Taiwan’s Foxconn on July 10 withdrew from almost a 20-billion-dollar deal to build a chip-making plant with the Indian conglomerate Vedanta. In less than a year, the partnership between the countries came to an abrupt halt, giving a huge setback to India’s semiconductor manufacturing ambitions.
Although Foxconn has given no reason for its withdrawal, it is understood that the huge debt burden over Vedanta and its lack of technology partners might have played a key role in its decision. It is not only the Vedanta-Foxconn proposal that has failed, but other proposals like the Abu Dhabi-based Next Orbit and Israel’s Tower semiconductor’s initiative for India’s $10 billion chip incentive scheme too remains uncertain.
Semiconductors are substances that have conductivity between conductors and insulators. They are the basic building blocks of almost all modern electronics and information and communication technology products. At the core of the entire digital universe lies the millions of 1s and 0s driving the next phase of global digital transformation under Industry 4.0.
Its significance lies in the fact that, today, the fate of nation-states has turned on their ability to harness computing power. The US military supremacy is largely derived from its excellence in the design, manufacturing, and usage of chips in military equipment.
Even Asia’s tremendous rise over the last century has been built on a foundation of silicon as its growing economies are enormously participating in the fabrication of chips and assembling of electronic devices such as computers and smartphones. This Asian industrial complex majorly dominates in the region of East Asia, primarily China, Taiwan, Singapore, Malaysia, and Korea.
India, despite being a semiconductor design powerhouse globally, imports almost $21 billion of semiconductors. As early as the 1980s, the Indian Government had attempted to follow China, Taiwan, Malaysia, Korea, and Singapore and attempted to localize semiconductor manufacturing in India itself.
As the pace of technology quickened, microprocessors were identified as the potential foundation for a new revolution. Thus, in 1984, the foundation of Semiconductor Complex Limited was laid down, whose goal was to design and manufacture cutting-edge chips, thereby laying the foundation for the native Indian electronic industry.
However, the 1989 fire disaster devastated the then Indian dream of becoming the semiconductor manufacturing hub. It was only in 1997 that the plant was revived but by that time, India was left far behind in this tech race. Today, despite having significant government support and an enormous pool of human capital, the country still lags in technology concerning fabrication. Most of these designs are then sent to Japan, Taiwan, Korea, and America for manufacturing.
The Rise of China
Even other Asian powers such as China are struggling to survive in this technological race. China is hugely dependent on foreign products, almost all of which are produced by firms based in the United States or its allies. The Chinese tech giants depend on data centres dependent largely on US-based chips like Intel and Nvidia. Thus, China’s most important technology rests on a fragile foundation of imported silicon. This sense of insecurity is driving Xi’s policies, which further is shaping the geopolitics of the region.
In this regard, since the 2000s, China has spent more money importing semiconductors than oil. Apart from government investment, even private banks are being pressed to lend. Secondly, they are trying to reverse the brain drain by inviting scientists and engineers from Silicon Valley and students who had been trained at US universities.
Thirdly and most importantly, partnership of the Chinese with foreign firms is founded on the principle of technology transfer as they know technology forms the basis of cyber security without which there exists no national security. This realism coupled with pragmatism has finally led to the Chinese semiconductor industry registering a compound annual growth rate of 30.6 per cent and thereby capturing 9 per cent of the global market.
The Great Tech-War
This aggressive rise of the revisionist China has threatened the hegemony of the United States. Today, evidently there is a seismic shift that threatens the semiconductor supply chain is the clash of Great Powers - The USA and China. Both the USA and China are fixated on controlling the future of computing.
China sees Taiwan as a “renegade province” and is determined to bring this breakaway state under its control. This act of China ultimately increases the security dilemma of the United States as it is apprehensive of China attacking Taiwan which would result in the cut-off of the supply of bulk of semiconductors from Taiwan (which produces 60% of semiconductors globally).
In this regard, the USA has passed the landmark CHIPS and Science Act that provides roughly $280 billion to boost domestic research and manufacturing. Further, the United States and its allies Japan and the Netherlands have tightened shipments of their most high-tech machinery to China.
In response, China has restricted the exports of two niche metals- germanium (60 per cent of the world’s production by China) and gallium (60 per cent of the world’s production by China) that are key to manufacturing semiconductors and solar panels, thereby heating up the tech-war. This Chinese move may dent the US semiconductor industry, as 53 per cent of US gallium imports come from China. Thus, the present scenario is a reflection of the “de-risking” and “de-coupling” of the two great global powers.
The India Way
The ongoing weaponization of the critical supply chain of semiconductors has necessitated countries like Taiwan to diversify their centre of manufacturing to other countries in South Asia and Australasia. India needs to grab this opportunity using its status as a reliable foreign partner whose alliance is not from a position of authority (unlike China’s tactics) but with the purpose of cooperation and mutual benefit.
As the next generation of warfare increasingly relies on artificial intelligence, the need is to focus on the mass manufacturing of cutting-edge chips. The government has thus taken steps under “Make in India” to transform India into a global hub for Electronic System Design and Manufacturing.
The India Semiconductor Mission and the Production Linked incentive scheme further aims to boost the domestic manufacturing of semiconductor.
The Economic Survey 2022-23 rightly suggests increased focus areas such as enforcement of contracts, the procedure to start a business, land acquisition, ease of foreign investment, and resolution of business needs to be carefully looked upon and the required reforms need to be undertaken to further enhance the ease of doing business and attract foreign ventures.
Thus, the vision of Aatmanirbhar Bharat will be only accomplished when India will attain self-sufficiency in critical technologies and will de-risk itself to reduce the vulnerability of global supply chains.
(The views expressed are personal)
