Relooking at Strategic Semicon Partnerships: India’s Role within the Global Semiconductor Value Chain

The success of the semiconductor industry rests on its ability to operate globally, innovate, protect intellectual property (IP) and build efficient and cost-effective supply chains around the world. The global structure of the semiconductor supply chain—developed over the past four decades—has enabled the industry to deliver continual cost reductions and performance gains that made the explosion in end-user adoption of information technology and digital services possible.

The need for deep technical knowledge and scale resulted in a highly specialized global value chain, where regions perform different roles according to their comparative advantages. All countries are interdependent in this integrated global value chain, relying on free trade to move materials, equipment, IP and products around the world to the optimal location for performing each activity.

Semiconductor supply chains are marked by geographical concentration with 75% of global capacity in East Asia led by Taiwan and South Korea. There are only a few companies that hold cutting-edge fabrication technologies in the world and the capability to establish and operate semiconductor fabrication plants based on advanced technologies. Geographic specialization promotes innovation and keeps costs low for consumers, however, it has also created certain critical supply chain risks that should be addressed through government incentives to boost domestic chip production.

Post-pandemic, several countries want to reduce their dependence on global supply chains in critical technologies. Many global giants are also adopting the ‘China Plus One’ policy to reduce their dependency on China for manufacturing. Consequently, India is looking to become one of the key beneficiaries of this policy, particularly in the semiconductor and allied industries. The Modi government has ambitions to make India a leader in cutting-edge technology. In December 2021, India’s government passed a program to spend $10 billion developing the semiconductor industry in the country.

On January 31st, 2023 at the iCET meeting in Washington D.C., the United States and India committed to fostering an open, accessible and secure technology ecosystem, based on mutual trust and confidence, that will reinforce democratic values and democratic institutions. The joint statement also stated the enhancement of bilateral collaboration on resilient semiconductor supply chains, supporting the development of a semiconductor design, manufacturing and fabrication ecosystem in India and leveraging complementary strengths.

India already makes up 20% of the global design workforce and possesses the outstanding talent and world-class universities. While small, India’s role in the trade and sale of semiconductors has grown significantly and the broader Indian ICT market is burgeoning with growth projected to accelerate over the next decade. India’s technology industry recorded its highest-ever rate of growth reaching $227 billion in revenue in 2021. The Ministry of Electronics and Information Technology also set an ambitious target to achieve $300 billion from electronics manufacturing and exports by 2026.

For India to leverage the global semiconductor supply chain, attract foreign investment and maintain the supply chain necessary to enhance its semiconductor ecosystem, it should work toward creating a competitive policy environment that creates a level playing field between foreign and domestic players. As India considers public policies and investments to spur growth in the domestic semiconductor value chain, it should uphold several key principles and best practices.

The following are high-level recommendations for India to consider bolstering its semiconductor policy ecosystem:

• Market-based: India should consider enacting market-based incentive programs aimed at advancing India’s semiconductor research, design and production capabilities.
• Targeted and practical: India should focus on enhancing existing strengths while also filling in key gaps and addressing vulnerabilities that have the most direct consequence on supply chain resiliency:
  • Design: India should leverage its existing strengths and further develop its capability in chip design. Rather than solely prioritizing chip manufacturing, India should also seek to focus resources on further bolstering its leading role in semiconductor research and design.
  • Manufacturing: Given India’s strong demand for consumer electronics and communications, and increasing downstream assembly activity in this space, India could concentrate its resources on incentivizing the design, fabrication and/or assembly of associated semiconductors.
• Clustering: To succeed in developing a semiconductor industry, it should develop an ecosystem in a single or select few locations such as Taiwan and Portland, Oregon in the United States.
• Embrace Global Value Chains and Open Borders: India should consider creating policies that facilitate deeper integration into global value chains–policies that support openness to international trade, establishing transparent and predictable investment environments and intellectual property protection.

APCO and Semiconductor Industry Association have jointly developed the white paper following an SIA-led U.S. Delegation to India in October 2022. The paper titled, ‘India Semiconductor Sector: Increasing India’s Role within the Global Semiconductor Value Chain’ provides more details on each recommendation area that would make India’s Semicon offering globally competitive.