Context

• The new US-India technology partnership forged during recent visit of Indian PM to Washington DC identifies technology as the new geopolitical frontier.
• A key element of the partnership is the resolve to diversify the global semiconductor supply chain, which is at the centre of the rivalry between the world’s two biggest economic powers, the US and China.

Semiconductor and its Importance

• Semiconductor: It is usually comprised of silicon, which conducts electricity more than an insulator, such as glass, but less than a pure conductor, such as copper or aluminium. 
• Importance
  • Also known as semis/chips, semiconductors can be found in thousands of products such as computers, smartphones, appliances, gaming hardware, and medical equipment.
  • They are essential to almost every modern device, from a phone to advanced defence systems, and advanced artificial intelligence-powered machines.
  • But only a few countries are in the business of making chips, among the world’s most advanced technologies, and some specialise only in some aspects of it. 
  • 20^th century was dominated by oil. In the 21^st century Chips are the new oil.

US-China War on Semiconductors

• Since 2020, the US has taken several steps aimed at
  • Denying semiconductor technology to China to prevent it from gaining high tech dominance over the world.
  • Pumping up its own domestic capacity for making chips.
• For example, the Trump Administration listed the Chinese telecom giant Huawei and several ancillaries as a threat to US national security, and the Biden Administration retained restrictions on Huawei.
• In 2020, China was the biggest market for semiconductor machines. Beijing’s “Made in China 2025” plan, launched in 2019 had prioritised achieving self-sufficiency in semiconductors.
• But the export controls set in motion by the US and more are in the pipeline have made China’s mission look difficult.
• In a retaliatory move, China has banned the US chipmaker company Micron from vital infrastructure projects.
• In 2022, the US Congress passed the CHIPS and Science Act, providing $280 billion in new funding for domestic research and manufacturing of semiconductors in the US.

Current State of Chip Wars

• Japan has also announced restrictions on semiconductor exports to China. The Japanese restrictions will take effect from July. China has warned of “consequences”.
• As US works with key partners to restrict Chinese access to chip tech, China’s chip imports from Japan, South Korea and Taiwan, part of the US-led “Chip 4 Alliance”, fell by 20 per cent in the first five months of 2023.
• US is also lobbying the Netherlands to take similar steps; the Dutch company ASML is the only maker in the world of deep ultraviolet lithography machines that are required to make certain kinds of chips.

Opportunities for India from the Ongoing Chip War

• India is pushing itself as an alternative to China. India is aspiring for turning the ongoing war into its advantage.
• India does not have native semiconductors firm but it is trying to attract foreign chipmakers companies by providing them incentives and various other benefits.
• To realise this plan the government has announced a 10 billion dollars incentive plan which aims to boost manufacturing of semiconductors in India.
• This is India’s chance to be a global player in the semiconductor sector, but success is not guaranteed.
• India’s government must provide its homegrown industry with the needed help, both financially and material-wise, and strike the right balance between accepting U.S. partnership while not letting Washington dictate terms.

US-India Cooperation in Semiconductor Field Amidst Global Chip War

• Quad: The leaders of Australia, Japan, India, and the US committed themselves to building resilient, diverse and secure supply chains of critical and emerging technologies including Semiconductors.
• India-US iCET (Initiative on Critical and Emerging Technology)
  • It was launched by the US President and Indian Prime Minister on the sidelines of the Quad summit on May 2022.
  • The primary goal is to elevate and expand Indo-U.S. strategic technology partnership and defence industrial cooperation between the governments, businesses, and academic institutions of the two countries. 
  • Resilient Semiconductor Supply Chains is one of the identified six focus areas of co-development and co-production under iCET.
• Joint Task Force
  • A task force set up jointly by the US Semiconductor Industry Association and India Electronics Semiconductor Association together with the government’s Semiconductor Mission.
  • It will make a “readiness assessment” to identify “near term opportunities and facilitate long-term strategic development of complementary semiconductor ecosystems”.
  • The task force would also flag opportunities and challenges for India’s role in the global semiconductor value chain.
• MoU on Semiconductor Supply Chain and Innovation Partnership: During the PM’s US state visit, an MoU was signed on Semiconductor Supply Chain and Innovation Partnership to promote commercial opportunities, research, talent, and skill development. 
• Announcement by US Companies for India’s Semiconductor Field
  • Micron Technology, a leading US semiconductor firm, announced a proposed investment of up to $825 million to build a facility in India, with the Indian government pitching in to take the combined investment value to $2.75 billion.
  • This will create up to 5,000 new direct and 15,000 indirect job opportunities in the next five years.
  • Lam Research announced a proposal to train 60,000 Indian engineers through its Semiverse Solution virtual fabrication platform.
  • Applied Materials announced a proposed investment of $400 million to establish a collaborative engineering centre in India.

India’s Chip Challenges

• Similar attempts failed earlier: Three companies that applied to set up fabrication plants (Foxconn-Vedanta joint venture, Singapore’s IGSS, etc) failed to get off the ground for separate reasons.
• Expensive Fab Setup: A semiconductor fabrication facility (or fab) can cost multiples of a billion dollars to set up even on a relatively small scale and lagging by a generation or two behind the latest in technology.
• Resource Inefficient Sector
  • Chip fabs are also very thirsty units requiring millions of litres of clean water, an extremely stable power supply, a lot of land and a highly skilled workforce.
  • At the moment, there is no place in India that can guarantee 24×7 power or water supply.
• Lack of Highly Skilled Workforce: Chip manufacturing also requires a highly skilled workforce. Industry experts have repeatedly said that chip making is “not like assembling a phone”.
• Absence of “Chip Ecosystem”
  • The absence of a “chip ecosystem” is why, despite the political will, no big international chip makers have yet shown interest in India.
  • Taiwan has long been pushing India for a free trade agreement and a bilateral investment agreement to make it more attractive for TSMC, the world’s biggest chip maker, to set up base here, but Delhi has been reluctant.
• Lack of Fabrication Capacities: India has a decent chip design talent but it never built-up chip fab capacity. India’s only government-owned semiconductor fabrication unit is in Mohali, Punjab.

Conclusion

• India is at least two decades behind the chip curve. It could take the country 10-20 years to establish itself as a serious player in the semiconductor industry.
• But for now, India has positioned itself in the global chip war, with a technology partnership that promises to take bilateral ties with the US to the next level.