Harnessing trade policy to build India’s semiconductor industry

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.