India faces a tough task ahead: to show its commitment to building the semiconductor industry. Industrial policies with capital may attract investments and potential bids, but favourable trade policies and a conducive business environment can ensure the completion of the projects and yield results. In the long run, this approach can attract more international semiconductor firms. India can be closer to its goals by adopting the following policy recommendations.
To begin with, India must change its approach to foreign trade policy and make it more accommodating to the technology sector. The government can then focus on developing a comprehensive trade policy suited or catered to the semiconductor industry itself.
Existing mercantilist and distortive trade practices that undermine the tenets of market-based competitiveness in the industry must be eliminated. This can include exorbitant subsidies provided to the domestic sector that might discourage foreign firms from investing in the country.
Furthermore, government commitment is necessary for engaging in international forums and multilateral trade groupings that can advance the growth of the semiconductor industry. Some policy instruments that India can look at include:
The World Semiconductor Council (WSC)
The WSC is an international forum bringing together semiconductor leaders and technical experts to address global issues concerning the industry. Currently, the organisation comprises the semiconductor industry associations of Japan, South Korea, the US, Europe, China and Taiwan. Established in 1996, the WSC promotes international cooperation in the semiconductor industry to facilitate the industry’s long-term growth.
India should join the Council to make its voice heard among the semiconductor powerhouses. The Council is a strong proponent of free trade and is guided by the principles of fairness, respect for market principles, and consistency with WTO rules. The WSC also recognises the importance of open markets without discrimination and believes that the competitiveness of companies and their products should be the principal determinant of industrial success and international trade.
Any aspiring member (a country or region where the association is located) must meet one of the two criteria regarding tariff elimination. First, all tariffs have been eliminated. Second, a commitment to expeditious elimination of all tariffs on semiconductors or suspension of such tariffs pending their formal elimination. India’s commitment can bring about investor confidence and potential partners to build the domestic ecosystem. This would also extend India’s access to free trade with respect to the semiconductor industry.
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The 2015 Information Technology Agreement (ITA) Expansion
In 1996, the World Trade Organisation’s Information Technology Agreement (ITA) was the primary tariff-cutting agreement related to high-tech and information technology products. The rapidly evolving digital revolution has made the WTO rethink the overall scope of the agreement itself. This kickstarted the ITA-II negotiations in 2015 and resulted in the addition of over 200 technology products.
India was a signatory to the original 1996 agreement but opted out of the expansion agreement, which would have mandated duty-free treatment to the expanded list of tech products, including crucial semiconductor products and components. At the time, New Delhi argued that the agreement would impact the domestic electronics manufacturing sector and create an over-reliance on imported electronic goods. The government had introduced the ‘Make in India’ policy to improve domestic manufacturing across various sectors. This has effectively prevented Indian companies from accessing critical semiconductor products at zero-tariff structures.
It is in India’s interest to become an official signatory of the expanded ITA. Doing so would enable the domestic sector to access zero-tariff goods related to the semiconductor industry. It would also help startups and domestic manufacturers improve their export volume. The wide range of technology products offered by the ITA can ensure that strategic sectors such as semiconductors would be at the forefront of India’s international trade.
India has traditionally stayed away from trading blocs and agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), citing the need to protect its domestic economic sectors. But for supply chains to function efficiently, the technology realm requires plurilateral cooperation. It is imperative to have a free flow of goods and services in the semiconductor and high-tech sector. India will benefit domestically and can play a bigger role in the global value chain if it joins some of these multilateral groupings that accrue benefits specific to the industry.
Multilateralism – Imperative in Current Geopolitical Climate
To ensure a seamless transfer of semiconductor technology, there should be a single point of focus for the Indian government, perhaps through the establishment of technology alliances catering to the sector. A ‘bubble of trust’ approach can help India engage with like-minded states through a multilateral or plurilateral platform. This can help improve information-sharing mechanisms in specific high-tech industries including semiconductors.
These technology-sharing agreements can happen between alliance partners through existing groupings like the Quad. For example, the ‘Quad Supply Chain Initiative’, announced at the first in-person summit of the group, can be expanded to include trade secret protections that will facilitate technology transfer agreements easily. In the information age, technology alliances can become the future of diplomacy. With supply chains facing bottlenecks, disseminating semiconductor technology across multiple states through technology transfer agreements can reduce existing vulnerabilities. India can play its part in facilitating technology transfers to its domestic sector – to build resilience in the global value chain and its own ecosystem.
Ultimately, convincing international markets to view India’s potential as a semiconductor powerhouse relies on transparent technology sharing and functioning systems related to high-tech sectors.
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This article is adapted from a paper titled ‘Harnessing Trade Policy for India’s Semiconductor Growth’ written by Arjun Gargeyas and Pranay Kotasthane and published by the Hinrich Foundation.
Arjun Gargeyas is a research analyst at Takshashila Institution. The views expressed in this article are those of the author and do not represent the stand of this publication.
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