Context: Recently, India and the US inked an initial pact on increasing private sector cooperation in the area of semiconductors under which the two countries would facilitate business opportunities and develop an ecosystem with a view to reducing their dependence on China and Taiwan.

• According to a joint statement, both sides have agreed to set up a semiconductor sub-committee, led by the Department of Commerce for the US side and the Union Ministry of Electronics and Information Technology (MeitY) and the Union Ministry of Commerce and Industry.

About the semiconductor sub-committee 

The semiconductor sub-committee would be led by the 

• Department of Commerce for the US side  Ministry of Electronics and Information Technology (MeitY) and Ministry of Commerce and Industry for the Indian side

• The committee will convene its first engagement in mid-year to review recommendations from the joint industry-led task force launched in connection with the iCET (Initiative on Critical and Emerging Technologies).

Initiative on Critical and Emerging Technologies (iCET)

• Launched in: 2022

• The Initiative for Critical and Emerging Technologies (iCET) is an inter-governmental initiative between the United States and India.

• Objective: to elevate and expand strategic technology partnership and defence industrial cooperation between the country’s governments, businesses and academic institutions.

Need of the move

Objective: Its objective is to reduce its dependency on China and Taiwan

• China-Taiwan’s dominance & tussle

• Taiwan is home to some of the world’s leading semiconductor manufacturers.

• China, as the world’s largest market for semiconductor products.

• According to reports, China has sanctioned USD 140 billion to boost domestic chip manufacturing to overcome the US export restrictions.

• However, the China-Taiwan semiconductor war has started which has significant implications for the global tech industry.

• China claims Taiwan to be part of its territory and has been looking for "reunification". The relations between the two countries appear to have deteriorated sharply.

Important missions in India & US to promote the semiconductor industry

• US's CHIPS and Science Act: The CHIPS and Science Act was signed by President Joe Biden in 2022 to boost funding for the American semiconductor industry.

• India's Semiconductor Mission:  The programme aims to provide financial support to companies investing in semiconductors, display manufacturing and design ecosystems.

• The Indian government has also approved a Rs 76,000 crore scheme to boost semiconductor and display manufacturing in the country in a bid to position India as a global hub for hi-tech production and attract large chip makers.

• Incentives have been lined up for companies engaged in silicon semiconductor fabs, display fabs, compound semiconductors, silicon photonics, sensor fabs, semiconductor packaging and semiconductor design.

Budget 2023

• The semiconductor development programme of the government has been given a budget estimate of Rs 3,000 crore from the Rs 200 crore in the revised estimate last year. PLI scheme for large-scale electronic manufacturing also received a whopping over Rs 4,000 crore estimate.

How significant are semiconductors?

• From automobiles to electronic goods and to smartphones, all need semiconductors. These are the chips. And disruption in semiconductor supply has led to billions of dollars of losses for major companies across the globe.

• Semiconductor chips are made from silicon, one of the most available substances on Earth, and are fitted into microcircuits that power electronic goods and components. The raw materials come mostly from Japan and Mexico.

Significance of the agreement

• Promoting business: It would facilitate business opportunities and develop an ecosystem. 

• An opportunity to become a leader: India will achieve its aspirations to play a larger role in the electronics supply chain and realize its potential to become a leader in the automobile and electronics industry. 

• Boost for industries: Industries like automobiles, communications etc., will get much-needed push and the government’s efforts for digitization and digital growth will be supported. 

• Self-reliance: The MoU will pave the way for India to Atmanirbhar in this strategic sector.