The world is changing rapidly. The US introduced the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act on August 9, 2022. The legislation provides for a whopping $52 billion package to boost semiconductor manufacturing in the US, with a focus on cutting edge R&D.

This was followed by banning the export of four key technologies under the Export Control Reform Act (ECRA). These announcements have strategic ramifications as no country has an absolute monopoly over the troika of equipment, materials and services which power the chip manufacturing ecosystem.

The US accounts for a major share of the world’s chip design equipment and IPR of chip designs. The supply chains are the proverbial Achilles Heel for any entity since there is no absolute control over them, be it the Asian giants, Europe or the US. World wafer fab capacity is distributed across China (14 per cent), Japan (19 per cent), Taiwan (19 per cent), EU (9 per cent) and US (13 per cent).

The maximum demand for chips is from China with supply emanating from Taiwan, South Korea and Japan — all in proximity of China. Most of these chip manufacturing giants have large facilities in the US.

With Europe accounting for less than 10 per cent share in global chip manufacturing, the EU Chips Act is also on its way and is likely to be adopted early next year. The ongoing Ukraine conflict and the sporadic, turbulent waves of the pandemic add more variations to the overall canvas. This makes the digital chessboard complicated and would perhaps give rise to technological concentration rather than competitiveness.

Fostering innovation

History shows that competitiveness fosters innovation and faster product cycles. Most chip-makers are likely to eventually consider shifting advanced facilities to India, which stands on the cusp of a digital revolution .

The recent Vedanta-Foxconn MoU in Gujarat and IGSS Singapore expressing interest in setting up assembly, testing, marking and packaging (ATMP) facilities clearly point in this direction.

These manufacturing processes will become a reality in the next three to four years and it is likely that India will stand to benefit after a chunk of allocated capital in the Bill is transferred to the US chip-making conglomerates. India is a large market which is likely to grow manifold in the next five years.

India is geographically well-located on global supply chain routes. Noteworthy policy interventions by the government, such as including Production Linked Incentive (PLI) scheme to attract global players and infrastructure creation, will add to the advantage.

The writer is Vice President, India Electronics and Semiconductor Association. Views are personal

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