The significant new US-India technological cooperation that was established during Prime Minister Narendra Modi’s visit to Washington, DC, recognises technology as the next geopolitical frontier. The partnership’s commitment to diversifying the global semiconductor supply chain, which is at the heart of the conflict between the world’s top two economies, the US and China, is a crucial component.
Nearly every modern equipment, from a phone to sophisticated defensive systems, not to mention machines with advanced artificial intelligence, depends on semiconductors or chips. But just a small number of nations manufacture chips, one of the most cutting-edge technologies in existence, and some of those only focus on particular facets of it. Four of the top chip manufacturers in the world are Taiwanese, and the Covid-19 epidemic revealed the US’s reliance on Asian supply lines at a time when tensions in the Taiwan Strait and the trade and political conflict between Washington and Beijing were rising.
The South China Morning Post ran the headline “Chips are the new oil and Taiwan is the new Saudi Arabia” in October following a media report on an alleged White House contingency plan to destroy the largest chip manufacturing facility in the world in Taiwan in the event of a Chinese invasion.
Since 2020, the US has implemented a variety of measures intended to 1) prevent China from acquiring high tech dominance worldwide and 2) increase its own domestic chip manufacturing capability. The Chinese telecom company Huawei and a number of related entities were identified by the Trump Administration as threats to US national security, and their access to semiconductors made by US businesses was subsequently halted.
The Biden Administration kept Huawei’s limitations in place and added new ones, effectively denying the largest 5G phone manufacturer in the world and other Chinese firms access to semiconductors produced with American hardware and software.
Congress enacted the CHIPS and Science Act in August 2022, allocating $280 billion in additional financing for domestic semiconductor research and production in the US.
In the Quad, the leaders of Australia, Japan, India, and the US agreed to create “resilient, diverse, and secure supply chains of critical and emerging technologies” during two summits in 2021 and 2022. The US also worked towards semiconductor friendshipshoring.
President Biden and Prime Minister Modi also introduced the US-India Initiative on Critical and Emerging Technologies (iCET) at the Tokyo summit in 2022. National Security Advisor Ajit Doval and his American colleague Jake Sullivan met in Washington in January of this year to go through the general areas of collaboration under iCET.
The US and India agreed to increase bilateral cooperation on resilient supply chains, support the development of an ecosystem for semiconductor design, manufacturing, and fabrication in India, and promote the development of a skilled workforce for the industry at their meeting in January, which led to the initiatives outlined in the joint statement the two countries released during Modi’s visit.
In order to identify “near term opportunities and facilitate long-term strategic development of complementary semiconductor ecosystems,” a task force was established by the US Semiconductor Industry Association, the India Electronics Semiconductor Association, and the government’s Semiconductor Mission. In addition, the task group will identify potential and obstacles for India’s participation in the global semiconductor value chain.
All of this culminated in a memorandum of understanding (MoU) on semiconductor supply chain and innovation partnership during the Modi visit, which aims to advance business possibilities, research, talent, and skill development. Leading US semiconductor company Micron Technology revealed plans to invest up to $825 million to develop a plant in India. The Indian government would also contribute, bringing the total investment value to $2.75 billion. In the following five years, it is hoped that this would generate up to 5,000 additional direct work possibilities and 15,000 community job opportunities.
Lam Research has proposed using their Semiverse Solution virtual manufacturing platform to train 60,000 Indian engineers. Additionally, Applied Materials revealed plans to invest $400 million to build a collaborative engineering hub in India.
$10 billion has been set aside by India for the semiconductor sector. Although there is a lot of optimism, the mission has encountered many obstacles. A Foxconn-Vedanta joint venture, Singapore’s IGSS, and a joint venture between Next Orbit and chip consortium ISMC that was counting on Israel’s Tower Semiconductor as a tech partner all applied to set up fabrication plants with the first tranche of government support, but all three failed to get off the ground for different reasons.
The $19 billion Foxconn-Vedanta partnership was reportedly unable to reach an agreement with the European chip manufacturer STMicrolectronics, the $3 billion ISMC-Tower deal reportedly hit a snag with Intel’s intended acquisition of Tower, and the Singapore-based IGSS withdrew.
On June 1, the government reopened applications with revised requirements, and Foxconn and Vedanta have since reapplied. Applications will be allowed up until December 2024, but it’s unclear if the longer window won’t attract major businesses since applicants had hoped for a bigger government commitment.
Three things are necessary for chip manufacturing: uninterruptible power supply; an infinite supply of pure water; and the infrastructure for chip manufacturing, which consists of “fabs” or highly specialised fabrication plants. There is currently no location in India that can promise a constant supply of electricity or water. Another requirement for chip fabrication is a highly skilled workforce. Industry insiders frequently claim that producing chips is “not like assembling a phone.”
Despite the political intent, no major multinational chip producers have yet expressed interest in India due to the lack of a “chip ecosystem”. In addition to the prerequisites for chip production, a vast array of supporting businesses must emerge, including electronics producers who can develop a local chip market. To make it more appealing for TSMC, the largest chip manufacturer in the world, to establish a facility here, Taiwan has long pushed India for a free trade deal and a bilateral investment agreement, but Delhi has been reluctance.
