By Aarush Venkatesh

Abstract

Semiconductors have emerged as crucial assets in global geopolitics, with China’s explosive rise in this sector altering power relations. This article examines the role of semiconductors in modern geopolitics and argues that India must rapidly enhance its semiconductor capabilities in order to secure technological sovereignty and establish its influence on the global arena.

Introduction

The global semiconductor industry reached a revenue of $601.7 billion in 2022, with many believing that it has the potential to turn into a trillion-dollar industry by 2030. In the past decade, we have seen that electronic hardware, particularly silicon chip sets or semiconductors, are used in most, if not all electronic devices. It is not new to learn that entire industries, individuals, and economies depend on these semiconductors. It is vital even for government institutions, as a huge chunk of the technologies they adopt rely on these chips. The last several years have seen an unprecedented shortage of semiconductors, which is of significant importance since future sectors will be largely reliant on chips. Semiconductors will be critical to the foundational technologies of artificial intelligence (AI), 3D printing, Internet of Things (IoT), advanced robotics, machine learning, automation, and advanced biometric authentication. A shortage will harm not only the economic prospects of technology companies but also the economies of countries hoping to deploy such technology. Semiconductors are now essential to the operation of many sectors, from aircraft to automobiles. It is also pertinent to note that the use of semiconductors is critical in the areas of security and defence, with the continued evolution of electronic and digital weaponised systems, both offensive as well as defensive. This aspect has a direct impact on the need for ‘sovereign’ self-reliance by major countries on semiconductors and advanced chipsets such as Graphical Processing Units (GPUs) which are the bedrock of AI development.  According to one estimate, the present global semiconductor shortfall has affected 169 industries. In the midst of this dynamic and swiftly growing market, we see India coming forth as a potential powerhouse for silicon chip manufacturing. This is a very good sign for the global community as it is not ideal to depend on a handful of countries that today control over 60% of global semiconductor manufacturing. India especially would greatly benefit from the emergence of such an industry in the country as well, which will boost the economy and attract large amounts of foreign investments.

Global trends and dependency on these chips

Today, we see several countries trying to manufacture and export chips, majorly Taiwan (with roughly a 50% share), South Korea (15%), followed by Japan (about 9%). Looking at these statistics would make some of us realise that an overwhelming majority of the chipsets that are placed in all our electronic devices come from Taiwan. Why would this be a bad thing? When we look at the geopolitical aspects of this industry, it is evident that states that trade with each other have less of an incentive to act with hostility toward each other. It was believed that economic interdependence would help prevent aggression. This has been concluded after seeing the effects of the “Trade Wars” that we have seen between the US and China trade war, and the South Korea and Japan economic conflict, which still continues to affect various industries around the world. When considering this in the context of the silicon chip or semiconductor industry, we now have a clearer understanding of why it is so important to reduce a country’s heavy dependence on another for a resource that today is very essential for any economy.

In May 2019, in the midst of the USA-China Trade War, the United States made a bold decision by banning the Chinese company Huawei, a tech giant, from trading with any company based in the US. This was a major hit to the company, which was majorly dependent on the services of giants like Google for its products. Perhaps the biggest impact Huawei faced was the legal ban on trading with the mobile phone semiconductor manufacturer, Qualcomm, which made the market value of their products considerably lower as they had to resort to other, less efficient options. China in my view has dealt with the situation with astonishing speed as they have already started relying less and less on companies based in the USA. Huawei eventually started R&D to make HiSilicon, their proprietary chip to be used in their surveillance cameras, with indigenous smartphone chips to be used very soon instead of Qualcomm. Since China already has a very sophisticated manufacturing infrastructure, they were able to produce semiconductors on a large scale very easily. Over the years, China has also invested aggressively in the mining industry of Africa, where we find a lot of the rare minerals used to manufacture semiconductors like silicon and lithium. Chinese mining corporations like Sinosteel, Jinquan Iron & Steel (Jisco), and MinMetals have a large presence in countries such as Guinea, Zambia, South Africa, Zimbabwe, and the Democratic Republic of the Congo (DRC) where an estimated $16.3 billion has been invested in creating mining infrastructure. This gives China a massive edge in terms of control over resources like lithium which will be vital to the manufacturing of semiconductors and even the swiftly rising Electric Vehicle (EV) industry.

The Indian Semiconductor Industry

The Indian semiconductor and silicon chip manufacturing business has risen dramatically in recent years, establishing itself as a prospective participant in the global arena. While India’s proportion of the global semiconductor business was very small a decade ago, it is projected to reach a market value of USD 55 billion by 2030. This surge is critical not just for India’s economic progress, but also for lessening the world’s reliance on China and Taiwan. The importance of diversifying the global supply chain and managing geopolitical risks cannot be overstated. With its large reservoir of engineering talent, increased investment in Research & Development, and supportive government regulations, India is positioned to become a semiconductor manufacturing hub. This has been a very bumpy journey as it is not easy to enter a market of such geopolitical importance. The increase in soft power with such an industry with the rest of the world would be a large step towards the development of India, once we overcome the challenges that accompany it.

The anticipated Foxconn-Vedanta contract to produce chips in India sparked significant enthusiasm and expectations in the technology industry. Foxconn, a prominent global electronics manufacturer, and Vedanta, an Indian corporation, intended to partner on semiconductor production, with the goal of capitalising on India’s burgeoning electronics industry and talented workforce. However, a number of problems contributed to the downfall of this ambitious undertaking. For starters, the intricacies of semiconductor manufacturing, as well as the requirement for enormous expenditures in infrastructure and technology, made it a daunting task. Furthermore, India faced stiff competition from nations with well-established semiconductor industries, such as Taiwan, South Korea, and China. These issues, along with the complexities of Indian rules and a lack of strong incentives, created substantial challenges. Ultimately, the Foxconn-Vedanta deal faltered due to the combination of these factors, emphasizing the need for comprehensive policy reforms and significant investments to realize India’s potential in semiconductor manufacturing.

The entry of Reliance Industries into the semiconductor business has sparked enormous excitement not only in India but throughout the world, and it is a development that deserves worldwide support and promotion. The company has seen the transformational potential of chip production, and this decision has numerous intriguing consequences. To begin with, Reliance’s move into the semiconductor business accords with India’s desire to lessen its reliance on imports while also contributing to the global semiconductor supply chain. India can stimulate innovation, generate high-skilled employment, and improve national security by reducing reliance on foreign suppliers by building a vibrant semiconductor ecosystem within the country. Furthermore, this breakthrough should thrill the global technology sector since it signifies a diversification of the semiconductor supply chain.

Why the world is looking at India’s emergence in this field

India’s semiconductor sector is now seeing a massive degree of growth. Key players and investors in India and around the world are making significant investments in the nation, including giants in the industry like Microcon, for establishing the framework for semiconductor manufacture. One of the most important lessons learned from the semiconductor experiences of other nations is the need to focus on India’s own capabilities. While having end-to-end manufacturing capabilities is critical, improving the assembly and packaging sectors is also critical. This comprehensive strategy guarantees that the whole supply chain is stable, decreasing reliance on external sources.

Reducing reliance on a few significant Asian companies, such as Taiwan and South Korea, strengthens the global tech infrastructure. It aids in the mitigation of geopolitical risks, supply chain disruptions, and vulnerabilities that can affect businesses ranging from consumer electronics to crucial infrastructure like healthcare and defence. Reliance’s large coffers, infrastructural skills, and devotion to technology position it ideally to contribute significantly to the expansion of India’s semiconductor sector. Strategic investments and alliances by the conglomerate can catalyze innovation and create a more competitive marketplace. This will help not only India but will also promote healthy competition in the global semiconductor sector. Given these potential benefits, governments, industry stakeholders, and investors worldwide should aggressively support and promote Reliance Industries’ entry into semiconductor production in India. Collaboration, international alliances, and regulatory assistance may all help to expedite the creation of a healthy semiconductor ecosystem in India, eventually contributing to the growth and resilience of the global tech sector as a whole.

Conclusion

To conclude, India’s rise as a global tech leader and its expanding potential as a semiconductor producer are trends that demand the international community’s attention and assistance. With its huge talent pool, developing innovation environment, and the dedication of industry titans like Reliance Industries, India has all the elements to become a big participant in the semiconductor sector. As India continues to invest in research, infrastructure, and regulatory changes, it not only boosts its own economic prospects but also adds to global technological resilience. A broad and resilient semiconductor supply chain with India at its center offers a more secure, competitive, and interconnected world of technology. Therefore, we should all eagerly anticipate India’s emergence as a semiconductor manufacturing hub and recognize its pivotal role in shaping the future of the global tech landscape.

Author’s Bio

Aarush Venkatesh is a second-year law school student from Jindal Global Law School and a member of the Economics and Finance cluster of Nickeled and Dimed. He is curious to learn more about the influence of law in the evolution of technology. He is also interested in reading and writing on topics around the relationship between international relations, trade, law and technology in the modern global discourse.

Image Source: https://www.fairobserver.com/business/why-semiconductors-are-a-really-big-deal/