Chip Tactics: On India’s Bid To Attract Major Global Chip Manufacturers

Relevance: GS3- Science and Technology- developments and their applications and effects in everyday life, Awareness in the fields of IT and Computers GS2 - Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

(Source: The Hindu, 08/01/2023)

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Why in the news?

• Recently, Prime Minister Narendra Modi stated at the Semicon India Summit that the Indian Government had implemented proactive measures to address areas of concern in the Indian Semiconductor industry.
• Countries are attempting to de-risk from Chinese dominance in the semiconductor manufacturing supply chain through friend-shoring arrangements.

What is Friendshoring?

• It is a strategy in which countries source raw materials, components, and manufactured goods from similar-minded countries while reducing the dependence on countries that are considered a "threat" to the stability of the supply chains.
  • It is also called "allyshoring".
  • Friendshoring aims to insulate supply chains from nations that could disrupt and impact the country.

• Implications:
  • It is a part of the deglobalization process and reverses the gains from globalization.
  • It is a form of protectionism that could disrupt the global supply chain which has already been disrupted by the pandemic.
  • It could lead to a sense of alienation among companies that have to rely on non-friendly countries for components and raw materials.
  • This will make global cooperation for the common good more difficult.
  • Malicious actors could use their market positions to gain geopolitical leverage or disrupt trade.
• Examples:
  • The U.S.A. has announced $52 billion in financing support for semiconductor manufacturers in 2021 attracting $200 billion in commitments.
  • Intel has committed $80 billion of investment in the European Union.

Projects in India

• For new manufacturing projects, the Union government has lowered the corporate tax and introduced other incentives.
  • 50% financial assistance will be provided to set up new production facilities under the Semiconductor programme.
• Micron Technologies, a U.S. firm, has committed to establishing a $2.75 billion assembly, testing, marking, and packaging facility in Gujarat.
  • While Micron will provide $825 million, the remaining finance will come from the government.
• Vedanta and Foxconn, a Taiwan-based company, had proposed to set up a $19.75 billion joint semiconductor venture in Gujarat to manufacture 28-nanometer semiconductors.
  • However, Foxconn withdrew from the project in July 2023 citing financial constraints, regulatory challenges, lack of progress, and creative differences.

What are the initiatives for the semiconductor industry?

What are the challenges faced by the sector?

Way Forward

• Handholding: Hand Holding and governmental assistance to projects like Micron throughout the establishment process is necessary.
  • This will encourage other firms to invest in India.
• Regulatory environment: Investors prefer a stable operational environment where policy-making is predictable and without any knee-jerk reactions such as export curbs.
• Tariffs: India’s bilateral and multilateral agreements related to tariffs on components must be at par with global standards.
  • This would also indicate how good India’s trade relations with the rest of the world are, which could affect the availability of materials and components for the industries.

Conclusion

• The Indian semiconductor market is expected to be worth around $55 Billion by 2026 by growing at a CAGR of 20% between 2022 and 2026.
• This will coincide with the global growth in demand for semiconductors as a result of technological advancements.
• Therefore, the establishment of a strong manufacturing and design industry for semiconductors could allow India to emerge as a producer that can meet its domestic aspirations and global requirements.

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FAQs

Question: What are supply chains?

Question: What are tariffs?

MCQs

Question: Consider the following statements about the SPECS scheme:

1. It provides financial incentives of 50% of capital expenditure.
2. It has been implemented by the Ministry of Electronics and Information Technology.

Which of the above statements are correct?

1. 1 only
2. 2 only
3. 1 and 2
4. None

Answer: (b) See the Explanation