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Trade and technology

Harnessing trade policy to build India’s semiconductor industry


Published 24 May 2022

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.

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.

This paper by Pranay Kotasthane and Arjun Gargeyas of the Takshashila Institution 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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Pranay Kotasthane is the deputy director of the Takshashila Institution and the chairperson of the High Tech Geopolitics programme at Takshashila. Pranay’s current research includes semiconductor geopolitics and the politics of radically networked societies. Pranay teaches public policy, international relations, and public finance at Takshashila’s graduate and post-graduate programmes.

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Arjun Gargeyas is a Research Analyst working with the High Tech Geopolitics programme at the Takshashila Institution. His current areas of research include technology standards, semiconductors, quantum technologies, and advanced computing. Arjun’s interests primarily lie at the intersection of foreign, technology, energy, and environmental policy

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