Can the Semiconductor Industry become India's silicon shield too?

By: Anshul Vipat

While the benefits that are to occur both economically and geopolitically via the indigenisation of the semiconductor industry are huge, India needs to ensure that the need for the right infrastructure is met to maximise the said benefits

If India hopes to achieve the target to be a $5 trillion economy, the aim should be to become a manufacturing giant in products where India holds the comparative advantage. One such industry which is hoped by most to reach the trillion-dollar mark by 2030 is the semiconductor industry. The following chart shows how the semiconductor market size has been growing since 2015.

(Source: Statista)

What can be observed here is the meteoric rise of the industry and the very clear intuition that this growth will only increase with time as we progress towards a more technology driven world from the most basic necessities like mobile phones and automobiles to even the most complex ones involving defence and intelligence. Additionally, the global shortage of chips due to the pandemic and the increased demand proves for this to be a lucrative opportunity.  Hence, the meagre possibility of becoming the next semiconductor hub for India is a golden opportunity that needs to be capitalised upon to the best of our capabilities. It is pertinent to note here that the benefit in this regard is not alone in the economic terms. Considering the power-hungry world, we are progressing towards, the likely frequent disruption of supply chains for such basic products can not only topple a country’s economic functioning but also the dependency on another country for the same can compromise our sovereignty.

At the moment, one country that has been dominating the semiconductor industry worldwide is Taiwan. Taiwan Semiconductor Manufacturing Company Ltd (TSMC) dominates the production of the chips that are key to most devices and the defence equipment that are made today and will be manufactured in the future as well. The semiconductor industry is one of the main reasons for Taiwan being an attraction for both China and the US and is known as Taiwan’s “Silicon Shield”. The following chart shows Taiwan’s global dominance in the industry.

(Source: SHIPHUB)

If China were to attack Taiwan, it would severely impair US’ defence variables and China most likely will cut off the global supply of these products to countries which don’t align with its geopolitical objectives. Further, China presents with great demand for semiconductors and losing Taiwan to the US would practically crush the Chinese industry. Keeping all this in mind, the need to become Aatmanirbhar in such strategically important goods is even more urgent.

Now, India has been recognised as the potential “next Taiwan”. The first such state in the country with a semiconductor policy is Karnataka. ISMC, a joint venture between Abu Dhabi’s Next Orbit Ventures and Israel’s Tower Semiconductor is set to invest $3 billion in the state to set up India’s first chip making plant. Further, Vedanta is also most likely to finalise its investment of $20 billion to set up semiconductor plants in India along with its technical partner, Taiwan’s Foxconn. There is bound to be a further push from the international community because of sentiments against China post the pandemic and the dire need to not limit a country’s supply of strategic goods in just one country.

Among other benefits that the semiconductor industry will bring to India, the heavy employment generation is a major one as this has always been a key area of concern for the country’s development. However, the jobs that will be created by this industry will be highly technical and hence there is a need to provide the necessary skills to the youth of India to derive benefits that are to occur as a result of the promising demographic dividend. Another prerequisite to the flourishing of the semiconductor industry which needs to be addressed properly by the Indian government is that the semiconductor industry depends heavily on water. Intensives promised under the India Semiconductor mission pertaining to high quality water and power will decide the long-term possibility of India becoming a chip maker.

Hence, while the benefits that are to occur both economically and geopolitically via the indigenisation of the semiconductor industry are huge, India needs to ensure that the need for the right infrastructure is met to maximise the said benefits.