The world necessitates a dependable supply chain. Who can serve as a more reliable confederate than the globe’s largest democracy?” At the commencement ceremony of the Indian Semiconductor Forum on July 28, Indian Prime Minister Modi extended an olive branch to the giants of the semiconductor industry.
The prime minister, who has unequivocally expressed his interest in “technology and adventure,” is seizing the opportunity and diligently striving to establish India as a pivotal player in the global semiconductor supply chain.
As the strategic competition between China and the United States intensifies, the Biden administration is collaborating to render the semiconductor supply chain “more resilient and competitive.” “Partners” are exerting substantial efforts, and Modi comprehends this reality. On one hand, India has initiated fiscal incentive policies worth billions of dollars aimed at expediting the growth of the semiconductor manufacturing industry by attracting foreign investments. On the other hand, Modi is expediting the implementation of corresponding measures to enhance the domestic business environment.
According to a report by the Indian Electronics and Semiconductor Association (IESA), the size of the Indian semiconductor market is projected to reach $64.05 billion by 2026. However, the potential for foreign capital to capitalize on this lucrative opportunity remains uncertain at present.
Although the Modi government is ardently promoting the benefits of investing in Indian semiconductors, without the establishment of a robust industrial ecosystem centered around semiconductors, no amount of foreign investment will automatically translate into sustainable long-term competitiveness.
Investing billions of dollars generously
Assessing the current development status of India’s semiconductor industry, chip design represents its forte, while manufacturing capacity remains its weakness. According to public data from the Press and Information Bureau of India, India possesses 20% of the world’s chip design talent and a significant number of design patents registered within the country. Leveraging this advantage, eight of the world’s top semiconductor companies by revenue have established design centers in India. However, based on a 2023 report from the Carnegie India Center, India currently only possesses three state-owned semiconductor manufacturing plants, with its dependence on foreign countries for semiconductor consumption reaching as high as 90%.
To rapidly enhance its self-sufficiency capabilities in the short term, India is striving to introduce advanced chip manufacturing as expeditiously as possible. Consequently, the Modi government is actively allocating substantial funds to achieve significant leaps in development.
In 2019, the Modi government issued the “National Plan for the Electronics Industry,” which further elucidated the direction of “Made in India” and “Digital India.” In March 2020, India launched the “Production Linked Incentive Scheme” (PLI) for the first time, albeit with limited industry coverage. As the plan’s goals gradually expanded to bolster India’s manufacturing capabilities holistically, the Modi government launched the “India Semiconductor Mission” (ISM) in December 2021, providing financial subsidies of up to 50% of project costs to manufacturers, amounting to an estimated $10 billion. Currently, ISM functions as an autonomous business unit under Digital India, enjoying administrative and financial autonomy.
Simultaneously, India is not neglecting chip design. On one hand, 2.5% of the ISM budget is allocated to semiconductor research and development, skills development, and training. On the other hand, the Indian government is diligently working to enhance the domestic intellectual property environment to align with internationally recognized standards endorsed by entities such as the WTO.
For foreign investors, the incentives introduced by the Indian government serve as a positive signal. However, they alone are insufficient to ignite an “adventurous
A close second is the problem of electricity. Studies have shown that the annual energy consumption of a large semiconductor manufacturing plant may be around 169 megawatt hours, which is enough to power an Indian city. However, like all coal-dependent countries, the Russia-Ukraine conflict has also caused an increase in domestic coal prices in India. The occurrence of extreme hot weather has exacerbated India’s electricity shortage problem. Although India has been accelerating its energy transformation, according to data from Huanya Economic Data Co., Ltd., India’s installed renewable energy capacity will be difficult to exceed thermal power in the medium term.
Finally, how to obtain key metal materials is also a big problem. Gallium, which is essential in third-generation semiconductor manufacturing, is almost completely controlled by China. The Ministry of Commerce and the General Administration of Customs of China have implemented export controls on gallium and germanium-related items starting from August 1. For India, investing in the development of its own rare metal resources is an option, but it will take a long time for the option to become a reality.
At the same time, various human factors in India are constantly digging holes.
The development of semiconductors is not only related to India’s development prospects, but also closely linked to Modi’s political performance. He came out of Gujarat and still never forgets to “repay” his fellow villagers. The $19.5 billion Vedanta-Foxconn joint venture was already controversial even before it collapsed. Maharashtra officials have publicly stated that Vedanta and Foxconn moved their factories from Maharashtra to Gujarat under political pressure.
In addition, ISM has also been criticized as an unfocused and overly broad subsidy policy. Indian officials often take sudden changes in their stance on issues such as export taxes, which puts foreign investors at risk of paying high fines from time to time. Some analysts believe that this may be related to the Modi government’s increasingly obvious conservative tendencies. This tendency is reflected in policy behavior, which is the wavering attitude towards foreign investment. According to Reuters, people familiar with the matter revealed that Foxconn withdrew from the cooperation project due to concerns about the Indian government’s delay in approving PLI subsidies.
According to Professor Lin Minwang, deputy director of the South Asian Studies Center at Fudan University, Modi has been in power for nearly 10 years. During such a long period, subject to changes in many factors, it is difficult for him to maintain policy consistency. “When India had nothing, Modi didn’t think much about introducing foreign investment to build semiconductor factories. But when India introduced the ‘Production Linked Incentive Scheme’, Modi hoped to use this plan to build a local semiconductor industry.”
In the eyes of investors, these internal problems, as well as the back-and-forth on policy, raise a red flag. Especially considering that it is not just India that is attracting the attention of foreign investment by “throwing money”. From an international perspective, India’s efforts in this regard can only be considered negligible.
Recently, the EU has officially approved the “Chip Act” and plans to mobilize 43 billion euros to encourage chip companies to set up factories in the EU. Biden signed the “American Chip and Science Act” last year, spending $52.7 billion to provide subsidies for companies investing in chip factories in the United States. Many foreign media speculate that China’s investment in this field may far exceed that of Europe and the United States.
However, India has more to worry about than that.
Vague “dividends of the times”
From India’s perspective, “Lianmei controls China” has brought opportunities for the development of its semiconductor industry. However, the superficial enthusiasm cannot support Modi’s “chip dream”. If the international situation tends to become a camp, the impact on India will not be as simple as making a profit.
From the Quad Chip Alliance to the tripartite agreement between the United States, Japan and the Netherlands, the United States is trying to limit the growth of China’s semiconductor production capacity to “backward” technology nodes. At the same time, the United States is also choosing partners “wisely” to reshape the semiconductor supply chain.
India does not belong to the “Anglo-Saxon” circle, and it will never be close to the core interest circle of the United States, but its steadily increasing economic strength is enough to alarm the United States.
At present, the United States and Japan have accelerated their efforts to win over India. During Modi’s visit to the United States, the two countries reached a series of cooperation agreements on semiconductor issues. At the same time, India’s “Economic Times” reported on July 20 that Japan will also increase investment in India’s semiconductor, steel and other fields, with a total scale of up to 5 trillion yen (approximately 256.2 billion yuan).
India is trying to take advantage of the “de-risking” of China by Western countries such as the United States and take over business transferred from China. But what it values more is taking advantage of this opportunity to obtain advanced manufacturing technology and capabilities.
According to a research report released by the Hinrich Foundation in the United States, India lacks technology transfer agreements with more experienced manufacturers such as the United States, and access to critical semiconductor technology infrastructure can help India build its own intellectual property library.
However, India is not an ally of the United States in the traditional sense. It is difficult to say that the “dividends of the times” brought to India by the strategic competition between China and the United States can increase trust between India and the United States, let alone whether they are sustainable. In Lin Minwang’s view, India does not belong to the “Anglo-Saxon” circle. It will never be close to the core interest circle of the United States, but its steadily increasing economic strength is enough to alarm the United States.
According to forecasts from S&P Global and Morgan Stanley, India will surpass Japan and Germany around 2030 to become the world’s third largest economy. Lin Minwang said: “Once India becomes the third largest in the world, it will also be a target for the United States to guard against. In 2009, the United States launched the ‘Asia-Pacific rebalancing’ strategy, and the strategic focus shifted eastward. The next year, China’s GDP surpassed Japan. For India In the same way, there is a ceiling that is difficult to break through in India-US cooperation.”
Considering the “superficial” nature of the relationship and India’s relatively slow ability to act, Lin Minwang believes that China does not need to overdo it. We are worried about the negative impact that India-US semiconductor cooperation will have on China at the strategic level.
Perhaps from India’s perspective, proximity to the United States is beneficial to the development of its semiconductor industry. However, even if India’s own constraints are not taken into account, if its policy actions encourage the formation of international communities and disrupt the supply chain, it will have a backlash against Modi’s “chip dream.”