In the past few weeks, several delegations from Taiwan have visited India. Their conversations aimed at bolstering India-Taiwan ties have focused largely on semiconductors. There is good reason for this: The semiconductor universe has witnessed tectonic changes in the past few months. Deemed the “new oil,” semiconductors are at the center of the “chip war.”
The semiconductor industry embodies the spirit of globalization, with thousands of businesses dependent on chips, which are themselves dependent on global tech supply chains. Governments are increasingly coming to terms with the strategic implications of overreliance on imports and the absence of indigenous semiconductor manufacturing capabilities and capacities.
Recent moves by the US and China seem to indicate that global tech rivalries are set to sharpen.
While invented in the US, semiconductor technology spread to Asia over the past half-century. Today, the US is behind Japan, South Korea, Taiwan and China in chip manufacturing. In 2015, Beijing unveiled the “Made in China 2025” plan, conveying its ambitions to make China the dominant player in global high-tech manufacturing and exports, and reduce its dependence on foreign technology.
Beijing says that this is necessary to keep pace with the rapidly evolving global marketplace, but some see China’s state-led ambition as a security threat, while others deem it a strategic concern. This view has been heightened as Chinese hegemonic and coercive tactics come under the spotlight in regions such as the South China Sea, India’s eastern sector, and smaller nations participating in Belt and Road Initiative projects.
To rectify the widening gap, the administration of US President Joe Biden has allocated US$200 billion to semiconductor research and development, and US$52.7 billion to chip manufacturing, while cajoling US businesses to move contract manufacturing out of China. Washington has implemented export controls to prevent the sale of advanced chips and technology to China. The US is also pursuing the “Chip 4 alliance” initiative with three other major semiconductor manufacturers — Taiwan, South Korea and Japan — for policy coordination.
Taipei being the single-largest manufacturer of semiconductors (more than half of global production) is caught in a conundrum. Its biggest chip market is the same China that is threatening to forcibly annex it. Taiwan is therefore going along with US plans and diversifying away from China, while seeking secondary production elsewhere.
In this dynamic, India has emerged as a significant player. While host to most of the major chipmaking firms and home to about 20 percent of the world’s chip design engineers, it had no semiconductor manufacturing until recently (Tamil Nadu-based Polymatech is now making 400,000 chips daily).
With India’s semiconductor market forecast to triple in size by 2026, from less than US$20 billion in 2020 to about US$63 billion, an overreliance on imported chips has been deemed a vulnerability, especially in the aftermath of chip supply chain disruptions in the past few years.
India has vowed to create an indigenous semiconductor manufacturing ecosystem. Earmarking US$10 billion, New Delhi has promised financial support of up to 50 percent of a project’s cost, which could grow to as much as 70 percent through further benefits from state governments.
For India, this is a one-of-a-kind push that is already bearing results. Belgium-based Interuniversity Microelectronics Centre agreed to transfer cutting-edge technology (for chips using 28-nanometer technology or greater) to companies that set up a semiconductor plant in India. ISMC Analog, a consortium of Mumbai-based and Israel-based firms, has proposed manufacturing chips using 65-nanometer technology.
The proposals have attracted the attention of Indian companies such as HCLTech and Reliance Industries, which are reportedly seeking equity investments of more than US$500 million, as well as agreements for services in engineering, and research and design. Similarly, Tata Motors is partnering with Japan-based Renesas Electronics to design and develop semiconductors.
As India embarks on this journey, Taiwan would be a significant partner, technologically and strategically. A US$20 billion joint venture by Hon Hai Precision Industry and India’s Vedanta to build a semiconductor and display panel fab is already under way, and more partnerships are on the horizon.
Some experts say that recent US moves show that the world might be decoupling from China faster than expected as tech supply chains are rapidly reshaped. This has created fears that the world is entering a “Cold War 2.0.”
However, this is an opportunity for India. By focusing on indigenous semiconductor manufacturing capabilities, India has entered the chip war. Taiwan would be a significant partner, and Japan, South Korea and US firms would also seek to enter India. How Beijing responds is yet to be seen.
Namrata Hasija is a research fellow at the Centre for China Analysis and Strategy in New Delhi. Divyanshu Jindal is a research associate at the Centre for Air Power Studies in New Delhi.
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