India and the Global Computer Chip Industry
The nuclear bomb reshaped the world after World War II, securing America's leadership on the global stage. Similarly, the computer chip industry has given Taiwan a dominant position in the global supply chain. However, one critical element remains largely in American hands—chip design and development, which accounts for about 60% of the industry's value. Additionally, a Dutch company has developed a machine capable of producing chips as small as 5 nanometers, making it a key leader in advanced chip manufacturing.
These three nations—Taiwan, the U.S., and the Netherlands—now hold an ironclad grip on chip design, manufacturing, and supply, hence politics is a big part of chip building and outsourcing its production to other nations.
India is positioning itself within this strategically vital industry. Though India was late to the game, starting about five to seven years behind global leaders, the country began making significant moves in 2022. On January 1st of that year, Indian Prime Minister Narendra Modi announced a $10 billion incentive package to encourage the establishment of chip manufacturing plants in India. Recently, an additional $15 billion has been added to this fund.
While Intel originally led chip manufacturing in the U.S., it lost its leadership to Taiwan's TSMC under the guidance of Morris Chang, who revolutionized chip production. Since then, Taiwan has maintained its monopoly on advanced chipmaking. The final stage of chip production—creating imprints at the microscopic level—is dominated by Dutch technology, which remains closely guarded. Currently, 70% of chips are produced by TSMC, utilizing the Dutch machines.
China has made extensive efforts to acquire this technology, through both legitimate and illicit means, but has only managed to produce legacy chips at 28nm, although it has tried and made inferior 7nm chip. Despite attempts at reverse engineering, they have been unable to match Taiwan’s advanced capabilities.
In response to Taiwan’s dominance, the U.S. has been working to attract more chip manufacturing back home. President Biden’s CHIPS Act includes over $60 billion in incentives, with $39 billion in direct grants aimed at attracting chip fabricators. While Europe is also building its own capabilities, it remains dependent on Dutch technology for advanced processes.
India’s $25 billion incentive package has already drawn interest from major players. Micron, an American chipmaker with operations in Taiwan, is building a chip testing facility in Gujarat for final assembly and testing. Tata is collaborating with Taiwan's PSMC to construct two fabrication plants in Gujarat, with the first already under construction, along with a final testing and assembly plant in Assam. Tower Industries of Israel is also partnering with the Adani Group to establish a FAB facility in India, while L&T is expanding its chip assembly and design operations separately.
In addition, during PM Modi's visit in September 2024, President Biden agreed to establish a new semiconductor fabrication plant in India focused on advanced sensing, communication, and power electronics for national security. This will be a next-generation FAB. The timing of it is not certain.
Though India is a late entrant, it is quickly establishing itself as a player in chip manufacturing. Initially focusing on legacy chips at 28nm, India aims to advance to 14nm within a few years. However, due to stringent controls on cutting-edge technology, access to 5nm chip manufacturing is still out of reach for India, but it may be attainable in the future.
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