Here’s how India is turning the US-China chip war into its advantage

• Earlier this month, the US and India discussed “bilateral collaboration on resilient semiconductor supply chains” and chip manufacturing.
• The US Semiconductor Industry Association and the India Electronics and Semiconductor Association have also set up a task force to explore private initiatives in semiconductors.

In the last couple of months, India, the world’s fifth-largest economy, has been paying extra attention to its semiconductor industry, announcing various plans and collaborations to boost its domestic chip sector. Although the country does not have native semiconductor firms, its strategy under the government of Prime Minister Narendra Modi focuses on attracting foreign giants. That, according to experts, has increased the country’s economic competition against China, which has been in an unceasing chip war with the US.

Along with other countries like the US, India has been looking to forge strategic alliances around semiconductors, while making moves to bring chip manufacturing to the country. For context, India has no fabs or semiconductor fabrication plants that manufacture chips. As a result, the government has sought to attract foreign chipmakers with a US$10 billion government incentive program that covers up to 50% of project costs.

Since then, there has been a flurry of announcements in the Indian semiconductor industry related to chip manufacturing.

Chip ventures announced in India so far

In September last year, Foxconn, the Taiwanese firm that assembles Apple’s iPhones, and Indian mining company Vedanta teamed up to build a US$19.5 billion chip-making facility in the western state of Gujarat. The joint venture applied for the Indian government incentives to set up a semiconductor fab, which is a plant that manufactures integrated circuits from raw silicon wafers, in Dholera, in Gujarat.

Vedanta chairman Anil Agarwal shared that the target is to manufacture 40,000 wafers a month in around two and a half years. Separately, ISMC Digital, a consortium of investors, is planning to build a US$3 billion fabrication plant in the southern state of Karnataka. Tower Semiconductor, an Israeli company, would be the technology partner on that project.

Even Tata Group has shared their intentions to begin semiconductor chip manufacturing in India very soon. According to media reports, Tata Sons Chairperson Natarajan Chandrasekaran said in December last year that the company plans to build a “semiconductor assembly testing business” and is in talks with other firms. Essentially the aforementioned factories would be among the first semiconductor manufacturing plants in India. 

The US wants in too

Last month, the US and India conducted high-level meetings in Washington between government officials and executives from several companies to expand cooperation in advanced weaponry, supercomputing, semiconductors, and other high-tech fields. It was the first in a dialogue about critical and emerging technologies that President Biden and India’s prime minister, Narendra Modi, announced in Tokyo in May last year.

During the inaugural meeting of the India-US Initiative on Critical and Emerging Technology on February 1, the two countries discussed “bilateral collaboration on resilient semiconductor supply chains” and manufacturing. The US Semiconductor Industry Association and the India Electronics and Semiconductor Association also set up a task force to explore private initiatives in semiconductors.

The US national security advisor, Jake Sullivan stated the goal was for technological partnerships to be the “next big milestone” in the US-India relationship, following a 2016 agreement on nuclear power cooperation. He described the effort as a “big foundational piece of an overall strategy to put the entire democratic world in the Indo-Pacific in a position of strength.”

The intentions of the Biden administration are clear – to strengthen its connections with Asian allies and offset China’s dominance in cutting-edge technologies. According to Commerce Secretary Gina Raimondo, the US is also considering collaborating with India on certain manufacturing jobs to boost competition against China. Raimondo told CNBC’s “Mad Money” that she will visit India in March with a group of US CEOs to discuss an alliance between the two nations for manufacturing semiconductor chips.

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