UPSC Daily Editorial Analysis | 30 April 2022

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What the article is about?

  • Talks about the Semicon diplomacy and future of India’s foreign policy.

Syllabus: GS-II International Relations; GS-III Semi conductor sector, Economic growth.

Semiconductors :

  • Semiconductor chips are the lifeblood of the modern information age.
    • The manufacturing cycle of a semiconductor chip from sand to a finished product, sees it change hands approximately 70 times across international borders.
  • However, the semiconductor manufacturing capacities are concentrated in a few geographies.
    • Nearly all leading edge (sub 10nm) semiconductor manufacturing capacity is limited to Taiwan and South Korea, with nearly 92 per cent located in the former.
    • 75 per cent of the semiconductor manufacturing capacity is concentrated in East Asia and China.
  • The concentration of capacities poses many challenges, leading several countries to be vulnerable to a few.

Opportunities for India:

  • Companies are looking to diversify their supply chain and for alternatives to their bases in China.
    • The chip shortages due to Covid-19 have hit automakers with a revenue loss of $110 bn in 2021.
    • The Russia-Ukraine conflict and its implications for raw material supplies for the semiconductor value chain has also poised chipmakers to invest in strengthening the semicon supply chain.
  • India must seize this opportunity and become an attractive alternative destination for semiconductor manufacturing.
    • The way ahead is conceptualising a semicon diplomacy action plan.

Way Ahead:

  • Placing semicon diplomacy at the heart of India’s foreign policy is essential both strategically and economically.
    • Semiconductors are used in critical infrastructures such as communication, power transmission etc., that have implications for national security.
    • The establishment of the value chain for semiconductors would ensure a multiplier effect on the entire economy.
    • Further, since electronics items form one of the most imported items after oil and petroleum products, domestic production would be saving forex and reducing the balance of payments(China)
  • One of the ways of leveraging semicon diplomacy is increasing multilateral and bilateral cooperation.
    • A key institution with immense potential in this regard is the Quad.
    • Australia, can be an important supplier to fill in India’s deficits.
    • The US and Japan can be leveraged for capacity building and their advanced semiconductor technology in logic and memory segments.
  • Semicon diplomacy is pivotal to India’s Act East Policy, aims to build resilient ties in the Asia Pacific region.
  • The recently announced Semicon India programme which provides $10 bn fiscal support and other non-fiscal measures shows strong political will and is a step in the right direction.

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