Covid-19 taught a big lesson to many developed economies, including India, that they must reduce their overdependence on China and Taiwan for the supply of critical high-tech components like semiconductor chips that are crucial for manufacturing various advanced technology products. Due to the shortage of chips, the Indian auto industry was among the worst affected during 2021-22. The production of laptops, smart TVs and other electronic products were also badly affected. Due to the breakdown of the supply chain, the country’s economy and common people were impacted by this shortage, and this drew the attention of strategic planners.
The changed geopolitical environment has further added to the concerns of industrialised countries as it is feared that China may use these as weapons of economic coercion during undeclared war. It is also feared that in case China invades and takes control of Taiwan, the latter’s chip supplies would come to a standstill, and if the Western world militarily reacts to the Chinese invasion, functioning of factories producing sensitive chips may come to a halt or China may not permit the exports of semiconductor supplies to rival countries, or can sell them at exorbitant price.
All this is bound to have an impact on all production activities of advanced high-tech equipment like mobile phones, household gadgets, auto parts, defence and space applications etc. Semiconductor industry will be a key driver of a country’s economic strength, national security, global competitiveness, and technology leadership.
Hence, there is a scramble to set up semiconductor chips production facilities in advanced economies and the issue of its probable shortage due to geopolitical reasons, was one of the agenda items discussed and found mention in the final G-7 leaders’ statement after the Hiroshima summit. The statement talked about economic coercion (read by China), indirectly referring to semiconductors as sensitive technologies. It said: “We underline the importance of cooperating both within the G7 as well as with all our partners to enhance global economic resilience, including by supporting a more significant role for low and middle-income countries in supply chains… We will address non-market policies and practices designed to reinforce dependencies, and will counter economic coercion. We will continue to ensure that the clearly defined, narrow set of sensitive technologies that are crucial for national security or could threaten international peace and security are appropriately controlled, without unduly impacting broader trade in technology.”
India Needs An Appropriate Ecosystem To Become Semiconductor Hub
At present, China controls over 5 percent of the world’s semiconductor market, whereas Taiwan supplies over 65 percent of all and about 90 percent of advanced chips are made by Taiwanese companies. In 2020, India spent $15bn on electronics imports, with 37% coming from China. In India, semiconductors are 100 percent dependent on imports.
Breakdown in this single source of chips supplies will create a worldwide industrial crisis. To tackle this possible scenario, the four-nation Quad, comprising India, Australia, Japan and the USA has already taken a significant initiative by forming a semiconductor supply chain initiative, which aims to map and identify vulnerabilities and bolster supply-chain security for semiconductors and their vital components. This aims to secure critical technologies essential for digital economies globally. Chips are proving to be an essential cog in the wheels of modern economy, without which advanced industries would be grounded. This has created awareness among Indian planners also to secure a home grown supply. This is why Prime Minister Narendra Modi, during the Quad Washington summit, had a very significant meeting with leaders of the semiconductors industry. PM Modi exhorted them to set up chip fabrication foundries in India. Some of the leading chips companies have responded positively as India has emerged as a huge market for semiconductors. Since electronics permeates all sectors of economy, the industry has cross-cutting economic and strategic importance. The world electronics market is presently valued at $2 trillion and is expected to grow significantly in the coming years given the increasing penetration of emerging technologies like artificial intelligence, 5G, robotics, smart mobility, smart manufacturing, communication etc. Semiconductors are building blocks of electronics devices, which are used to power a vast array of electronic equipment and devices ranging from smartphones, cloud servers to new age cars, industrial automation and critical infrastructure.
The Government of India is also seriously working on creating an appropriate ecosystem to make India a semiconductor hub in the next decade. Towards this aim, a semiconductor mission was set up last year, which is a specialised and independent business division within the Digital India Corporation that aims to build a vibrant semiconductor and display ecosystem to enable India’s evolution as an international hub for electronics manufacturing. Under this mission, a scheme has been devised to set up semiconductor fabs units with substantial financial grants to attract Indian and multinational companies.
Semiconductors have assumed the same significance in the world’s economy as petroleum products, considered the lifeline. The global economy will continue to be more and more critically dependent on the regular, uninterrupted supply of semiconductor chips.
Countries lacking the capability to manufacture these fabs domestically will have to be at the mercy of the suppliers of these ultra high-tech components. Since India receives most of its chip supplies from China and Taiwan, and considering the current state of tense Sino-Indian bilateral relations, India could be subjected to sanctions in terms of the supply of semiconductors. It is therefore highly desirable that India speeds up its semiconductor fabs plans for urgent execution. The current geopolitical alignments are favourable to India, and they must be taken advantage of. Some of the giant Taiwanese fab companies are exploring the possibility of setting up a manufacturing base in India. The joint venture Vedant- Foxconn semiconductor project to be executed in Gujarat is reported to be at an advanced stage of appraisal, which is expected to cost Rs 1.54 lakh crore. Telecommunication Minister Ashwini Vaishnaw has expressed confidence and hope that India will emerge as a major hub in semiconductor manufacturing over the next decade, for which the government has to ensure a robust ecosystem is in place.
The author is a senior journalist and strategic affairs analyst.