India and the US are set to sign a pact on Friday for coordination and collaboration on incentivising manufacture of semiconductors so that both countries stand to benefit from it, US Commerce Secretary Gina Raimondo has said.

Raimondo, who is on a four-day official visit to India, clarified that the US Congress had ruled out a free trade agreement (FTA) with India, but the Indo-Pacific Economic Framework (IPEF) being worked out between India, the US and 12 other countries could have a greater economic impact. She expressed hope that there would be an agreement on IPEF by the end of the year.

At a fireside chat at the Jesus & Mary College in Delhi on Thursday she highlighted the US’s intention of reducing its over dependence on Taiwan for advanced semiconductors in order to avert disruptions. She said her country wanted to work closely with its allies, including India, in the area.

“Tomorrow, we’ll have the official meetings of the India-US CEO Forum and the Commercial Dialogue. We’ve been talking a great deal about semiconductors and we will have a formal discussion,” she said.

The MoU that the two countries are likely to sign would be on coordinating and collaborating on how to administer the semiconductor initiatives in both countries to prevent over subsidising and creation of a glut situation in certain areas, she added at a telephonic press conference on Thursday.

The US Commerce Secretary further said that her country did not expect to make all of the semiconductors that are consumed in America and, therefore, was looking at allies such as India.

Pointing out the synergies between the two countries, Raimondo said that while India was home to a massive amount of semiconductor design talent, the US led the world in semiconductor design.

Alternative to China

On US companies wanting to gradually shift out of China, Raimondo said Covid had opened the world’s eyes to how vulnerable supply chains were, and that they should not be concentrated in a particular geography.

“US companies are all going through an analysis of their supply chains. Some companies find that they are very heavily dependent on China, for example. There is a desire for them to diversify. I think India will be an excellent place for some of these companies to take their investments,” she said. As many as 10 CEOs from top US companies are part of Raimondo’s delegation.

The IPEF could also help in attracting investments from the US, Raimondo pointed out. Ruling out an FTA with India, she stated that the US Congress had said that Washington did not have an appetite for it. But the IPEF could be a modern equivalent of an FTA, she added. “My call is that IPEF may prove to be in many ways more economically impactful than FTA. If we figure it out right, it will unleash more job creation in both countries… attract private investments,” she said.

The US is India’s largest trading partner and the largest export destination with bilateral trade crossing $131 billion in 2022, according to government figures. Raimondo said that US-India ties were most promising and the US Commerce Department was ready for greater trade and investment between the two countries.