If the country’s chipmaking gamble pays off, it could be good news for the west
Do you remember the semiconductor shortage of 2021? When automakers were forced to stall their vehicle production, and electronics manufacturers had to delay product launches?
Well, if India makes good on its ambitions to become a superpower for microchip design and development, it will ensure that in the future we’re more resilient.
That’s the opinion of Sarah E. Kreps, the John L. Wetherill Professor of Government and director of the Tech Policy Institute at Cornell University. “Now is the perfect opportunity for India to take advantage of something that it has long had, but been unable to capitalize on,” she says of India’s English-speaking engineering talent. “Before now, other semiconductor hubs in Asia have been able to meet the demand.”
Microchips—often known as semiconductors—are the brains behind electronic devices, from laptops and refrigerators to mobile phones and, yes, cars. The industry, which is worth more than USD580 billion (EUR466 billion), has been dominated by China, South Korea, and Taiwan, who manufacture microchips in specialized “foundries” on behalf of companies all over the world. But over-reliance on imports from a handful of chip-makers leaves global supply in a precarious position.
This is especially true in times of geopolitical uncertainty, like now. In response, countries have been making moves to boost their domestic chip-making industry. In August, President Biden’s administration signed the CHIPS and Science Act, representing an injection of USD52.7 billion into the sector. But domestic manufacturing is expensive. By one estimate, making chips in the US would cost 55 percent more.
This has created a demand for an alternative hub for affordable and dependable semiconductor production, and India is emerging as a front-runner. It has a large geographic size and it has historically taken a non-aligned political position. “It’s close enough to Asia without being vulnerable to the same perceived security risks that the East Asian chip powerhouses face,” says Kreps.
The country also boasts a rich technology sector, which will grow 8.4 percent to USD245 billion this fiscal year, according to a NASSCOM report This transformation dates back to the 1990s, when India emerged as a global IT outsourcing powerhouse thanks to its low-cost labor and a shared language in English, but the country has since cultivated an ecosystem of startups and home-grown tech unicorns. “Where you want resilience in your supply chain, a politically and economically friendly climate, a low cost of labor—India is extremely well positioned for that,” Kreps continues.
Spotting the opportunity presented by this geopolitical moment, India has been making moves to bring the manufacturing of chips to the country. In December 2021, officials approved a USD10 billion incentive plan to lure domestic and international foreign semiconductor manufacturers, under which the government will return 50 percent of the upfront capital back as a rebate. On January 31, US President Joe Biden and Indian Prime Minister Narendra Modi unveiled the United States-India initiative on Critical and Emerging Technologies aiming to catalyze existing efforts at technology cooperation.
These moves seem to be having the desired effect. India has since won ten of billions of dollars of investment commitments from major chip consortia and manufacturers.
Still, the challenges that lie ahead shouldn’t be ignored. Conjuring a thoroughgoing, competitive chip-making industry will be no mean feat. For one, India does suffer from poor infrastructure, which could pose a barrier specifically when it comes to manufacturing processes. This requires uninterrupted electricity and massive quantities of ultra-pure water, and given the country’s acute power crisis and droughts, managing these huge plants might be a problem.
According to Kreps, though, these impediments aren’t insurmountable. Before they became semiconductor manufacturing hubs, Taiwan and South Korea were in a not dissimilar position to where India is today. “Per capita income was USD100, many people had to forage for food, and living conditions were spartan,” Kreps says. But their economies transformed and India can do the same. “We think about South Korea and Taiwan as having the pristine conditions necessary for finessing the semiconductor chip business, but they were not always how we see them now,” she says. “And just as they’ve changed over the last decades, so too could India.”