Semicon diplomacy – Significance and the way forward

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Context: The current decade presents a unique opportunity for India with respect to semiconductor manufacturing.

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This topic of “Semicon diplomacy – Significance and the way forward” is important from the perspective of the UPSC IAS Examination, which falls under General Studies Portion.

Why do semiconductors matter?

  • Semiconductor chips are the lifeblood of the modern information age. They enable electronic products to compute and control actions that simplify our lives.
  • Semiconductor chips are the drivers for ICT development and one of the key reasons for the current flattening of the world.
  • The semiconductor is the cornerstone of all electronic products.

However, the semiconductor manufacturing capacities are concentrated in a few geographies.

Semiconductor manufacturing capacities

  • Nearly all leading-edge semiconductor manufacturing capacity is limited to Taiwan and South Korea, with nearly 92 per cent located in the former.
  • Further, 75 per cent of the semiconductor manufacturing capacity is concentrated in East Asia and China.

The concentration of capacities poses many challenges, leading several countries to be vulnerable to a few.

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Why the current decade presents a unique opportunity to India?

  • Companies are looking to diversify their supply chain and for alternatives to their bases in China.
  • The chip shortages due to Covid-19 have hit automakers with a huge revenue loss in 2021.
  • The Russia-Ukraine conflict and its implications for raw material supplies for the semiconductor value chain have also poised chipmakers to invest in strengthening the Semicon supply chain.
  • India must seize this opportunity and become an attractive alternative destination for semiconductor manufacturing.
  • India needs to harness its strengths, such as the strong presence of global EMS players, diaspora, world-class design ecosystem, and demographic dividend, and use it as a pedestal for global partnerships and outreach.

The need to place Semicon diplomacy at the heart of India’s foreign policy

  • Placing Semicon diplomacy at the heart of India’s foreign policy is essential both strategically and economically.
  • Semiconductors are used in critical infrastructures such as communication, power transmission etc., that have implications for national security.
  • The establishment of the value chain for semiconductors would ensure a multiplier effect on the entire economy.
  • Since electronics items form one of the most imported items after oil and petroleum products, domestic production would be saving forex and reducing the balance of payments (BoP), especially vis a vis China.
  • Attaining self-sufficiency in semiconductor manufacturing can mean collective growth for the South Asian region.

Need of the hour

Leveraging Semicon Diplomacy:

  • One of the ways of leveraging Semicon diplomacy is increasing multilateral and bilateral cooperation.
  • This should be done across the value chain of semiconductors — design, manufacturing, and packaging.

The role that the QUAD can play:

  • A key institution with immense potential in leveraging Semicon Diplomacy is the Quad.
  • Australia, being rich in raw materials required for semiconductors, can be an important supplier to fill in India’s deficits.
  • The US and Japan can be leveraged for capacity building and their advanced semiconductor technology in logic and memory segments.

The relevance of the Act East Policy:

  • Considering that the semiconductor manufacturing and testing bases are heavily concentrated in East Asia, the Act East policy provides an opportunity to connect and strengthen ties with key players in the region.

Frequent technological exchanges with ASEAN:

  • Frequent technological exchanges between a regional bloc like ASEAN via tracks in forums like the East Asia Summit and the ASEAN regional forum will be beneficial.

Practice Question for Mains

  1. Semiconductor chips are the lifeblood of the modern information age. Discuss the need to place Semicon diplomacy at the heart of India’s foreign policy and suggest a way forward. (250 Words, 15 Marks).
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