India’s Semiconductor Initiative and the Status of Pakistan’s Microchip Drive

As a part of the “Make in India” scheme and to increase the manufacturing share of its GDP, the Government of India is marching into the semiconductor/microchip domain, seeking investments, foreign technology, and greater employment opportunities. The recent supply inconsistencies of microchips due to price hikes and shortage during the pandemic have underlined the significance of a diversified value chain and non-reliance on sole suppliers. With semiconductors being the building blocks of machines in various areas from health, security, and transport to communication, the emerging technologies, including 5G and big data, would multiply their demand. Therefore, like many other states, India wants to reap the benefits of the expanding semiconductor market and aims to sidestep the negative repercussions of the US-China tech standoff.

Apart from avoiding further supply shock, another reason behind the initiative is the Indian commitment to climbing the global electronics chain. To ensure such progress, the government is offering one of the best incentive packages currently being offered in the world for the development of semiconductors. These incentives are held out for each step of the supply chain ranging from electronic parts to complete products.

The Indian Cabinet, under the leadership of Prime Minister Narendra Modi, has recently approved the Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India. Overall, INR 2,30,000 have been committed to establishing the country as the centre for electronics development, of which semiconductors are the fundamental constituents. Likewise, INR 760 billion has been sanctioned for designing and manufacturing microchips. Also, the state would finance up to half of the cost of the companies picked to install microchip fabrication plants in the country. Besides the one lac ancillary job openings, the programme will generate around 35000 specialists’ jobs.

Foxconn, a mega electronics firm from Taiwan that currently makes iPhones in India, has joined hands with a local mining giant, Vendata, for manufacturing microchips in India.

Since the beginning of this year, the Indian Ministry of Electronics and IT (MeitY) has been collecting applications for semiconductor fabrication plants. Moreover, the ministry has also been listing the best nominees for the Indian Semiconductor Mission (ISM) top management positions until 20 February.

For India, the latest landmark development in the ISM is the imminent installation of a massive local fabrication facility. Foxconn, a mega electronics firm from Taiwan that currently makes iPhones in India, has joined hands with a local mining giant, Vendata, for manufacturing microchips in India. Following a memorandum of understanding and an official statement released in the mid of this month, discussions are currently underway to circle in on the location of the fabrication plant. It will be a possible frontrunner of an Indian microchip plant.

Given the recently experienced stark shortfall of microchips, the inadequacy is expected to last well into 2023. The value chain disruptions have highlighted the significance of chip sufficiency, while the mounting demand for electronic goods in a distanced environment and remote working conditions has augmented their market. In view of the wider geopolitical friction, the Indian efforts around semiconductors are expected as manufacturers and markets around the globe search for substitutes to standard suppliers like Taiwan and China.

Therefore, as electronics manufacturers are looking for alternatives to the typical suppliers, the scenario seems rather conducive for India as the country has augmented its electronics domain in the last few years. It is second only to China in mobile manufacturing. Apple and Samsung manufacturers are stationed there, including Wistron and Pegatron, other than Foxconn. The eventual Indian ambition in the microchip arena is to generate a comprehensive semiconductor ecosystem. It will include designing, fabricating, packaging, and testing the microchips, thus resulting in a complete ecosystem.

Minister for Information and Broadcasting Chaudhry Fawad Hussain has stated that the Prime Minister, on his recent visit to China, has deliberated upon moving the microchips industry to Pakistan since the expertise is significant for both the states.

Currently, the Indian technology-based exports exceed $150 billion, whereas technological goods exported from Pakistan value around $1 billion. Considering the record shipments of semiconductors worldwide, Pakistan also realises the microchip potential as an avenue of technological development. Also, given the threat of microchip shortage lately, the country needs to mitigate any supply chain risks in the future. While microchip expertise is a benefit, ensuring a secure semiconductor supply chain is a prerequisite for the world following the pandemic. One of the ways the microchip companies are securing their manufacturing process during the pandemic is through the relocation of their production plants. Minister for Information and Broadcasting Chaudhry Fawad Hussain has stated that the Prime Minister, on his recent visit to China, has deliberated upon moving the microchips industry to Pakistan since the expertise is significant for both the states.

For Pakistan, a comprehensive semiconductor policy is ideally required. In this domain, however, Pakistan only has a Mobile Device Manufacturing Policy 2020 under the “Make in Pakistan” initiative. Nonetheless, during the Information Minister’s visit, Chinese firms have shown interest in collaborating with Pakistan in the semiconductor domain. Likewise, Pakistan has also disclosed its plan to convert a Special Technology Zone into a semiconductor zone, the first of which was inaugurated a couple of months ago. Previously, the state announced an exemption of taxes to firms operating in the Lahore zone for ten years. Apart from China, firms from the US, Canada, and Australia have also shown an inclination for cooperating with Pakistan in this area.

Though the Indian Semiconductor Mission could be investment intensive, with Pakistan planning to begin designing microchips locally, Pakistan seems to be on the right trajectory. It is incredibly challenging to craft a semiconductor chip, no wonder various manufacturing hurdles also contributed to the global microchip deficit. Also, the ridiculously lofty cost implies that breaking into the microchip market is a tricky feat to pull off. On the other hand, primarily local design and international manufacturers’ relocation to Pakistan generally can be a good starting point. Stakes are high for global manufacturers as well as they are looking for diversifying their production bases post the pandemic. As for India, it is already engaged in designing semiconductors for third parties. Harnessing its prowess in chip design could be an intelligent line of action and would pay off in the long run with outsourcing manufacture considering its earlier attempts of chip manufacture have not met a good fate in the past.

Fareha Iqtidar Khan

Fareha Iqtidar Khan is Associate Editor at the Centre for Strategic and Contemporary Research. She is also Visiting Faculty at the International Islamic University, Islamabad.

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