A significant strategic advantage has been gained by India through the Tata-Tesla deal

A significant strategic advantage has been gained by India through the Tata-Tesla deal

By the end of 2026, the inaugural semiconductor chip from the newly established plant, jointly initiated by the Tata Group and Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC) in Gujarat's Dholera, is slated to be operational, as stated by Frank Huang, the chairman of PSMC. Both central and state governments are expected to subsidize up to 70% of the project's cost, with the Dholera facility poised to become India's premier commercial semiconductor fabrication plant.

Even before the initial chips are dispatched from the Dholera facility, Tata has secured an agreement that could elevate India to the ranks of major strategic players. Sources reveal that Tata Electronics, a subsidiary of the Tata Group, has reportedly entered into a strategic partnership with Tesla to procure semiconductor chips for its global operations. Although neither Tata nor Tesla has officially commented on this, it marks a significant achievement for Tata and a pivotal milestone for India. With chips manufactured by an Indian company empowering Tesla's vehicles worldwide, India has indeed demonstrated its maturity in this domain. Traditionally dominated by Taiwan, China, and South Korea, chip supplies to global manufacturers will soon include India. However, the strategic significance of this deal, along with potential future agreements, extends beyond mere commercial transactions and holds substantial implications for India's strategic posture.

The reliance of global manufacturers on chip supplies from a particular country bestows upon that country a significant strategic advantage. China, due to its substantial chip manufacturing capacity and its ambition to annex Taiwan, has wielded considerable influence over the global semiconductor market. As geopolitical tensions escalate, especially with the Western world distancing itself from China, there is a growing urgency to bolster domestic semiconductor manufacturing capabilities to reduce dependence on China.

The reported Tata-Tesla agreement could herald a trend that enhances India's influence on both small and large countries alike. Chips play a crucial role in bolstering a country's strategic power. For instance, during the aftermath of Russia's invasion of Ukraine in 2022, semiconductor shortages severely hampered the ability of US arms manufacturers to supply weapons to Ukraine. This underscored the critical importance of chips, particularly those sourced from Taiwan, China, and South Korea. Consequently, both the US and India have initiated substantial investments in domestic semiconductor manufacturing to mitigate such vulnerabilities.

While countries like the US, South Korea, and Japan focus on enhancing their manufacturing capacities for advanced chips, India's strategy revolves around legacy chips, which do not require significant innovation. Legacy chips, utilizing established manufacturing processes, constitute a substantial portion of global semiconductor consumption and drive essential everyday functions, from weapon systems to smartphones. By focusing on legacy chips, India aims to achieve self-reliance and become a reliable supplier to larger economies.

The Tata-Tesla deal exemplifies India's path towards establishing itself in the global chip value chain. While the journey towards manufacturing cutting-edge chips may be lengthy, India's focus on legacy chips promises to secure its position in the global semiconductor market.

This article is excerpted from Economic Times.
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