affect trade dynamics and necessitate negotiations over technology transfers and intellectual property rights.
India's efforts to build a semiconductor industry are not merely economic; they are a strategic imperative to enhance technological independence and sectoral resilience. The initiative represents a long-term vision to position India as a significant player in the global semiconductor market, aligning with its broader economic and strategic objectives. The success of this initiative could redefine India's economic trajectory and enhance its standing in the global technological landscape, making it a pivotal moment in India's economic and technological history.
About the Author:
Abhisht is a Research Analyst at Insights International. His research interests include tech policy, media, and communications.
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