GAD

Global Affairs Desk

Sat Dec 21 2024

India-US Cooperation on Semiconductors

~ By Aarush Joshi on 4/12/2024

India-US Cooperation on Semiconductors

The last few years have seen a shortage of semiconductors, which matters greatly since the industries of the future will be reliant on chips. Semiconductors will be critical to the foundational technologies of artificial intelligence, 3D printing, the Internet of Things and advanced robotics. Any shortage in them will hurt not only the economic prospects of technology companies but also of countries that hope to deploy such technology.
For long, semiconductors have been critical to the functioning of various industries, ranging from aerospace to automobiles. An estimate put the number of industries impacted by the recent global shortage in semiconductors at 169. The shortage can be ascribed to various reasons, such as:

i) The COVID-19 pandemic led to most semiconductor foundries redirecting their supply to industries that saw an increase in demand for their products. Bringing back this supply to where it was at the start of the pandemic has been very challenging.

ii) A series of disasters ranging from fires to earthquakes and droughts affected 3 key supply chain hubs and further exacerbated the shortage.

iii) A fundamental factor stemming from Moore’s Law, according to which, the number of transistors in integrated circuits doubles roughly every two years, which is now seen as taking longer to play out and even as possibly having become obsolete.

iv) Export-control measures were initiated by the Trump administration in 2019 to prohibit the supply of certain semiconductor technologies to proscribed Chinese entities. These measures were tightened in 2020. However, even before the export-control measures took effect, Chinese entities stockpiled a massive number of semiconductor technologies and machinery, exacerbating the shortage. The US export control measures are likely to be the most enduring reason for semiconductor supply chains undergoing a significant restructuring in the coming years. The Biden administration is reportedly considering further measures to ensure that even mature and older semiconductor design technologies do not end up at China’s doorstep. Considering the severity of these measures, a gradual decoupling between China and the United States seems to be evident soon. However, while this technological decoupling seems to be happening, the fact that a cloud of uncertainty seems to be blurring the future cannot be discounted.

Following the COVID-19 pandemic, the automobile industry suffered the effects of a shortage in semiconductors. The concentrated nature of the semiconductor supply chain further exacerbated matters since there were no alternatives to the usual suppliers. There were several causes for the shortage.
First, the pandemic led to a disruption in global supply chains for almost all products and services. The semiconductor industry was no exception. Due to a huge dip in automobile sales, many automobile companies had to cancel orders to invoke provisions in their order contracts to halt the supply of semiconductors to other industries such as consumer electronics and cloud computing.

Second, a series of disasters restricted the supply of semiconductors. A massive earthquake in Japan in 2021 led to a substantial constriction on output. A major fire in Japan at one of the biggest factories of Renesas reduced the ability of the prominent chip supplier to fulfil orders to automakers worldwide.

Lastly, a drought in Taiwan prompted it to cut water supply to a major chip-making hub, Taichung, as it directed manufacturers to conserve water that is normally used for industrial purposes.

New estimates state that doubling the number of transistors in integrated circuits every two years or less would now cost eighteen times more in resources than it did in 1970. Manufacturing semiconductors has become a highly capital-intensive and complex process, and captivity is an issue since quick upgrades are becoming harder to produce. These range from the rising costs of chip design to finding talent in an industry that has a very high risk and a very high reward nature.

In April 2020, India had already unveiled measures aimed at “curbing opportunistic acquisitions of Indian companies” by entities belonging to a country it shares a long border with, linking its border dispute with the larger competition about semiconductors.
In June 2020, numerous Chinese apps were banned. In May 2021, India announced that it had cleared its mobile carriers to carry out 5G trials using equipment from companies such as Ericsson, Nokia and Samsung, with Huawei a notable omission. India explained that it had excluded the Chinese company because of its inability to comply with the security directive for the supply of network equipment.

For now, India seems keen to hedge its bets and adopt an approach that favours multiple partnerships. India’s External Affairs Minister said that the changing US-China dynamic will provide opportunities to be exploited in a manner that advances India’s national interests.
With these statements and the measures taken, it becomes more and more evident that India is open to aligning with the US-led bloc, which would be reflected in where it stands in the discussion on the semiconductor global supply chain.

Minister of Commerce and Industry Piyush Goyal, who reviewed the progress of the CEO Forum along with the US Secretary of Commerce Gina Raimondo encouraged industries to leverage platforms like the semiconductor supply chain given the growing convergence of perspectives and strategic interests of the two nations. Secretary Gina Raimondo joined Minister Piyush Goyal and announced a US-India Memorandum of Understanding (MoU) that will establish a Semiconductor Supply Chain and Innovation Partnership.

The MoU was announced at the relaunch of the US-India Commercial Dialogue and emphasised semiconductor supply chains. The Secretary met Prime Minister Narendra Modi, attended the US-India CEO Forum and held several important bilateral meetings with Indian officials.

India’s push for cooperation with the US on semi-conductors is also important in the context of Piyush Goyal’s calling for a resilient debt capital market as the catalyst for innovation, entrepreneurship and infrastructure development at a time when massive investments from both the government and the private sector are directed towards boosting infrastructural capabilities of the country. The stock market is also hitting the 4 trillion mark for the first time and India being amongst the top five global markets has huge opportunities.

Micron Technology, with support from the Indian National Semiconductor Mission, announced an investment of $800 million that together with additional financial support from the Indian authorities, will be used to set up a $2.75 billion semiconductor facility in India.
Micron Technology said that the semiconductor plant and assembly factory will be set up in Gujarat. Another semiconductor manufacturing equipment company is going to announce a training program for 60,000 engineers.

The officials also said that the United States will assist India in becoming a member of the Mineral Security Partnership which is led by the US-state department and strengthens the supply chains of critical minerals that are needed for strategic technological goals. On advanced telecommunications, the officials said that India and the US are working together on 5G and other technologies including open routing systems.

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