Policy Update
Jayasree
Introduction
Source: Adobe Stock
Semiconductors, often used as integrated circuits, transistors, diodes, and microchips, are essential building blocks for the tech sector. Preferably made with silicon, germanium and gallium arsenide, these chips are also used by doping, i.e., modulating the electrical and structural properties for smartphones, radios, TVs, computers, video games, advanced medical equipment, optical sensors, light emitters including solid-state lasers, AI, quantum computing and other technologies integral to the modern human world.
Semiconductors are heavily sought after due to their compactness, reliability, power efficiency and cost-effectiveness. The smaller the nanometre (nm) of chips, the better the computation and performance. However, the natural geographical allocation of the chip raw materials and the supply chain of the semiconductors are concentrated in the hands of a few countries, making semiconductors the “oil of 21st-century geopolitics”.
Major powers, China and the USA, have had ongoing chip wars for years now, with Taiwan dominating the semiconductor supply chain arena. Tech market giants IBM, Apple and Nvidia are driven by Taiwan Semiconductor Manufacturing Company (TSMC). On the other Asian frontiers, India and Japan are upscaling by entering strategic partnerships on the semiconductor supply chain with mutual recognition of the importance of semiconductors for the advancement of industries and digital technology.
Function
Source: Deccan Herald
A Memorandum of Cooperation was signed between India’s Ministry of Electronics and Information Technology (MeitY) and Japan’s Ministry of Economy, Trade and Industry in July 2023. This agreement is a business-to-business (B2B) and government-to-government (G2G) bilateral cooperation between these two resource-rich, tech-skilled and contentious supply houses of semiconductors. The tenure of the MoC is five years. It seeks opportunities to advance resilient semiconductor supply chains and leverage complementary strengths.
- Japan’s public and private sectors are raising the stakes with investment plans for India, increasing the target from ¥5 trillion to ¥10 trillion (approximately USD 68 billion) over the next decade.
- The Economic Security Initiative was launched jointly to strengthen supply chain resilience in semiconductors, critical minerals, clean energy technologies, and advanced telecommunications.
- A total of 21 MoUs and agreements were signed on expanding semiconductor fabs (fabrications), rare earth materials cooperation, startups and digital transformation.
- Human capital initiative with the generation of jobs, mentorship and internships by Japan for Indian students, researchers and technicians in the sector for the next five years.
Performance
The estimation of the potentiality of this collaboration is accrued to the evaluation of the semiconductor goals of both countries.
Japan has a historic connection to semiconductor production, once dominating the world’s semiconductor market, with its revenue share reaching 50% in the 1980s. It was an all-in-one player and had built an effective but expensive semiconductor ecosystem, including designing, manufacturing and packaging. It introduced complementary metal-oxide-semiconductors (CMOS) that are still relevant compared to the n-channel MOS. However, due to factors such as economic stagnation, appreciation of the yen, rapid industrialisation in the rest of Asia, and the 1986 agreement with the US to protect the American semiconductor industry from market dominance by Japan.
Source: digitimes
By 2019, Japan’s position on the highest semiconductor sales leader list had gone down to nine (production by Toshiba/Kioxia). In 2021, Japan launched the “Strategy for Semiconductors and the Digital Industry”, focusing on establishing strategic autonomy and indispensability. For a long time Japan supported only domestic manufacturers. This landmark strategy helped Japan pick its economic stance, identify key partners, leverage comparative advantages and foster mutual benefits.
Source: Veswin Electronics
Japan Advanced Semiconductor Manufacturing (JASM), a joint venture majority-owned by Taiwan Semiconductor Manufacturing Company (TSMC) and minority stakes from Sony Semiconductor Solutions, Denso, and Toyota, was set up. This proved resourceful to the automotive and consumer electronics sector, long-time innovation synergies and alleviating domestic pressures in Japan.
Further, Japan’s Rapidus entered a strategic partnership with the USA’s IBM, aiming to revive Japan’s semiconductor industry by mass-producing 2-nanometre (nm) chips by 2027. TSMC and Samsung produce both 5nm and 3nm chips, while China’s Semiconductor Manufacturing International Corporation (SMIC) produces only 7nm at the lowest.
In 2021, the Indian Semiconductor Mission (ISM) by India’s Ministry of Electronics and Information Technology allotted ₹76,000 crores to incentivise growing domestic semiconductor industries for the next 6 years. It formulated the “Programme for Development of Semiconductor and Display Manufacturing Ecosystem” for India. Some of the key provisions of this mission were fiscal support to industries of up to 50%, federal collaboration with states to set up high-tech clusters with required infrastructure and Semiconductor Labs (SCL), 30% coverage of capital expenditure to approved units, Design Linked Incentive (DLI) and Production Linked Incentive (PLI) schemes.
As of August 2025, 10 semiconductor projects have been established across India. SEMICON India 2025 was jointly organised by the ISM under the Ministry of Electronics and Information Technology (MeitY) and SEMI, the global semiconductor industry association. This hosted about 33 countries and other regions. Through the Design Linked Incentive (DLI) scheme, 23 chip design projects have been sanctioned to support startups and innovators. Data estimates from industries show an expected reach of $100-110Bn by 2030.
Source: pib.gov.in
India and Japan have collaborated on semiconductors along with an array of other innovation-orientated areas such as digital cooperation, sustainable fuels, Small and Medium Enterprises (SME) and economic security. The 2023 MoC combines India’s vast engineering expertise, expanding electronics consumption in the market, and supportive policy ecosystem with Japan’s cutting-edge Research and Development (R&D), raw materials and versatile chipmaking equipment.
Impact
Source: The Federal
- India has great potential but limited domestic capacity, unlike its ally Japan which contributes to 35% of the global semiconductor chain supply. This collaboration would boost India’s ‘Make in India’ objectives with the help of Japanese investments, incentives, and import of manufacturing equipment. India could potentially ascend as a self-sufficient chip hub in the coming years.
- The knowledge and expertise exchange would train India and hasten its learning curve in the areas of high-purity chemicals, wafer technology, and precision equipment.
- There has been a surge in the credibility of the Indian semiconductor supply chain with multiple international collaborations with companies such as Foxconn, Micron and Lam Research, opening several plants and projects across India.
- The ‘China plus one’ strategy plays out by diversifying countries’ semiconductor manufacturing and supply chain establishments in countries other than China, curbing the strategic dominance of the country in Asia.
The shortage and skyrocketing demand are making way for influential Asian economies such as Japan and India to be the next best semiconductor destination in the pan-Asian region whilst easing the production pressures on Taiwan. The threat to China’s chip self-sufficiency and sanctions passed by the US in 2020 over security concerns ushered in the emergence of other global players. Taiwan’s prominent position in the chip industry has been leveraged to sustain and maintain global diplomacy despite China’s efforts to undermine its autonomy.
Potential Risks
Source: TRENDS Research & Advisory
- Accusations of intellectual theft by the US against China have made the process of collaboration on semiconductors contemplative for countries of the world. This has made establishing initial Intellectual Property (IP) and specifying the countries’ roles in the manufacturing process crucial. This makes the aspect of credibility a slippery slope that can be withdrawn at any point in the future, revoking agreements and collaborations.
- Japan is an island country prone to natural calamity that can affect the supply chain. The establishment of calamity-resistant infrastructure and risk management protocols are only limited to fewer industries, such as Tohoku and Kumamoto. In contrast, Indian supply chain industries are still in the growing stage and are yet to incorporate these.
- The East China Sea and South China Sea are essential in the facilitation of trade and transport between Japan and India. However, the militarisation of disputed maritime areas by China and its unilateral actions endanger such exchange and pose a potential threat to the disruption of collaborative semiconductor supply chain production.
Conclusion
The enduring commitment and zeal of both countries in the global semiconductor supply chain should stay intact in the future as well whilst helping regional industries grow simultaneously. Despite external geopolitical challenges, the benefits of cooperation outweigh the risks, proving the collaboration to be effective.
References
About the Contribution: Jayasree is a research intern at IMPRI (Impact and Policy Research Institute), and is currently pursuing her bachelors in political science from Madras Christian College, Chennai.
Acknowledgement: The author sincerely thanks Aasthaba Jadeja and IMPRI fellows for their valuable contribution.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
