New Delhi, India – February 14, 2025
As India advances its “Make in India” initiative, the semiconductor industry has emerged as a strategic priority for the government. However, industry leaders and global stakeholders are emphasizing the need for lower tariffs and a more favorable trade policy to accelerate India’s integration into the global semiconductor supply chain.
Recently, John Neuffer, President and CEO of the US Semiconductor Industry Association (SIA), underscored the importance of zero tariffs on semiconductor manufacturing for India to become a major player in the global chip industry. In a recent statement, Neuffer pointed out that several leading semiconductor supply chain partners worldwide already benefit from zero tariff treatment, while India still imposes trade barriers that could hinder its competitive advantage.
Why Tariff Reduction is Critical for India’s Semiconductor Ambitions
1. Strengthening India’s Position in the Global Semiconductor Supply Chain
The semiconductor industry is highly globalized, with supply chains spanning multiple countries, from chip design in the US to fabrication in Taiwan and assembly in Southeast Asia. For India to establish itself as a viable semiconductor hub, it must:
- Reduce import duties and tariffs on semiconductor components and equipment.
- Attract global semiconductor firms by offering competitive trade policies.
- Facilitate easier access to raw materials and manufacturing technology.
Lower tariffs would reduce operational costs for domestic manufacturers, making India more attractive for foreign direct investment (FDI) in the semiconductor sector.
2. Boosting Domestic Semiconductor Manufacturing & Assembly
While India has made strides in chip design and software, it still lacks large-scale semiconductor fabrication (fabs) and assembly plants. Lowering tariffs would:
- Encourage international chipmakers to set up fabs in India.
- Enhance India’s capabilities in semiconductor packaging and testing.
- Reduce dependency on imports, strengthening India’s self-reliance in chip production.
3. Enhancing India’s Competitiveness Against Global Semiconductor Hubs
Countries like Taiwan, South Korea, and China have dominated semiconductor manufacturing due to:
- Massive government incentives.
- Favorable trade policies.
- Strong supply chain linkages.
For India to compete with these established hubs, it must eliminate trade barriers and provide cost-effective production environments for chipmakers.
4. Encouraging Investment in Semiconductor Skill Development
Beyond reducing tariffs, investment in skill development is crucial. Neuffer highlighted that India needs to go beyond chip design and focus on building expertise in manufacturing, assembly, and testing.
This would involve:
- Collaborating with universities to develop semiconductor engineering programs.
- Providing hands-on training for fabrication and chip packaging.
- Encouraging industry-academia partnerships to nurture local talent.
By strengthening the workforce, India can create a long-term pipeline of skilled professionals for the semiconductor industry.
The Potential Impact on Semiconductor Stocks in India
The implementation of lower tariffs and supportive policies could significantly boost semiconductor-related stocks in India. Some key beneficiaries would include:
1. Tata Electronics and Vedanta-Foxconn JV
- Both companies are planning to set up semiconductor manufacturing plants in India.
- Lower tariffs would reduce costs and improve feasibility for domestic production.
2. Dixon Technologies and Syrma SGS Technology
- These firms focus on electronics manufacturing services (EMS).
- A tariff reduction could increase India’s semiconductor assembly capabilities, benefiting these companies.
3. Semiconductor Design Firms like HCL Tech and Wipro
- As India attracts more semiconductor investments, design firms would see increased demand for chip development and R&D services.
4. Reliance and Adani in Electronics Manufacturing
- Both conglomerates are investing in technology infrastructure and semiconductor supply chain development.
Challenges and Considerations in Implementing Zero Tariffs
Despite the potential benefits, there are challenges in implementing a zero-tariff policy:
- Revenue loss for the government: Tariffs contribute to government revenue, and eliminating them could lead to short-term fiscal challenges.
- Ensuring protection for local manufacturers: Domestic players need a competitive edge while transitioning towards self-sufficiency in semiconductor production.
- Global trade relations: India must balance domestic industry interests with global trade agreements and strategic alliances.