Security Focus In Indo-US Chip Deal To Take India Up Global Value Chain

The arrangement will set up the ‘Shakti’ semiconductor fabrication plant, likely in Uttar Pradesh, a joint initiative by Bharat Semi, 3rdiTech and the US Space Force. This partnership between India and the US on a strategic technology like semiconductor, for use in national security, marks a shift in the bilateral relationship. It bolsters India’s efforts to enter the semiconductor value chain, while simultaneously enhancing both countries’ national security capabilities. 

The significance of this ‘watershed arrangement’ cannot be overstated. This project, focused on manufacturing infrared, gallium nitride and silicon carbide semiconductors, brings India into an elite group of nations capable of domestically producing advanced chips. These compound semiconductors are critical for modern warfare technologies such as advanced sensing, communication systems and high-voltage power electronics. In addition to military applications, they will be instrumental in next-generation telecommunications and green energy solutions.

This move also looks to reduce the country’s dependency on imports from countries like China, Taiwan and South Korea. India currently imports 95 per cent of its semiconductors, including over $1 billion worth of chips annually, just for national security purposes. By building the capacity to produce these high-value technologies in-house, India not only addresses a critical security vulnerability, but also fortifies its position in global supply chains.

From Economic To Strategic Imperative

For India, this partnership with the US represents a fundamental shift from the status as a mere electronics assembly hub to becoming a key player in semiconductor manufacturing. Historically, India’s electronics production, while impressive in scale — growing from Rs 18,000 crore in FY2016 to Rs 39,363 crore in FY2023 — has been heavily concentrated in areas like mobile phones. Strategic electronics, including military systems, radars and electronic warfare technologies have so far accounted for just a small fraction of this growth.

Setting up the Shakti fab is the latest in a series of bets on the promise of semiconductor technologies, which will hopefully feed directly into India’s renewed focus on developing its own semiconductor supply chain. In February, the government greenlighted three semiconductor plants worth over $15 billion, and several other projects have been announced since then. In this sense, the Shakti fab is well-timed, as it serves dual interests — it furthers India’s semiconductor ambitions, while the focus on military applications will directly feed into India’s broader efforts to modernise its defence forces and indigenise production. 

Challenges To The Semiconductor Regime

While the potential benefits are enormous, challenges lie ahead. India’s regulatory framework and underdeveloped infrastructure for high-tech manufacturing may slow down the project’s implementation. Current estimates project that the plant should be set up by 2025, but there is no official release on the date of production for the chips. Additionally, India will face stiff competition from established semiconductor giants like China and South Korea, with well-developed ecosystems and strong R&D capabilities.

India also needs to address a critical skills gap in advanced semiconductor manufacturing. Although the country boasts a large pool of engineering talent, the highly specialised nature of semiconductor production will require focused training initiatives. While this partnership between India and the US is off to a promising start, its long-term success will depend on how quickly India can scale up its capabilities to meet the demands of this high-stakes industry. A comprehensive semiconductor strategy that addresses R&D, as well as talent acquisition, retention and training, are vital next steps for India's semiconductor mission. 

The long-term potential of the Shakti fab is transformative. Even as India looks to establish itself in the semiconductor value chain, such an investment of capital and resources could be a significant factor that turns the tides in its favour. While there have been previous collaborations on semiconductor chips, they focused on the assembly and testing part of the value chain. This collaboration to make fab plants will allow India to compete for a spot in the most advanced part of the semiconductor value chain. Moreover, it could pave the way for future US-India collaborations in emerging technologies like AI and quantum computing.

A New Era Of Tech Sovereignty

The India-US semiconductor alliance highlights the growing recognition of a shifting narrative around semiconductors. Once viewed primarily as essential components for consumer electronics, they are now increasingly acknowledged as critical to national security. This shift has reshaped global semiconductor investment policies, with nations prioritising local manufacturing to secure their defence and strategic technology ecosystems. India's partnership with the US on the Shakti fab exemplifies this shift, signalling that semiconductors are no longer just about powering smartphones and computers — but a cornerstone of military hardware, advanced communication systems and emerging technologies like AI. This evolving understanding of the strategic importance of chips is driving new government policies and investments aimed at reducing supply chain vulnerabilities, while enhancing technological sovereignty.

For India, this move could be a game changer in the global chip war, positioning the country as a viable player in the fiercely competitive semiconductor industry. With the right policies, investments and international partnerships, India could emerge as a key player in shaping the future of global semiconductor manufacturing — one that is vital not just for consumer markets, but for national security and geopolitical stability. 

(The writer is an India Technology Fellow at the Pacific Forum. Views expressed are personal)