India Needs To Be ‘Aatmanirbhar’ For Semiconductors — Taiwan Can Help

It’s time to integrate India’s foreign and industrial policies to compete with China and be truly self-reliant

The semiconductor shortage has been caused by a surge in demand across the world and reduced production.

(Photo by The Quint)

Over the course of the 20th century and well into the 21st, great powers of the world have used aid, trade and commerce, also known as the tools of economic statecraft, to maintain their footing on the global stage, and, in some cases, to even ascend to the status of a great power. As India aspires to become a $5-trillion economy and earn a seat at the table with global powers such as the US, China and Japan, the rationale for narrowing the divide between industrial and foreign policymaking is even more pronounced.

The past few years have driven home the urgency to take on a more offensive foreign policy approach, over a defensive one. China’s encirclement with debt-infused infrastructure projects in India’s neighbourhood, its border incursions in the North, the unprecedented destruction unleashed by the COVID-19 pandemic, and the abrupt American troop withdrawal from Afghanistan have necessitated a forward-looking approach to foreign policymaking.

The use of economic statecraft will fall under that category of foreign policymaking and it could be the catalyst for fostering better relations between the world’s most vibrant democracy and the world largest, i.e., between Taiwan and India.

Beyond One-China Policy

In the free & democratic world, Taiwan is often touted as one of the world’s leading democracies. However, the world’s largest democracy, India, does not recognise it as an official state. While the two maintain relations through foreign and cultural offices, India maintains a one-China policy, and the chances of it reviewing that policy remain slim. Nevertheless, there are other avenues through which the relationship between Taiwan and India can be developed. In particular, the economic dimension of the relationship presents immense opportunities for growth.

Since the Galwan valley clash of 2019, the Modi government has implemented a slew of measures to decouple from China and accelerate its ‘Aatmanirbhar Bharat’ and ‘Make in India’ initiatives to reduce its dependency and overreliance on Chinese imports. And subsequently, in 2020, the COVID-19 pandemic magnified the risks and exposed the vulnerabilities associated with such an overreliance.

The overreliance is profound in the electronics and allied industries. And this is precisely where Taiwan could step in to fill the void. Taiwan is one of the world’s largest exporters of electronics and controls over 60% of the market share of semiconductor chips used in cars, mobile phones, computers, CCTV cameras and other high-technology products.

Semiconductor Shortage Has Crippled Industries

In the first week of August, New Delhi was phoning its diplomats in the US, Japan and Taiwan to secure semiconductor chips for the struggling auto industry. The halting of semiconductor production at a few manufacturing sites around the world and the surge in demand due to work-from-home conditions led to a mismatch between demand and supply.

The impact of the mismatch was particularly hard on the automobile industry, which uses semiconductor chips. Earlier in the year, automobile plants in Detroit, US, had to stop production over an acute shortage in supply of semiconductor chips. That could be the fate for plants at Manesar, Pune and Chennai, leading to a loss in production, anywhere between 80,000-1,00,000 cars in the third quarter if the efforts of the diplomats don’t bear fruit.

The Joe Biden administration in the US acted proactively and incentivised semiconductor fabrication units to set up shop in its Southwestern state of Arizona. This was the product of a 100-day supply chain reviewed and conducted to identify sectors that were significant to the national security and that were overly reliant on China.

Similarly, in India, Prime Minister Narendra Modi had offered around $1 billion in cash incentives for enterprises interested in setting up in the country. If Biden administration’s reshoring moves work in favour of his “building back better” agenda, the setting up of factories in India will help the Modi administration realise both its “Aatmanirbhar” goals and its objective of “Make in India”.

Tata's Steely Approach

Tata’s N. Chandrasekaran has been the most notable one to have jumped on the bandwagon, expressing his desire to get the Tata group into semiconductor manufacturing. This move will address long-term supply concerns of semiconductor chips and protect the Tata Motors supply chain from disruptions. Tata, under Chandrasekaran, has proven several analysts wrong through its revival of Tata Steel and its stellar performance with the Tata Consulting Services.

Back in 1999, the Tatas faced humiliation in Detroit when they approached Ford to sell their passenger vehicle business. Almost a decade later, karmic justice was served and Tata acquired Ford’s Jaguar and Land Rover.

Tata has consistently been India’s pride by standing up to Western competitors, by designing and manufacturing India’s first indigenous car, Indica, and by running a highly profitable global enterprise.

Given its track record, it could very well be the right candidate for the job. However, Taiwanese expertise in manufacturing semiconductor chips for the world should not be discounted. A collaboration between Indian enterprises, such as Tata Sons, and the Taiwanese behemoth Taiwan Semiconductor Manufacturing Company (TSMC) could provide a head start to India’s high-technology manufacturing story. For Taiwanese manufacturing, partnering with a highly successfully Indian conglomerate, such as Tata, could prevent hiccups, like the ones it experienced with Wistron and Foxconn.

Learning From the Mobile Handsets Story

A testament to the Modi administration’s success with ‘Make in India’ is the manufacturing of mobile handsets for Indians in India. In 2014, just over 50 million mobile handsets were made in India, making up 19% of its domestic demand; in 2020, around 260 million mobile handsets were made in India, making up 96% of domestic demand.

However, this did not constitute true indigenisation as it was reliant on international suppliers for the components that went into each mobile handset, such as semiconductor chips.

Competing with mainland China will require indigenisation at every step in the supply chain and moving up in the value chain. And this will be possible without relying on Western conglomerates that have neglected and humiliated Indian enterprises in the past.

India using tools of economic statecraft and its private sector to foster better relations with the most vibrant democracy in Asia will, in turn, help it attain self-sufficiency, take a lead in high-tech manufacturing, and prevent supply chain bottlenecks in the future.

If the Ministry of External Affairs using diplomatic channels to secure semiconductor chips was a first step in meshing foreign policy and industrial policy, partnering with Taiwan to move forward on the goal of ‘Aatmanirbhar Bharat’ can be the next.

(Akhil Ramesh is Non-Resident Vasey Fellow at Pacific Forum, USA. He has worked with risk consulting firms, think tanks and in the blockchain industry in the United States, India and in the Philippines. He can be reached @akhil_oldsoul on Twitter. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)