India's goal to strengthen its position in the global semiconductor sector is both ambitious and challenging. As it stands, it's a tightrope walk. There is much work to be done to navigate the complexities of global supply chains, build domestic capabilities, and address geopolitical factors.

Despite its strong performance in IT and software, India still plays a minor role in semiconductor manufacturing. The Indian Semiconductor Mission (ISM), launched by the Indian government, represents a major effort to change this. The program allocates more than $10 billion for incentives, research, and infrastructure development, aiming to position India as a hub for chip design and production.

However, building a semiconductor ecosystem requires more than just financial support. It requires advanced technology, a skilled workforce, and a strong infrastructure - all of which India must excel in. Patience is also essential, as it usually takes several years to set up a semiconductor manufacturing plant.

India's dependence on Chinese semiconductor imports

These obstacles are exacerbated by India's continued dependence on China for semiconductor imports. In 2024, the country's semiconductor chip imports increased significantly, up 18.5% from the previous fiscal year to 1.71 trillion rupees (about $20.7 billion). Imports from China alone grew by nearly 11% to $46.6 billion in April-August 2024, driven primarily by computers, telecommunications equipment and their components. Notably, imports of integrated circuits, microcomponents and memory surged 49% to $3.5 billion. Mobile parts and handsets also experienced a staggering 63% increase to $2.7 billion, mostly for locally manufactured components. The figures highlight the heavy reliance on Chinese imports, with electronics, machinery and organic chemicals accounting for two-thirds of total Chinese imports. Moreover, the trade deficit with China widened to $40.8 billion during the period as exports fell 8% to $6.3 billion.

Exacerbating these issues is the slow implementation of the Design Linked Incentive (DLI) program, which is intended to promote domestic chip design and innovation. As of September 2024, only 12 startups had been approved under the program, far short of the goal of supporting 100 startups over five years.

The geopolitical landscape adds another layer of complexity. As the US-China chip war escalates, a major restructuring of the global semiconductor supply chain is underway. Through its "China plus one" strategy, India is emerging as a potential alternative to China. While this presents strategic opportunities, it also puts it in a precarious position. Balancing relations with the West and China without offending either side requires careful diplomacy.

India's role in the global semiconductor supply chain

Another worrying factor is India's middle position in the global semiconductor supply chain. A recent Bloomberg report showed that a Mumbai-based pharmaceutical company exported 1,111 servers to Russia between April and August 2024. These servers are equipped with advanced processors designed for artificial intelligence and are mainly from American companies. These servers are included in the restricted goods lists of the United States and the European Union, which are intended to restrict sensitive sectors within the Russian military-industrial complex. For an intermediate country like India, which is in the middle of global export controls, this situation is a time bomb.

As I said, it is a delicate balancing act. Only the right policies, partnerships, and perseverance can help it find its way.

Source: Content compiled from indiatimes

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