A distance before cashing in our chips

Production-linked incentives for Micron Technology to set up a testing and packaging plant in Gujarat are a significant, but by no means breakthrough, development in India’s plan to become a base for semiconductor manufacturing. The US memory chip-maker was in the process of diversifying production out of China before the regulators in Beijing labelled its products a cybersecurity risk. Micron, however, cannot ignore the Chinese market, and has committed extra investments in production facilities there despite being banned from key infrastructure projects. China, on its part, would be ceding market share to Micron’s South Korean competitors Samsung and Hynix if it escalates its trade row with the US. Micron’s supply chains will continue to be dependent on China, and India is part of a diversification strategy that includes investments in Japan.

India’s chip-making plans also have to contend with US incentives to boost semiconductor manufacturing at home. Washington has committed much more than New Delhi to build indigenous semiconductor capacity. For all the talk of moving away from dependence on Chinese manufacturing, the intent is to bring jobs back home. Micron is expected to lose some of its Chinese business to Samsung and Hynix despite the US urging South Korea not to make up for Chinese production shortfalls. The US has failed to weaponise oil against Russia. A similar endeavour with memory chips against China does not hold promise either.

India has redrawn its incentives for semiconductor fabrication units to cover chips used in a broader range of industries. Three proposals received to set up fabrication units have run into problems like sourcing technology and delays over merger. As Micron’s Chinese developments demonstrate, industries from automobiles to consumer electronics are right in seeking supply chain resilience in semiconductors. Responsive investment policy does enhance India’s draw as a base for fabrication. Greater strategic comfort with the US and improving infrastructure also come in handy.