India is the ideal producer for Democracy Chips

Computer chips made in democracies may be termed ‘Democracy Chips’. And to make Democracy Chips, many tech companies are looking at India, writes Prof. Madhav Das Nalapat

Losing Taiwan to the PRC would be a far more severe blow to the security of the world than the loss of (what remains of) Ukraine to Russia. While the island country may be relatively small in size and in population to India, the US, Russia or China (the Big Four within the global order), it is a knowledge superpower. This reality is best illustrated by pointing to its domestic companies, such as Foxconn, TSMC and UMC.

Back in the 1990s, this columnist visited Taiwan and South Korea and told several entrepreneurs that they would regret it were India to not significantly figure in their investment plans. Thereafter, Taiwanese companies sent senior management to India to scout out possibilities. In contrast to the PRC, where they were met at the door of the aircraft when it landed in a Chinese city, in India very often it proved impossible to locate the car that had been sent to ferry the senior manager of the company to his hotel.

After finally flagging down a taxi and somehow making himself understood to the cab driver, finally the hotel came into view. Only to have the man at the front desk say that the fatigued guest would have to wait with his luggage in the lobby for as many hours as it took for a room. What a contrast such tales of horror were to their PRC experience, where a limousine was sent free of charge together with an escort for a comfortable ride to the hotel, whose manager would wait at the doorway of the hotel to welcome the company manager.

South Korean companies were more canny. They first sent junior staff to India, who scouted out the lay of the land and in a few weeks, knew how to ensure that when a senior manager from their company finally came for a visit, he found no difficulty in locating his car or, later, checking in to his hotel suite no matter what the time of arrival was.

By the close of the 1990s, South Korean companies dotted the industrial landscape in India, while Taiwanese companies were absent. That was the period when President Lee Deng Hui rejected an informal request from India during the period when Narasimha Rao was Prime Minister to give a loan of $2 billion to the world’s largest democracy. Fast forward to six years ago, when Tsai Ing-wen took over as President of Taiwan and sought to make India a priority for Taiwanese business.

That island country has as high a per capita income as any European country, certainly many times more than the PRC. It has helped that Prime Minister Narendra Modi had visited Taiwan in the past, before he entered the portals of high office as Chief Minister of Gujarat in 2001, and liked what he saw of the dynamism of the island. Despite foot dragging by elements in the Lutyens Zone that cringe and freeze at the very mention of China, ties between Taipei and Delhi have been getting ever closer since 2014.

Taiwanese business, usually expert in finding out opportunities across the world, missed out on India in the 1990s, unlike the South Koreans. However, recent events indicate that they will not be miss out on the opportunities provided by India especially after the Covid outbreak in 2020 brought home the reality of Cold War 2.0, a conflict between China and the democracies that dare not yet speak its name. The effect of this is palpable, including on planning investment in supply chains.

Businesses are no longer eager to come to the PRC, they are in an increasing hurry to leave. Computer chips made in democracies may be termed Democracy Chips. And to make Democracy Chips rather than Dictatorship Chips, global tech companies are looking at India. Companies such as Foxconn are already linked to entrepreneurs of Indian ethnicity who know the country and its market well. Foxconn’s new semiconductor plant will come up in Gujarat, a state on the west coast, much of which is the ideal location for such enterprises.

From a city close on the west coast, the east coast of Africa and the entire Middle East are within easy reach by air or sea, not to mention the advantage provided by the rapidly growing domestic market in India. In the 1990s and beyond, India forfeited the chance of emerging as a major producer of mobile handsets, even witnessing the shutting down of a major handset plant in Tamil Nadu. The consequence is that import of such equipment, mostly from China, is causing an even bigger drain on foreign exchange than purchase of petroproducts, especially now when cheap(er) Russian oil is available.

India will need semiconductors on an exponential scale, which is why the effort by PM Modi to ensure that these be made in India is necessary to avoid that item of fabrication becoming an even bigger drain on foreign exchange reserves than imports of oil or mobile handsets. Of course, tweaks in policy are needed, such as either an FTA with Taiwan or the setting up of such plants in a location that is in matters of access and taxation, a free trade zone.

A semiconductor plant requires a stream of personnel and components flowing in and out of the country, and if such supplies were subjected to delays, the effect on productivity would be substantial. Given smart policy, India has the market, the brainpower and the cost advantages necessary to ensure that the country provides a better production platform than the US and even the PRC. Aatmanirbhar Bharat does not just mean “Produce of India” but “Produce made in India” as well.

Along with the US, Japan and Australia, India is ensuring that the Indo-Pacific remains free and open to all, and without any country seeking to become the gatekeeper to any part of its waters. So far as Taiwanese tech companies are concerned, Foxconn has become the pioneer, and looking at the advantages of locating in India, it is likely that TSMC and UMC may soon follow in Foxconn’s wake. Gujarat has won the first Big Tech investor of the times, and now is the time for other states to win over other tech companies through ensuring that conditions get created that result in “Made in India” becoming a synonym for quality and price competitiveness.

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