India-US semiconductor Partnership

Context: The Indian government has been consistently giving a push to the semiconductor sector in India. In the light of the recent re-election of Donald Trump as US President, it is important to see how the existing cooperation in critical technology sectors like semiconductor shapes up. 

About Semiconductors

• Definition: Materials with electrical properties that fall between those of conductors (e.g., metals) and insulators (e.g., rubber).
• They are sometimes referred to as integrated circuits (ICs) or microchips made from pure elements, typically silicon or germanium, or compounds like gallium arsenide. 
• Key Components: Diodes, transistors, microchips, photovoltaic cells, LEDs, and mounted piezo-electric crystals.
• Applications: 
  • Electronics: Foundational components in computers, smartphones, LEDs.
  • Renewable Energy: Used in solar cells.
  • Defence and Space: Integral to missile guidance systems and satellite communication. 

India’s Semiconductor Industry:

• Current Scenario: Valued at US$ 26.3 billion in 2022; projected to grow at a CAGR of 26.3% to US$ 271.9 billion by 2032.

Factors favouring India:

• Skilled Workforce: India produces a record number of Science, Technology, Engineering and Mathematics (STEM) graduates annually, which offers the much-needed skilled workforce. 
• Strong R&D: India leads globally in semiconductor chip design, research & development.
• Cost Advantages: Lower labor costs compared to developed nations.
• Global Supply Chain Diversification: India has become a preferred destination for back-end assembly and testing operations amidst diversification of global supply chains to reduce reliance on China. India can position itself as an alternative manufacturing hub.
• Policy Support: India Semiconductor Mission (ISM), 100% automatic route for investments in the Electronics Systems Design & Manufacturing (ESDM) sector, Establishment of semiconductor plants. (In February 2024, the government approved the establishment of three semiconductor plants, two in Gujarat and one in Assam) 

India-USA Semiconductor Partnership:

1. iCET (Initiative on Critical and Emerging Technologies):

• Launch: 2023 
• Objective: Foster collaboration in critical technologies like semiconductors, AI, 5G, and quantum computing. 
• Significance:
  • Facilitates dual-use technology transfer.
  • Streamline defense and tech cooperation via frameworks like INDUS-X.
  • Promotes R&D and encourages co-investments in semiconductor design and manufacturing.

2. CHIPS Act Collaboration:

• International Technology Security and Innovation (ITSI) Fund:
  • Created under the US CHIPS Act (2022).
  • Supports India's efforts to enhance its semiconductor ecosystem by funding critical infrastructure and R&D. 
  • Facilitates cross-border investments and diversification of global supply chains.

3. INDUS-X Initiative:

• Collaboration between: India's iDEX (Innovations for Defence Excellence) and the US Defense Innovation Unit (DIU).
• Purpose: To promote innovation in defense technologies, including semiconductors for military applications.
• Focus: Security-focused chip designs; applications in green energy and telecommunications.

4. Shakti Fab:

• Description: A proposed semiconductor fabrication plant in India, developed in collaboration with the US Space Force and Indian private players like Bharat Semi and 3rdiTech. 
• Focus Areas: 
  • Production of multi-material chips for national security, green energy, and telecommunications.
  • Enhancing India's chip manufacturing capabilities for strategic applications.

The partnership is important for several reasons, including:

1. Reducing reliance on China for semiconductors, which are an essential component of many modern products.
2. Building a strong relationship for India and the US to stand up to China's growing influence.
3. Making the global supply chain more stable and secure. 

What are the challenges facing India?

• High Cost of establishment: Fabs are highly capital-intensive undertakings, costing billions of dollars for large facilities. As per a government estimate, it would cost roughly $5-$7 billion to set up a chip fabrication unit in India.  
• Low Ease of doing business: The process of establishing an indigenous semiconductor facility requires clearances and approvals from multiple government departments. 
• Technological Constraint: The indigenous manufacturing of semiconductors requires the use of high-end technologies. These technologies are licensed from patent holders at a very high price.
• Lack of Fabrication Capacities: India has a decent chip design talent but it never built up chip fab capacity. The ISRO and the DRDO have their respective fab foundries but they are primarily for their own requirements and are also not as sophisticated as the latest in the world.
• Structural constraint: FDI in electronics is less than 1% of the total FDI inflow because of the dearth of skilled labor, delays in land acquisition, and the uncertain tax regime.
• Unstable power supply: The smooth production of semiconductors requires the availability of an uninterrupted 24*7 power supply. They require a highly reliable and high-quality supply of water, electricity, and insulation from the elements, reflecting the high degree of precision, cost and capital needed to make the sophisticated circuits.
• Resource Inefficient Sector: Chip fabs require millions of litres of clean water, an extremely stable power supply, a lot of land and a highly skilled workforce.

Conclusion: The India-US semiconductor partnership holds the potential to transform India into a significant player in the global semiconductor ecosystem. With strategic investments, robust domestic policy support, India can achieve technological self-reliance while contributing to global supply chain resilience.