The 20th century was dominated by oil, but the 21st century is all about chips – semiconductors. These tiny devices are the backbone of modern life, found in our phones, cars, appliances, and even weapons. In 2021, India took a significant step to enter the semiconductor market, announcing a $10 billion incentive program to attract investors. However, the program had a drawback, with a strict 45-day application window. In response to limited success, the government is now reopening the program without the time constraint.
This move signals India’s eagerness to establish itself in the global chip supply chain, a complex industry divided into design, manufacturing, and assembly. This article explores India’s potential to dominate this lucrative market, its advantages, challenges, and possible strategies.
India’s Current Position in Semiconductor
As of now, India’s chip market is valued at approximately $27 billion. While ambitious goals were set in 2021, expecting a dozen chip factories by 2024, the reality has fallen short. Nevertheless, one significant development is the partnership between Taiwan’s Foxconn and Vedanta to establish a $19.5 billion plant in Gujarat, providing a promising start. The key lies in building on this foundation.
India possesses several advantages that can aid its journey into the semiconductor market. Firstly, it boasts an abundance of skilled and affordable labor, crucial for chip design and assembly. Secondly, the global push to diversify the chip-making market due to concerns over Taiwan’s dominance plays in India’s favor. The United States has already expressed support for India’s semiconductor industry, signing a memorandum of understanding that discusses supply chain partnerships.
Additionally, India’s local demand, driven by its status as the most populous economy globally, ensures a substantial market for domestically consumed chips and devices.
While India has advantages, it faces formidable challenges. The most significant obstacle is China, which dreams of global chip market domination. China currently outspends India in this sector, with its chip market valued at $192 billion, seven times the size of India’s. Furthermore, China is preparing a new package worth $143 billion, maintaining its financial superiority. Secondly, entering the semiconductor market can be likened to joining a cartel – it’s challenging to enter and even harder to exit.
If India aligns itself with the United States, it might find itself bound by various conditions related to labor standards, green targets, and anti-corruption measures, which could conflict with India’s preferred approach of setting its own standards.
Strategies and Considerations
For India’s chip project to thrive, strategic considerations are paramount. While manufacturing is tempting, it’s a tough sell due to the rapid pace of technological advancement. Taiwan and South Korea, leaders in chip manufacturing, closely guard cutting-edge technology. Hence, India must decide whether to invest in manufacturing or focus on chip design, which offers a more feasible approach to staying competitive.
Moreover, India must think about its role in the market. Reports suggest that the government is keen on manufacturing, but India needs to weigh the pros and cons carefully. Sitting on the sidelines is not an option, but matching China’s spending is an uphill battle. India must explore alternative strategies, such as creating chip alliances or leveraging its ties with the United States and Japan.
India’s foray into the global semiconductor market holds great potential and significant challenges. While India possesses skilled labor, political support, and local demand in its favor, China’s financial superiority and the complexities of the semiconductor industry pose hurdles. India’s success in this endeavor will depend on its ability to adapt, strategize, and find its niche in an ever-evolving market. The nation must carefully consider its role and choose between manufacturing and design while navigating the delicate balance between self-sufficiency and global partnerships. One thing is clear: the semiconductor market is too lucrative for India to ignore, and its journey to dominance is a story worth watching closely.