US Commerce Secretary Gina Raimondo’s four-day trip to India beginning March 7, 2023 was to participate in the US-India Commercial Dialogue and the US-India CEO Forum. She called on Prime Minister Narendra Modi and held bilateral meetings with several leaders including External Affairs Minister S Jaishankar, Finance Minister Nirmala Sitharaman, Minister of Electronics and IT Ashwini Vaishnaw, Minister of Education and Skill Development and Entrepreneurship Dharmendra Pradhan and National Security Advisor Ajit Doval. Joining in the Holi celebrations, Raimondo even danced a jig holding hands with the visibly thrilled Defence Minister Rajnath Singh sporting a tousled turban.
The US is India’s third most significant source of FDI, one of India’s top five investment destinations and remained India’s top merchandise export destination with 17.1 percent share in exports from April 2022 to January 2023.
In 2021, the U.S investments made in India were valued at approximately $45.45 billion. Bilateral trade between the two countries surpassed $131 billion in total. The US is India’s third most significant source of FDI, one of India’s top five investment destinations and remained India’s top merchandise export destination with 17.1 percent share in exports from April 2022 to January 2023. In January 2023, India’s trade surplus with the US was $4,686 million.
The highpoint of Raimondo’s visit was inking of the India-US MoU on ‘Semiconductor Supply Chain and Innovation Partnership’. At the joint media briefing together with Commerce and Industry Minister Piyush Goel after the fifth India-US Commercial Dialogue, Raimondo said that the US sees India as a “trusted technology partner”, wants to continue deepening bilateral technological relations and work closely with the Indian private sector in India around those technologies; besides semiconductors, areas where both countries can increase cooperation including in green technology and all kinds of hardware in the electronics supply chain.
A statement issued by Raimondo said, “As both of our great nations seek to create stronger and more secure supply chains, particularly in the field of semiconductors, this MOU will establish a collaborative mechanism between our two countries on semiconductor supply chain resiliency and diversification and will aim to create economic opportunity in the US and India. This is a significant step in the coordination of both our countries’ semiconductor incentive programs and will strengthen mutual priorities, including promoting commercial opportunities, R&D, and talent and skill development.”
Washington’s chip war on Beijing has been ongoing for the past several months. China’s self-sufficiency in producing chips is reportedly around 20 percent. For increasing this capacity, Beijing would have to increase investments and mobilize startups. China would have accelerated these efforts already, aside from finding ways to bypass US sanctions in which it excels. Incidentally, China’s biggest chipmaker Semiconductor Manufacturing International Corporation (SMIC) posted record revenue in 2022 despite ongoing US sanctions.
The US-China trade war also caused lowering of stocks of computer hardware and semiconductors in the US. Stocks of ‘Intel Corp’ (INTC) and Qualcomm Inc (QCOM) fell by 1.4 percent and over 5 percent respectively in one single day according to the US media. INTC and QCOM rank second and third globally in semiconductors after Taiwan Semiconductor Manufacturing Co Ltd (TSMC).
America’s chip war and consequential damage to China’s dream of becoming a global AI power, could hasten China’s invasion of Taiwan and taking over TSMC.
America’s chip war and consequential damage to China’s dream of becoming a global AI power, could hasten China’s invasion of Taiwan and taking over TSMC. There is speculation about US plans to evacuate TSMC engineers or destroy the company’s facilities in the event of a Chinese invasion. Evacuation of TSMC engineers would depend on the warning available but considering how the US has destroyed Ukraine in its own national interest, Washington would have no compunctions in bombing TSMC out of existence if China invades Taiwan.
Semiconductor shortages have been a key aspect of global supply chain pressures over the past two years. On August 9, 2022, America enacted the ‘CHIPS and Science Act’ providing roughly $280 billion in new funding to boost domestic semiconductor capacity, catalyze R&D, and create regional high-tech hubs and a bigger, more inclusive STEM workforce. Execution of the CHIPS and Science Act would hold the key since the US national, state, and local governments have reportedly created tax and regulatory policy that makes investing in new manufacturing capacity for semiconductors incredibly difficult.
India’s consumption of semiconductors is expected to hit $80 million by 2026 and $110 million by 2030. This requires a domestic ecosystem that can sustain supply without the need to depend on volatile global supply chains. India aims to become a global semiconductor manufacturing hub although chip manufacturing is still in its infancy here. The twin approach adopted is to invite investments, as well as collaboration with foreign companies under ‘Make in India’. India’s advantage lies in an exceptional semiconductor design talent pool – up to 20 percent of the world’s semiconductor design engineers.
In October 2022, the Hyderabad and US-based company ‘Ceramorphic’ taped-out a 5nm AI supercomputing chip which was sent to Taiwan’s TSMC for testing, recalibration, validation and return in early 2023. The final tape-out is expected in late 2023 and the chip is scheduled to go into production in 2024.
The Chennai-based Semiconductor Ltd SPEL’ is India’s first Semiconductor IC assembly and test facility established in 1984. Now there is news that ‘Vedanta’ has finalized a joint venture (JV) with Taiwan’s Foxconn; the semiconductor and display manufacturing facility is to be established in Dholera Special Investment Region near Ahmedabad, Gujarat. The JV will see an investment of $19 billion and become operational in 2024.
Notably, the US F-35 fighters and a wide range of military-grade devices in the US use TSMC chips.
Tata Group incorporated TEPL in 2020. TEPL is a greenfield venture with expertise in manufacturing precision components. The salt-to-steel conglomerate intends to invest $90 billion (about Rs 7,452 billion) in the semiconductor industry across the group companies over the next five years.
The International Semiconductor Consortium ‘ISMC’ (a JV between the UAE-based investment firm Next Orbit Ventures and Israel-based Tower Semiconductor) plans to establish a $3 billion chip manufacturing fab in Karnataka in early 2023, contingent upon India according early approval. However, Intel plans to acquire Tower for $5.4 billion which would give Intel part ownership of the ISMC fab in Karnataka. This fab would primarily manufacturing 45nm to 65nm analog chips for defence, automotives and other sectors.
TSMC has one of its largest offices outside of Taiwan in India in Bengaluru (Karnataka) to support customers in Asia, Europe and North America, in addition to supporting companies designing semiconductors. Notably, the US F-35 fighters and a wide range of military-grade devices in the US use TSMC chips. Taiwan, Japan, South Korea and China are already working on 3nm chips while IBM has begun talking of a 2nm chip. Given the right focus, India should be able to develop more advanced semiconductors in an early timeframe.
Finally, we must ensure that indigenous chip manufacturing caters for our complete needs in the long run. As important is the need to ensure that whether FDI or JVs, the ‘control’ must stay with India, self-sufficiency in semiconductors being a vital strategic necessity. It is not clear on the type of cooperation the US is seeking with India in terms of semiconductors and supply chains but going by the manner in which America has “enslaved” Europe, the US could be looking at chipping the chip industry to “chain” India through the medium of semiconductors.