CHIP 4 ALLIANCE

• Semiconductors are essential to almost all sectors of the economy including aerospace, automobiles, communications, clean energy, information technology, medical devices, etc.
• Demand for these critical components has outstripped supply, creating a global chip shortage and resulting in lost growth and jobs in the economy.
• In December 2021, the central government sanctioned ₹76,000 crores under the production-linked incentive (PLI) scheme to encourage the manufacturing of various semiconductor goods within India.
• Semiconductors and displays are the foundation of modern electronics driving the next phase of digital transformation under Industry 4.0.

4. Indian Government steps

• In the year 2021, a 10 billion dollar production-linked incentive (PLI) schene to encourage semiconductor and display manufacturing in the country.
• Fiscal support for a design-linked initiative (DLI) scheme to drive global and domestic investment related to design software, IP rights, etc.
• Modification in "Programme for Development of semiconductors and Display Manufacturing Ecosystem in India. The union cabinet has approved a uniform incentive of 50% of the project cost for setting up semiconductor, display, and compound semiconductor fabrication units.
• India semiconductor Mission (ISM) will be set up.
• Scheme for setting up compound semiconductors facilities.
• Vedanta and Taiwanese chip market Foxconn will set up a ₹1,54,000 crore semiconductor plant in Gujrat.

5. About Chip 4 Alliance

• The Chip 4 or Fab 4 alliance includes four of the world's top producers of semiconductors.
• The members of the chip 4 alliance include the U.S., Japan, Taiwan, and Korea.
• It represents more than 70 percent of the value of the global semiconductor industry.
• It was first proposed by the US in March 2022 as part of wider plans aimed at enhancing the "security" and "resilience" of semiconductor supply chains, including by reducing the world's reliance on chips made in China.
• It is intended to cooperate on policy implementation that would support sustainable semiconductor manufacturing in the member states home countries.

6. Goals

• Support industry efforts to diversify their manufacturing base in semiconductor production.
• Protect the Intellectual Property (IP) of companies in member countries.
• Develop policies regarding the export of the most advanced semiconductors and equipment.

7. Challenges

• The US has initiated discussions with India on aligning export controls and a new trade dialogue focused on these issues has been launched with the US Department of Commerce's Bureau of Industry and Security from Washington's side.
• Compliance with labor and other standards is also likely to be part of the commercial and strategic deals, especially in light of India's continued import of Russian oil.
• The G-7 countries led by the US, Australia, and the European Union had slapped price caps on Russian oil products to restrict Moscow's access to a potential funding source for its war on Ukraine, while still maintaining an incentive for the country to supply oil to the global market.
• As against greater engagement on the Indo-Pacific economic framework and strategic objectives such as manufacturing of chips etc, the trade-off for countries such as India could involve signing up on government-to-government level agreements on labor standards, environmental benchmarks, and anti-corruption yardsticks, etc.
• Apart from the Russian Oil issue, there could also be a nudge for New Delhi to join the trade pillar of the IPEF, given that, from Washington's perspective, the political appetite for a full-scale free trade agreement with India is simply not there in the US congress level at this point in time and that the IPEF is being pushed by Washington as a more practical substitute for any bilateral deals.
• Incidentally, New Delhi had opted out of the trade pillar of the IPEF citing reservations about commitments required on the environment, labor, digital trade, public procurement, etc.

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