India must cash in on chip war

The US government’s latest directive to TSMC, halting shipments of advanced semiconductors to China, marks a significant escalation in the global chip wars. The controls target chips of 7 nanometres (nm) or more advanced designs used in Artificial Intelligence (AI) applications. They follow the discovery of TSMC components in AI processors made by Chinese tech major Huawei, which has been virtually banished from most western markets due to American sanctions. TSMC is one of only three companies in the world that can make such advanced chips.
This isn’t an isolated action. The US has tightened its grip on advanced chip sales to China, from restricting Nvidia and AMD’s AI chip sales in 2022 to planning additional controls on about 120 Chinese tech firms. The Biden administration’s sustained pressure is forcing global tech companies to rethink their manufacturing and supply chain strategies, and his successor, Donald Trump, is only likely to double down on this strategy since he was the architect of opening the US’ most serious trade battlefront with Beijing.
These developments could accelerate the geographic redistribution of semiconductor supply chains too — a shift India must strategically position itself to leverage. Experts such as economic historian Chris Miller, author of Chip War, note that companies are creating parallel systems — one for the Chinese market and another for the rest of the world. Apple’s expanding manufacturing presence in India exemplifies this trend, alongside other smartphone makers and component suppliers who have set up shop in the country. To be sure, India has recognised this opportunity. Its 2021 scheme offering incentives to chip companies has attracted investments to set up four fabrication units till now, but none approach the sophistication of the chips central to the technological arms race. The challenge lies in money, technology access, and talent. India has emphasised local partnerships and employment, but going forward, it must create an environment that attracts sophisticated manufacturing capabilities. This requires commitments to safeguard intellectual property and address technology transfer concerns of global players.
Three fundamental policy tweaks are essential: competitive incentives matching global standards, investment in specialised workforce development, and accelerated infrastructure improvements. However, expectations must remain realistic. Even with massive investments, building semiconductor capabilities takes years. The goal shouldn’t be to replicate Taiwan’s advanced chip manufacturing immediately but to strategically integrate into the global supply chain while building foundational capabilities.