Harnessing Trade Policy to Build India’s Semiconductor Industry

This paper was originally published by the Hinrich Foundation under the Trade and Technology initiative

Abstract

In December 2021, the government of India approved a ‘comprehensive programme for the development of a sustainable semiconductor and display ecosystem’ – the first national program targeting the strategic industry. By announcing an allocation of US$9.78 billion towards developing a full-stack semiconductor ecosystem, New Delhi made clear that industrial policies are its instruments of choice.

In practice, however, state support through industrial policies can be problematic and does not always result in sectoral growth. Equally important – but underappreciated – to successful semiconductor ecosystems are the roles of trade policies and technology transfers, which have led to greater efficiency, higher productivity, lower consumer prices, and faster technological advancement.

From the multilateral trade agreements facilitating industry growth to the fostering of comparative advantages, trade has played a major role in shaping the semiconductor global value chain. Industry giants such as Taiwan and Japan reached their stature because of more liberalized and open market policies. In building its semiconductor ecosystem, India would benefit from a deeper understanding of the primacy of trade policies and technology transfer agreements.

This paper outlines the role of trade policies in India's current context. Divided into five parts, the paper offers examples of the utilization of trade policies and technology transfer agreements by states to build industrial capacity, and delves further into India’s semiconductor industry and its comparative advantages. The paper concludes with a review of the country's current approach, the geopolitical challenges facing India to grow its microchip sector, and policy recommendations.

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