Race For Chips Promises A Wafer-Thin Finish

In India’s techade of growth and the race to the global pole position as the third largest economy in the world, the role of a robust domestic semiconductor industry is paramount if India must sustain its technological prowess and garner the sustainable advantages of digitalisation.

If at all we need any testimony, today Nvidia is the most valuable publicly listed company in the world, with a peak share price of $158 (a 3000 per cent increase in the last five years) and a current market capitalisation of nearly $3 trillion — more than the gross domestic product (GDP) of Brazil and only slightly short of France’s GDP.

The demand for Nvidia chips is fuelled by the boost in artificial intelligence (AI)-led computing and a robust supply chain with various partners, primarily TSMC, the Taiwanese integrated circuit (IC) manufacturing giant, which has garnered 90 per cent of the market on high-end chips below 10 nanometre (nm) and a 68 per cent share in other nodes.

India’s semiconductor mission is aimed at providing a boost to the indigenisation of the silicon wafer supply chain to cater to the growing demand for chips, expected to touch $100 billion in 2030 by various estimates, and secure against export controls and geopolitical risks.

The rare earth minerals for ICs and electric vehicles (EVs) are singularly dominated by China, thus putting India at a significant disadvantage from a supply chain as well as a trade imbalance perspective.

Nation-states have always competed for 'VRIN' (valuable, rare, inimitable, non-substitutable) resources; the new frontier for long-term sustainable competitive advantage is clearly in building patented digital technologies, particularly access to advanced ICs that drive almost all the modern innovations, including quantum computing, AI, space technology, and telecommunications.

For India to secure its IC supply chain, we ought to leverage our capability to make for India and the world. The three large fab (short for fabrication facility) projects announced as public-private partnerships with the TATA group, Micron, and so on for both fabs and OSAT/ATMP are a great start in the chip race to de-risk various ongoing geopolitical tensions that have become a real strain on multilateral relations, threatening the strategic autonomy position of India.

The domestic market for 28 nm chips is massive and, if we go by the latest announcements from the Indian information technology (IT) minister, they should start yielding results from 2024 onwards. However, there are various unanswered questions with respect to the readiness of the states to successfully operate the various fabrication units. 

India has always been well known for fabless designs since the start of Texas Instruments (TI) in the then-Garden City of Bangalore in the mid-1980s. To secure the IC supply chain, indigenous manufacturing is the need of the hour, but a robust ecosystem, which is sorely lacking, is a big stumbling block, particularly in regions that don’t have a manufacturing base — lack of a skilled workforce, access to green power if we care for the environment, unlike China, which is the largest consumer of coal power; devoid of local issues, unlike Singur in the Hooghly district of West Bengal; access to water, transport, and logistical support; and, of course, a smooth land acquisition process that supports the long-term viability of such highly capital-intensive projects.

One might argue that domestic politics impact the choice of locations when regions like Karnataka and Tamil Nadu should have been frontrunners given their comparative advantage in access to talent, a research and development (R&D) base, and a manufacturing ecosystem. Be that as it may, what’s important to understand is that we need to secure our supply chain at the earliest; however, only time will tell if these locations have been the right choice.

Nevertheless, we ought to acknowledge the wisdom of the TATA group, Micron, and other IC players besides the Government of India, who are all investing heavily in billions in capital outlay to build a fab industry in India, hitherto non-existent for many decades despite a robust fabless IC design culture responsible for churning high-impact patents out of India but owned by large American multinational corporations (MNCs) like Intel, TI, Micron, AMD, and Qualcomm, to name a few.

If we know the history of the semiconductor industry, Chip War by Chris Miller captures the geopolitical impact of the chip industry and the clear role various national governments have had in fuelling their domestic chip industries.

It is astonishing that Taiwan has managed to retain leadership in chip manufacturing with South Korea and China as alternatives. Japan, despite being the early consumer electronics stalwart, has slided back in chip manufacturing and exports despite easy access to capital through cheap interest rates and a growing market presence in the United States (US) since the 1980s.

The reason these Asian countries have had a headstart from the 1960s onwards is the focus of their respective governments on understanding the shift in world power from fossil fuels to chips. They understood that software will eat everybody’s lunch and that chips are the underlying behemoth fuelling the appetite.

Better late than never seems to be the mantra for India to race against time to establish a secure IC supply chain. The role of the US-India partnership through various initiatives like iCET (Initiative for Critical and Emerging Technologies), innovation handshakes, and MSP (mineral security partnerships) is paramount to spurring great startups like Cosmic Circuits, Saankhya Labs, etc, that are building frontier technologies expected to make 'Make in India' come alive.

The relationship with QUAD is going to be a significant game changer; continue garnering support for building fabless technologies and ensuring access to rare earth minerals that help withstand any supply shocks. The race has just begun for India, and with initiatives like the India Semiconductor Mission, it’s time to walk the talk, or some would say to prepare for a long marathon run, but certainly we could all agree that it may not be a photo finish, but what separates winners from losers is truly wafer thin.