India, Japan must share resources to firm up semiconductor supply chain

THE exit of Foxconn from

a $19.5-billion semiconductor joint venture with Vedanta Ltd has apparently dampened the mood in India. This comes right after the euphoria over the Cabinet approval for US chipmaker Micron Technology’s $2.7-billion project to set up a new semiconductor packaging and testing unit.

Projects involving Singapore-based IGSS Ventures and global consortium ISMC have also been stalled. India’s second innings in chipmaking has run into rough weather as it attempts to build a robust semiconductor ecosystem. The country’s semiconductor market is expected to reach $63 billion by 2026. India aims to fuel its global aspirations with a strong manufacturing base aided by high technologies. So, what should India do under these circumstances?

Acquisition of technology, especially cutting-edge, is not merely about gaining bureaucratic approvals and making the best cost estimates. Rather, it is a function of geopolitics. India’s own experience with nuclear apartheid and space technology denials can attest to it. A favourable geopolitical climate facilitates investment and smoothens technology transfer. For example, in the second phase of the Cold War, apart from commercial considerations, the US decided to offshore its production of semiconductor materials and microelectronics to allies like Japan so as to maintain supplies for the US military forces stationed in the region and ensure the presence of partners in its camp.

Now, India seems to be in a desirable position to obtain resources and technology as the US is nudging it to play an active role in the Indo-Pacific region. The initiative on Critical and Emerging Technologies (iCET) is a step in this direction, especially collaboration in the development of semiconductor design, manufacturing and fabrication ecosystem in India. However, it would be unwise for India to put all its eggs in one basket as its relations with the US will continue to remain unsettled since they both pursue divergent global ambitions despite sharing certain short and medium-term foreign policy objectives.

Simultaneously, there appears to be an increased strategic synergy and improved technological cooperation between India and Japan. The relationship was upgraded to ‘Special Strategic and Global Partnership’ in 2014. The joint statement, ‘Japan and India Vision 2025 Special Strategic and Global Partnership Working Together for Peace and Prosperity of the Indo-Pacific Region and the World’, issued in December 2015, transformed it into a broad-based relationship. Besides, both nations have signed key pacts — a memorandum of understanding (2013) between the Indian Nuclear Society and the Japan Atomic Energy Society to promote peaceful uses of nuclear science and technology; an MoU (2016) between JAXA and ISRO to explore outer space; and the civil nuclear agreement of 2017. Japan’s geopolitical necessities have played a significant role in strengthening the bilateral relationship.

Japan occupied a pride of place in semiconductor fabrication when its firms accounted for 51 per cent of the world’s market share in 1988. Allegations of unfair trade practices and dumping, levelled by American high-tech industries against Japan, paved the way for the US-Japan Semiconductor Agreement, which sent Japan’s semiconductor industry downhill. Still, it retains 6 per cent share of chips (logic, micro, memory and analogue), 35 per cent of manufacturing equipment and 50 per cent of material in the global semiconductor supply chain.

The present global situation offers an opportunity for India to leverage its geopolitical importance to further its technological goals with Japanese assistance. Both India and Japan are actively seeking collaboration with partners and allies. Hence, they are at a crossroads in their pursuit of semiconductor technology, though with different objectives — Japan wants to regain its dominance, while India, having squandered its early advantage, is trying to gain a foothold in the global semiconductor supply chain.

In the MoU signed in 2021, India and Japan agreed to work on 5G and 6G, telecom security, submarine optical fibre cable and smart cities. But hardly any Japanese company or investor has shown interest in the Indian semiconductor space despite the centrality of chips in these sectors.

There are no free lunches in international geopolitics. India’s less-than-perfect infrastructure and Byzantine bureaucracy are often held against it with regard to technology transfer and joint production. India is now trying to create a conducive ecosystem, apart from offering huge financial incentives, unlike in the past. Indian software engineers account for around 20 per cent of the world’s semiconductor designers, though they work mostly for foreign companies, which own the intellectual property. In effect, a large pool of world-class talent is available for the Japanese design firms to harvest and set up shop here amid its dwindling human resources.

India is willing to fund even trailing-edge chip fabrication, although it had initially focused on cutting-edge semiconductors.

Therefore, there is less pressure to share cutting-edge technologies. As major countries race to strengthen their position in the semiconductor supply chain, it is imperative that India and Japan, as strategic partners, share resources to ensure supply chain security in contingencies. Moreover, Japanese firms can monetise their trailing-end technologies and compensate for the loss of the Chinese market to an extent.

Worryingly, regarding technology transfer, Japan has been accused of being ungenerous and dispensing outdated technologies, going by the experiences of South Korea and Southeast Asian nations. The ShinMaywa US-2 amphibious aircraft deal between India and Japan fell through as the latter was reluctant to share technology.

India needs to make Japan understand that a serious commitment to help ease Japanese geopolitical predicaments may be possible if Tokyo joins New Delhi’s semiconductor journey lock, stock, and barrel. India can cite its time-tested strategic ties with Russia and France, owing mainly to their willingness to provide advanced technologies.