Why is India joining the global chip manufacturing competition in a high-profile manner?

It is not easy for the semiconductor industry to build a sustainable industrial ecosystem.

On September 13, Indian mining giant Vedanta, Taiwan's foundry giant Foxconn and the Gujarat government of India signed a memorandum of understanding to set up semiconductor and display manufacturing plants in Ahmedabad, the largest city in Gujarat.

According to the agreement, Vadanta and Foxconn hold 60% and 40% of the joint venture respectively, and the Gujarat government provides support in taxation, water, electricity, infrastructure, etc. The project is expected to invest 1.54 trillion rupees (about 20 billion US dollars) and create more than 100,000 jobs.

Indian Prime Minister Narendra Modi has high hopes for this project, saying that "this memorandum of understanding is an important step in accelerating India's ambition to manufacture semiconductors... and will have a significant impact on promoting the economy and employment." It is reported that this is the largest corporate investment since India's independence, and it also marks India's accelerated entry into the global semiconductor chip manufacturing competition.

The role of policy attraction

The Modi government has provided strong policy support to the semiconductor industry.

On December 15, 2021, the Indian government launched a high-profile "Plan to Develop a Semiconductor and Display Manufacturing Ecosystem in India", which includes several sub-plans such as semiconductor production, display production, and semiconductor design. It is expected to invest more than 760 billion rupees (about US$10 billion) in six years to build a sustainable semiconductor and display manufacturing ecosystem in India.

According to the Indian government, if the large-scale electronic manufacturing production-related stimulus plan, the production-related stimulus plan for promoting electronic components and semiconductor manufacturing, and the improved electronic manufacturing cluster (EMC 2.0) industry support plan are taken into account, the Indian government's support for semiconductors is expected to exceed US$30 billion.

On December 29, 2021, the Indian government announced the establishment of the "India Semiconductor Mission" to coordinate the policy formulation and implementation of the semiconductor industry at the national level. At the first "India Semiconductor Conference" held in 2022, Prime Minister Modi expressed his ambition to become a global semiconductor center in the next few years.

The Modi government’s threefold objectives

The Modi government's development of semiconductors can achieve multiple goals.

First, cultivate new economic growth centers to adapt to economic transformation and development. In 2012, the Indian government adopted the "Reformed Special Incentive Package" to focus on the electronics industry, including semiconductors, but it was difficult to make significant progress, and India's semiconductors still rely mainly on imports. In 2019, the Indian government issued the "National Plan for the Electronic Industry", further clarifying the need to build an ecosystem in the semiconductor and display fields, accelerate the promotion of "Make in India" and "Digital India", and enhance the positive role of the semiconductor industry in promoting the development of automobiles, mobile phones, computers, artificial intelligence and other fields.

Second, it is in line with the domestic industrial development plan and improves India's position in the global industrial chain. The Indian government has proposed to integrate "Assemble in India" with "Make in India" to increase India's share of the global export market to 3.5% in 2025 and 6% in 2030. Since 2020, India has successively introduced 14 production-linked stimulus plans to improve its production capacity in related fields (such as medicine, white goods, electronic products, etc.), while promoting "Self-Reliant India" and improving its position in the global industrial chain.

Specifically in the semiconductor field, India has previously focused on the research and development and design of the semiconductor industry, but has had little involvement in the semiconductor manufacturing industry. This time, it also hopes to increase investment in the manufacturing field to build a more complete industrial ecosystem.

The third is to take advantage of the US's "technological decoupling" from China and participate in the so-called "resilient supply chain." In India's view, the US's suppression of China provides it with an opportunity to replace China and become a "trustworthy supply chain partner."

It is difficult to make breakthroughs in core technologies

It is undeniable that India has some advantages in developing the semiconductor field, including the aforementioned geopolitical environment and domestic policy support. India's talent pool in the field of semiconductor design is also a major advantage. Data shows that India's semiconductor design engineers account for about 20% of the world's total, and almost all of the world's top 25 semiconductor design companies have R&D centers in India.

However, the semiconductor industry is a high-tech industry after all, and it has high requirements for capital, technology, infrastructure, etc. It is not easy to build a sustainable industrial ecosystem. In addition, Vadanta and Foxconn are not leading companies in the semiconductor industry, and Foxconn is mainly a contract manufacturer.

In addition, after the joint venture between Vadanta and Foxconn decided to settle in Gujarat, the next step was to face specific issues such as choosing a site that could not be too far from transportation lines and establishing a stable power and water supply system. India's historical performance on related issues is not optimistic.

In general, India already has a certain foundation in semiconductor design, and is focusing on developing semiconductor manufacturing, but it is difficult to make breakthroughs in semiconductor core technology. Even if India makes breakthroughs in semiconductor manufacturing, it can only be a "semiconductor power" at best, but it is difficult to become a "semiconductor powerhouse."

Author: Lou Chunhao (Executive Director and Researcher of the Institute of South Asian Studies, China Institutes of Contemporary International Relations)