Opinion
India's microchip leap: The tough part lies ahead
Summary
- A semiconductor ecosystem is coming up that will span the entire value chain and invest India with strategic autonomy, but our technology ambitions are likely to prove more exacting.
India’s over-arching ambition to play in the big league has found partial expression with the government’s approval of three semiconductor foundries to be set up by the private sector. This will not only pitchfork the Indian economy’s global rankings, but also help the country acquire strategic autonomy in a key global technology supply chain. The three investment proposals—all in partnership with foreign companies—come on top of US-based Micron’s project that broke ground in 2023; the four units will hopefully help establish a robust semiconductor ecosystem in India, with the combined investment of over ₹1.5 trillion providing the building blocks for the critical semiconductor value chain of design, fabrication, assembly, testing, marking and packaging. Key among these proposals is the partnership between Tata Electronics and Taiwan’s Powerchip Semiconductor Manufacturing Corporation for a ₹91,000-crore fabrication plant with a capacity of 50,000 wafer starts per month. This chip capacity will grant traction at last to India’s long-standing quest for self-sufficiency in semiconductors, or near freedom from reliance on overseas suppliers. Just as the US, China and other countries are betting, local microchip-making can support and fuel our advancement as a technology superpower.
It might, however, be advisable to temper the celebrations. It is not that the proposed investments are insignificant, given the post-pandemic breakdown in critical tech supply chains which threatened the survival of varied factories and utility platforms. Yet, the four plants should not be viewed as the answer to all of India’s chip requirements. They are likely to meet only the lower end of our chip demand and the wait for high-end chips is likely to get a little longer: the new investments will manage to make chips of only 28 nanometres (nm), while sophisticated plants globally have moved on to 3nm. Also, it may be wrong to view these chip projects as likely catalysts for ending the private sector’s prolonged investment drought, or as a solution for the endemic unemployment crisis we face. According to a press release from the Press Information Bureau, the three units approved on 29 February will generate only 20,000 direct and 60,000 indirect jobs. This raises a related worry: Are there enough trained workers for such a specialized operation? Have uninterrupted power and clean water supply been assured? In addition, legitimate questions of political economy can be raised on the huge capital subsidy available for this sector.
Yet, both the idiosyncrasies of India’s political economy and shifting geopolitical configurations present another set of challenges to our semiconductor aspirations. An immediate concern arises from the US’s tightening of export controls for semiconductors and high-powered chips for artificial intelligence, ostensibly to thwart China’s access; other nations have emulated the US. Even though India has signed tech cooperation agreements with the US, in addition to other plurilateral tech treaties, the recent World Trade Organization conference has again shown the intransigence of rich nations. India’s reliance on high-tech imports from advanced nations, including for security purposes, leaves the nation vulnerable to all sorts of pressure. Domestic political flux could pose another obstacle, especially since our new chip-making investments are concentrated in Gujarat, a state with no known technological base in either hardware or software. This presents a business risk.
