Prime Minister Narendra Modi's vision of India as a chipmaking powerhouse faces a harsh reality check. While Tata Group, India's industrial giant, broke ground on a massive $11 billion semiconductor factory, the road to success is fraught with obstacles, primarily stemming from China's aggressive play in the same space.
A Glimmer of Hope, a Looming Shadow
Tata's strategic partnership with Taiwan's Powerchip Semiconductor Manufacturing offers a glimmer of hope. The focus on mature-node chips, those with features sized 28 nanometers or above, seems like a prudent first step. However, this very segment is where China is flexing its financial muscle.
China's Chip Flood: A Threat to Margins
Fueled by US-Sino tensions and export restrictions, China is pouring unprecedented capital into legacy chip production. This aggressive expansion is projected to add one million more wafers per month by 2024, dwarfing the rest of the world's combined efforts. This will inevitably compress margins for everyone, especially new entrants like India.
The Market Conundrum: Feast or Famine?
India's timing couldn't be worse. While advanced chip demand skyrockets due to the AI revolution, the market for mature-node chips is already well-supplied. Utilization rates have plummeted from near-capacity levels in 2020 to a range of 65-75% today.
Financial Muscle Matters: Can India Compete?
China's government throws its weight behind the industry with a staggering $150 billion in incentives, allowing producers to absorb losses. India, burdened by existing debt and massive infrastructure needs, simply cannot match such largesse.
Beyond Money: Infrastructure Impediments
The chip-making process itself faces logistical hurdles in India. Dependable water and power are critical, yet outages not only disrupt operations but can ruin expensive equipment and wafers in production.
The Upstream Bottleneck: Reliance on Foreign Sources
The lack of robust upstream industries further weakens India's position. Essential chemicals, for instance, require high-grade purification for semiconductor use – a capability India currently lacks. Dependence on overseas sources for these crucial elements jacks up costs significantly.
Protectionism: A Double-Edged Sword
Imposing high tariffs on Chinese chips might seem like a solution, but history offers a cautionary tale. Just as Western nations struggled to control trade flows with Russia, similar tactics with China could backfire. The incentives for corruption and manipulation would be high, potentially disrupting India's burgeoning electronics industry that relies on affordable chip imports.
Beyond Fabrication: Alternative Footholds
Ashok Chandak, president of the India Electronics & Semiconductor Association, emphasizes the importance of Tata's success in attracting further investment. However, the road ahead is undeniably challenging. Entering the less competitive market of chip packaging and testing, potentially with collaborations like the one with Micron, could be a more strategic initial step for Indian companies.
Investing heavily in infant chip fabrication plants, while China saturates the market, might be a risky gamble for India. Prioritizing infrastructure development and establishing a foothold in less capital-intensive segments of the chip ecosystem could prove to be a more sustainable and successful long-term strategy.
