in the movie interstellarIn Christopher Nolan’s film, there is a scene in which the main character, Joseph Cooper, played by Matthew McConaughey, chases a solar-powered Indian drone. This movie, released in 2014, had scenes that made us think of a futuristic world. This scene is relevant to modern India and its manufacturing ambitions.
Fast forward to 2024, 10 years after the film’s release, and India’s Adani Group is supplying drones to Israel. Although not powered by solar cells, India’s drone manufacturing and supply of defense and technology to pioneers such as Israel is a notable development.
Shift from services to manufacturing
Over the past decade, the Narendra Modi government has made a concerted effort to diversify the economy from a services-oriented to a manufacturing-oriented one. The center’s policy efforts, which complement private-sector efforts, have produced results in drones, solar panels, electronics, and Apple’s iPhone manufacturing, and there is a good chance it will do the same in semiconductors in the future. .
New Delhi is reducing its dependence on the service sector to create jobs for its burgeoning youth population. Aware of the risk that a huge demographic dividend turns into a demographic curse, that is, the graph of population growth does not match the graph of growth in employment opportunities, the government expands the manufacturing base and subsequently export area. We are implementing targeted industrial policies to achieve this goal. .
Take advantage of geopolitical realignment
For the private sector, the challenge is to secure supply chains and take advantage of the opportunities presented by the changing global trade structure. India’s Electronics Minister Ashwini Vaishnaw recently announced the approval of three semiconductor factories. Tata’s manufacturing unit in Dholera, Gujarat, will manufacture 28nm, 40nm, 55nm, 90nm and 110nm chips with a mass production capacity of 50,000 wafers per month. Assembly, Testing and Packaging Department in Assam. The two pending projects are Japan’s Renesas ASAT unit in partnership with CG Power in Sanand, Gujarat, and Tower Semiconductors’ proposed investment in Karnataka. All of this is aimed at exploiting opportunities arising from geopolitical realignment. Semiconductors are an important part of the Fourth Industrial Revolution. Semiconductors will be in fourth place, just as crude oil is in third place.
Fortunately, the Delhi administration is clearly aware of this challenge. Almost five years ago, Prime Minister Modi said that India had missed the bus in the last three industrial revolutions but would not miss the fourth one. Part of his commitment includes efforts to manufacture advanced and critical technologies such as semiconductors.
Lessons from the new coronavirus infection
From smartwatches to cars, these chips are ubiquitous in modern society. The COVID-19 pandemic and subsequent Russian invasion of Ukraine have brought discussions about supply chain resilience and diversification to the forefront of trade and economic discussions. Gone are the days when market efficiency and free movement of trade were priorities. In recent years, trade and national security policymaking have become increasingly important intersections, and the private sector has become involved in discussions about geopolitical risks.
The pandemic has caused disruption in many sectors. Working from home has caused demand for chips for computers, laptops and Wi-Fi routers to soar, but at the same time demand for chips used in transportation and logistics, such as cars, has plummeted. This has created unprecedented instability in supply chains. The impact on India’s industry was so severe that the Ministry of External Affairs at one point commissioned diplomats from around the world, including Germany, Japan, and Taiwan, to procure chips. Customers of automakers such as Tata and Mahindra faced significant delays in vehicle deliveries due to the economic crisis.
Why Tata’s foray into semiconductors is important
Interestingly, Tata will begin its Indian semiconductor journey with manufacturing and assembly plants in Gujarat and Assam. A diversified, highly vertically integrated company like Tata has reason to venture into semiconductor manufacturing and has much to gain from it. Tata has an opportunity to increase efficiency through vertical integration such as Tata Motors, TEJAS Networks and even Tata Consultancy Services. Tata is a pioneer in many industries in India, and its foray into semiconductors could pave the way for other Indian companies to invest and succeed in what is a highly complex and capital-intensive industry.
But even though the COVID-19 pandemic has passed, geopolitical risks still exist in the form of black swans and gray rhinos. The concentration of chip manufacturing in Taiwan makes the industry vulnerable to Strait conflict. If China were to take military action against Taiwan, it would have a devastating impact on the semiconductor supply chain, from everyday kitchen hardware such as microwave ovens to national security priorities such as fighter jets. It will have a devastating impact on several technology products.
Western countries want to withdraw from China
There are three main nodes in the semiconductor value chain: a) design, b) fabrication/manufacturing, and c) assembly, test, and packaging (ATP). Currently, Western companies hold the lion’s share of design and patent holdings, Taiwan is the manufacturing leader, and China is one of the largest ATP countries. The United States and other Western countries are moving industry out of China as part of China+1 and other supply chain diversification strategies.
In the case of semiconductors, this is a drastic measure that has been implemented through a number of export control measures and domestic industrial policies, such as the CHIPS Act, a US law that supports the reshoring of the semiconductor industry domestically. In recent years, industrial policy has become the norm in major economies, especially for onshore, “nearshore” and “friendshore” critical high-technology supply chains.
Nevertheless, industrial policy is not a silver bullet for fully securing supply chains, but instead addresses national security risks that manifest in the form of technological security challenges and economic coercion by hostile nation states. There is nothing to do.
India also has challenges
For India, advancing semiconductor manufacturing poses four unique challenges. One is industrial policy, which is used to promote manufacturing itself. The government is relying on the Production-Linked Incentive (PLI) scheme to stimulate investment from both the Indian private sector and global semiconductor companies. However, these generous subsidies with limited restrictions do not always attract the best companies in the sector.
As with other industrial policies, the lack of sufficient regulatory oversight and checks and balances can lead to wasted tax dollars and inefficient allocation of resources. For example, last year, Indian mining company Vedanta and Taiwan’s Foxconn announced a joint project. In the end, the project failed. Other than Foxconn’s experience in assembling Apple’s iPhones, neither company had any experience in chip manufacturing or high-tech manufacturing. Similarly, Singapore-based company IGSS Ventures announced plans to build a $3.5 billion factory in Tamil Nadu in 2022, but critics have questioned the feasibility of the proposal and its background. I raised my voice.
infrastructure, labor issues
Second, infrastructure challenges continue to plague India. Successive budgets have prioritized capital spending, especially on public infrastructure such as roads, power and waterways, but even in India’s most developed regions there are power outages and poor roads, reducing overall logistics costs and the risk of disruption. is increasing. As analysts point out, interruptions in the semiconductor manufacturing process can lead to millions of dollars in losses. Additionally, semiconductor manufacturing is known to consume large amounts of water and deplete urban aquifers. Therefore, there are pressing environmental risks to semiconductor manufacturing efforts.
Third, increased reliance on East Asian partners for semiconductor manufacturing may create labor and employee management issues. India’s foreign minister is currently visiting Seoul and Tokyo to discuss common interests, including securing supply chains for semiconductors and advanced technology. However, a few days before the visit, Taiwan’s labor minister sparked controversy when he made racist remarks in an interview while announcing a memorandum of understanding between his country and India on labor migration. We must not allow our reliance on East Asian partners for high-tech manufacturing to become a mainstay, a dependence that over time unethical and racist practices are ignored in the name of technological gain.
International sanctions risk
Finally, an understudied and often overlooked challenge is the risk of sanctions when working with advanced and critical technologies that have the potential for dual use. Recent sanctions imposed by the European Union on Indian microelectronics maker Si2 for supplying export-controlled U.S. chips to Russia’s defense sector are a symptom of a larger problem. India’s strong economic and defense ties with countries such as Russia, which has recently been hit with sanctions, will make it vulnerable to third-party regulation. Resolving supply chain contradictions will be a challenge given India’s strong defense ties with Russia and rapidly expanding and strengthening technological and economic ties with the West. right.
India is moving into the lower tier of the semiconductor value chain, where larger chips are manufactured, assembled, tested and packaged. Only time will tell whether the company can become a significant player in the fourth industrial revolution.
(Akhil Ramesh is Director of India Program and Economic and National Strategic Initiatives at Pacific Forum)
Disclaimer: These are the author’s personal opinions.