What's New

GEOPOLITICAL POWER IS THOUGHT TO FLOW FROM THE PINS OF MICROCHIPS

Syllabus:

• GS 2 : Effect of Policies and Politics of Developed and Developing Countries on India’s interests
• GS 3 : Science and Technology- Developments and their Applications.

Why in the news?

• Recent tensions between China and the US over semiconductors underscore the global importance of these components.
• India’s position in this scenario is noteworthy, presenting both challenges and opportunities.

Semiconductors as Power Currency:

• Semiconductors, essential for virtually all modern technology, embody geopolitical power.
• Control over chip manufacturing is seen as a means to retain global influence, surpassing traditional sources of power like land and sea routes.

• The COVID-19 pandemic has accelerated the adoption of digital technologies, leading to a surge in demand for devices powered by semiconductor chips.
• This increased demand, coupled with disruptions in supply chains, has caused a global shortage of semiconductor chips, adversely affecting economic growth and employment.

About US-China Conflict:

• The US views China’s semiconductor industry as a threat to its national security and economic interests.
• The US has tightened restrictions on semiconductor exports to China since 2022, aiming to limit Chinese access to advanced technology.
• Export restrictions and pressure on allies aim to limit China’s access to advanced chip technology.
• Washington’s actions are part of its strategy to contain China’s technological advancement and mitigate any military threat posed by China’s access to cutting-edge semiconductor technology.
• China, heavily reliant on imported chips, faces setbacks due to US-led restrictions, affecting its technological development and economic growth.
• Despite advancements in manufacturing, China lags behind in semiconductor technology, with the US maintaining a significant lead in advanced chip production.

Global Ramifications:

• The semiconductor industry’s upheaval affects global supply chains, with repercussions for various sectors worldwide.
• The conflict highlights the risks of dependence on specific regions for critical components, prompting diversification efforts.
• The US employs a “small yard, high fence” strategy, aiming to control semiconductor technology and restrict Chinese access.
• This strategy faces challenges as China seeks to develop its domestic ecosystem and secure alternative supply chains.
• The global semiconductor turmoil affects various geographies, highlighting the interconnectedness of economies and supply chains.

India’s Position:

• India recognizes the importance of semiconductor manufacturing and has launched initiatives to bolster domestic production.
• India should strive to become a key player in the semiconductor ecosystem through favorable trade policies and fiscal support.
• Schemes like Production-Linked Incentive (PLI), Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and Design Linked Incentive (DLI) aim to nurture and support the semiconductor ecosystem.
• The country has the opportunity to capitalise on its position by strengthening its domestic semiconductor industry.
• India must navigate the geopolitical landscape carefully, considering both opportunities and risks.

• Government support and strategic investments are vital for India to capitalise on emerging opportunities in the semiconductor sector.

Challenges in India’s Semiconductor Dream:

• High Investments Required: Semiconductor and display manufacturing demand significant capital investments due to their technology-intensive nature, long gestation periods, and rapid technological changes.
• Minimal Fiscal Support from Government: The current level of fiscal support provided by the government is inadequate compared to the substantial investments needed to establish manufacturing capacities in the semiconductor industry.
• Lack of Fabrication Capacities: Although India possesses chip design talent, it lacks semiconductor fabrication (fab) capacities. Existing fabs, like those of ISRO and DRDO, primarily serve their own needs and are not as advanced as global standards. India has only one old fab located in Mohali, Punjab.
• Extremely Expensive Fab Setup: Establishing a semiconductor fab requires enormous capital, often amounting to billions of dollars, even for a relatively small-scale facility. India’s fabs may lag behind global standards by a generation or two, adding to the cost.
• Resource Inefficient Sector: Chip fabs consume significant resources, including clean water, stable power supply, land, and highly skilled labor. These requirements pose challenges for countries aiming to develop semiconductor manufacturing capabilities. India lacks fabrication capacities, with only one outdated facility in Mohali, Punjab, and faces challenges in resource availability and high setup costs.
• Geopolitical tensions heighten the urgency for countries to invest in semiconductor development.
• The semiconductor industry’s impact on energy transition and climate change underscores the need for sustainable practices.

Way Forward / What can be done?

• Favourable Trade Policies: Implementing favourable trade policies is essential for nurturing a plurilateral semiconductor ecosystem, facilitating collaboration and investment.
• Sufficient Fiscal Support: Focus fiscal support on different elements of the chip-making chain, such as design centres, testing facilities, and packaging, considering India’s talent and experience.
• Maximising Self-Reliance: Develop a comprehensive ecosystem covering design, fabrication, packaging, and testing to maximise self-reliance in chip production. Enhance research and development efforts in this sector.
• Connectivity and Capability Enhancement: Strengthen connectivity among related industries in India to establish a robust chip manufacturing ecosystem. Enhance national capability through skill development and infrastructure improvement.
• Investments in Infrastructure: Recognize the need for significant and sustained investments in semiconductor and display manufacturing due to their complex and capital-intensive nature.
• Enhancing Design Component: Focus on enhancing the design component of chip production, as it creates substantial value. Harness India’s capability in chip design to establish competitiveness in the global market.
• Enhanced connectivity, capability-building measures, and robust policy mechanisms are essential for India to make its mark in the semiconductor industry.
• Emphasis should be on developing the entire chip-making chain, including design, fabrication, and testing facilities.

Conclusion:

Semiconductors represent the currency of power in the Information Age, driving geopolitical tensions and reshaping global dynamics. India’s response to these challenges will determine its role in the evolving semiconductor landscape. Collaboration and coordination among stakeholders are essential for realising India’s aspirations in the semiconductor sector and driving economic growth and development.

Source:

Live Mint

Mains Practice Question:

Examine the geopolitical significance of semiconductors in the contemporary world, focusing on recent tensions between major powers like China and the US. Discuss India’s position in the semiconductor landscape.