Time for India to ring fence its chip talent from Chinese poaching

Though India’s strengths in the sector are nowhere near that of China’s, the Chinese objective will be to surround India and simply shove it out of any serious heft in global semiconductor supply chains

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To war-game such a situation, a few critical realities have to be accepted by Indians. Image Credit: Freepik

One of Sun Tzu’s finest dicta is that “the supreme art of war is to subdue the enemy without fighting”. In a world where war and trade drive each other and are two sides of the same coin, China has perfected the art of extending its might through its control over global supply chains. The key to capturing such supply chains is to breach tall technological barriers that are carefully protected by intellectual property and talent spread across entire ecosystems of specialised entities. It is here where China has won and continues to win—without fighting.

To ‘fight’ in the world of supply chains is to independently develop technologies by building a science & technology ecosystem twinned with an industrial base that can develop increasingly complex solutions. If done purely with one’s own means, the process is arduous, expensive, and prone to being defeated by established countries that have already achieved economies of scale. To win without fighting, however, requires a fair bit of leapfrogging and underhand measures. Whether it is entering the World Trade Organisation’s ambit while continuing to breach its restrictions or whether it is hiring retired foreign military men to train its own forces, China has had few compunctions in using whatever means necessary to service its ends. The idea is indeed not new; the walls of Constantinople were reduced to rubble by Ottoman cannons designed by a Hungarian, Orban, who had once been on the stipend of the Byzantine Caesar. China understands that the ‘rules-based order’ of the West is an institutional web that will entangle any ambitious country in endless restrictions to protect the West’s hegemony.

China’s continued efforts in the semiconductor space are being stymied by a barrage of export control measures from the West. China has all been locked out of accessing the most advanced lithography machines (the machines that actually etch chips into being) and the many highly specialised components that go into making a lithography machine work. Unsurprisingly, China has been found to be accosting and soliciting personnel working at Zeiss, which is the only lensmaker for lithography machines outside of China. All elements of the Chinese state and corporate complex are involved in a well-coordinated effort to procure the information and people who can enable it to surpass the onerous limitations placed by the West. Should India be worried?

Few know that India’s newfound semiconductor ambitions are in fact a revivification of a failed dream. India’s Semiconductor Lab (SCL) at Mohali was engaged in some niche technologies, which were within striking range of the then-prevailing cutting edge, until governmental neglect and a mysterious fire in 1989 brought disaster to the endeavour. India’s planned revival of the SCL and the various industrial semiconductor facilities being set up under the Production Linked Incentive (PLI) and various states’ schemes requires not only support but also protection, lest history repeat itself.

One has to be cognisant that India’s strengths in the sector are nowhere near that of China’s. By no means are we even close to Chinese sophistication in the sector, nor their well-developed academic-industrial complex. Unsurprisingly, the first iteration of the PLI-semiconductor scheme had no takers, since misguided self-approbation had convinced policymakers that a country with next to no research and industrial ecosystem necessary to support chip manufacturing below 14 or so nanometres (nm), if one is being exceedingly charitable, will suddenly start churning out 7 nm chips. The problem is not that of scale—etching a 7nm chip, a 14nm chip, and a 28nm chip requires completely different machines operating on different principles and levels of technological complexity altogether. These efforts belong to altogether different technological worlds.

Much tinkering with the PLI-semiconductor scheme, tempered perhaps by an amalgamation of reality and foreign mockery, has resulted in multiple entities beginning to set up chip testing, packaging, and fabrication facilities for chips 28 nm and above. This is economically significant since the vast majority of industrial and consumer applications, including in defence, require low-profit-margin chips in the 28 nm to 90 nm range. In fact, the US’ cutting-edge F-35 Lightning-II multirole fighter aircraft were last known to be powered by a 90 nm process chip, though they are undergoing a replacement from 2024 onwards with new chips having an unknown chip thickness. In any case, China’s principal competitor is the intellectual property landlord, the USA, which is aggressively reshoring fabrication and its vast ecosystem of suppliers and niche specialists spread across Europe, Taiwan, and Japan. India remains nowhere near China’s line of fire, notwithstanding the impressive lineup of photo ops in Vigyan Bhavan and the PMO in Delhi.

Yet, Indian professionals are globally respected in the fabless design space. Most such professionals are working in the so-called ‘global capability centres’ (GCCs) in India, which are but captive centres for foreign firms to generate and then ship off intellectual property from India. Some niche Indian firms have, nonetheless, managed to accrue impressive capabilities in the design space. With an SCL undergoing revival, fabs and testing facilities opening up, and a general gaze of attention by the government, the space may indeed bloom. A Trump administration will, in all likelihood, be willing to further escalate its economic and technological hostility vis-à-vis China.

As a consequence, the US just might assist in the movement of global semiconductor capabilities away from Taiwan and Southeast Asia—far more intermeshed and threatened as they are by China—to India. Such an orchestrated shift has a very strong parallel in history as well: the US had set up South Korea as an alternative to a Japan that had briefly raced ahead of the US itself in semiconductors, ultimately leading to Japan becoming a small player in that space. If such a situation occurs or is surmised as such by China, India will have to bear the full brunt of Chinese subversion.

What will such a Chinese assault look like? To war-game such a situation, a few critical realities have to be accepted by Indians. Firstly, corporate India is replete with petty greed, where gaining low-effort, low-research projects takes precedence over taking any risk to compete with foreign offerings. Hence, the acme of corporate Indian function in many sectors is to be reduced to hewers of wood and drawers of water for Western entities, if not hoping, or shall we say praying, for an outright acquisition by them. Avarice also manifests as full-scale venality and willingness to shift to obscure foreign locations, having little cause to do so save for small increases in compensation. One yuan is equal to 12 rupees.

Secondly, industrial facilities in India are abominably susceptible to low-effort disturbances and a trigger-happy judiciary. One need not be conspiratorial to see how shady entities with foreign funding and domestic political outfits align on causing trouble when any big name is in question. India’s largest domestic copper plant has remained shut since 2018 on unfounded claims thanks to a gullible judiciary keen on promoting “sustainable development” following sponsored protests; the Kudankulam nuclear plant narrowly escaped a similar fate, and a Samsung electronics plant faced steep losses thanks to a strike that continued for a month, all in the state of Tamil Nadu! Recently, uranium exploration had to be suspended in the state of Andhra Pradesh following protests. If strategic industries can be held to ransom by labour unrest, funded protests, including those funded by foreign evangelical bodies (a speciality in southern states), and an unrestrained and reckless judiciary, it is only natural that an adversary will use our self-inflicted daftness to their advantage.

Another rendezvous with Sun Tzu becomes necessary: “It is the rule in war, if our forces are ten to the enemy’s one, to surround him; if five to one, to attack him; if twice as numerous, to divide our army into two; if equally matched, we can offer battle; if slightly inferior in numbers, we can avoid the enemy; if quite unequal in every way, we can flee from him.”

The Chinese objective will be to surround us and simply shove India out of any serious heft in global semiconductor supply chains. This will be achieved through three vectors.

• Acquire and absorb any serious Indian semiconductor setup: India is currently paying hundreds of crores of industrial subsidy to restart fermentation chemistry in the pharmaceutical space, despite being a trailblazer in the field a few decades ago. This has come to pass since many of the small companies that were opened up by Indian scientists (with the active involvement of government labs where such chemistry was developed, another case of low-level greed manifesting itself) came to be acquired by Chinese-controlled entities, which promptly replicated these processes and shut these companies down, effectively leading to an osmosis, nay exodus, of know-how from India to China. While many restrictions have come to be placed on Chinese investment in this country (including the dreaded Press Note No. 3 of 2020), it is implicit that in the absence of proper follow-up and governmental vigilance, creative corporate structuring on the Chinese side and the wonders of palm-greasing at the Indian end will have rendered any so-called protections nugatory. Any serious semiconductor setup that may emerge here and compete with Chinese interests is prone to acquisition followed by outright decimation.

• Insurrections and Injunctions: As outlined above, it is easy to manufacture a crippling protest through purported ‘civil society’ in India’s industrial facilities, followed by the involvement of the courts to a stultifying degree. No equivalent of the protections accorded to nuclear or defence sites, or even those of the Essential Services Maintenance Act, 1981, exist to protect critical and strategic industrial facilities. The puzzling indecision of the government to pass the new Labour Codes and not notify their implementation years thereafter only adds to the despondence and gloom underlying the situation. Surely this is not an electoral issue in some obscure constituency? A single day of unplanned stoppage to a semiconductor fab can cause millions of dollars worth of damage and commercial losses; let alone that, the ready injunctions of the courts can keep a facility shut for years on end. The foreign media opprobrium in the event that the government acts tough will be enough for power corridors to shudder, lest the ‘rules-based order’ deems India a pariah for the umpteenth time. At pennies to the dollar, China can lethally strike any particular facility in India that presents any sort of inconvenience to the Chinese.

• Hamster Wheel: Perhaps the easiest, and lowest unit cost method of derailing India’s semiconductor drive, is to simply flood the Indian market with low-research business. The fact that Indian IT, save for a few key exceptions, is largely the back-office for Western firms to do things not worth their time or money should be instructive. Low-research, repetitive, low-value but readily available high volume work, which holds little supply chain power, can be dangled at us as a bait, which we will eagerly lap up. All attention will be diverted to becoming an outsourcing and consulting location for Chinese-controlled entities, stunting any serious growth by making it not worth the effort to grab more advanced stretches of the semiconductor supply chain. Low value, repetitive tasks have become the opium of Indian industry, from which it refuses to snap out of. The lack of any serious industrial research support system by the government, where CSIR has grown into a collection of dying white elephants dragging down the few competent labs still running, further makes it unlikely for industry to pick up research in any meaningful way. Just by giving India junk business, China can fundamentally stymie the Indian semiconductor sector. When this happens, Indians will nonetheless fancy themselves as masters of global semiconductor supply chains (viswagurus). Due to the many AI-replaceable quasi-outsourcing jobs that are being generated now, commercial quislings will be feted as maverick entrepreneurs, and there will be more photo ops with ministers.

It is not as if the solutions to the problem are unknown. God helps those who help themselves. Acquisitions in key sectors can be made subject to increased scrutiny. Specialised legislations to protect the continuity of operations of critical and strategic industrial installations can be brought. The penalties and punishments for corruption or collusion with foreign entities in these critical scientific sectors should be decided by procedures akin to courts martial. A range of tariff and non-tariff dynamic barriers and incentives can be introduced to shape the sector’s trajectory. Economic diplomacy with both China and the US can allow us to appear non-threatening to either as the sector grows through its fragile infancy. The principal question, however, is not of dexterity but of political will. Does the political executive in this country have the gumption to nurture and defend green shoots in this daunting yet inescapable sector, or will general neglect, hyperlocal electoral calculations, or the quest for impossible to procure foreign media approval trump the country’s essential economic and strategic considerations? Apropos the foregoing, our past is chequered, at best.

China can silicon splice us at will.

Gautam Desiraju is a professor at the Indian Institute of Science, Bengaluru, and UPES Dehradun. Deekhit Bhattacharya is in Luthra & Luthra Law Offices, New Delhi. Views expressed in the above piece are personal and solely those of the authors. They do not necessarily reflect Firstpost’s views.