Can India gain from G7 Semiconductor Group’s supply chain coordination?

During the recent G7 Summit in Italy, semiconductors were a high priority, with the G7 nations constituting a Semiconductor Supply Chain Group to develop integrative strategies and take joint actions to ensure semiconductor supply security and resilient supply chains. Even though these nations play a significant role in the semiconductor ecosystem, they are heavily dependent on the non-G7 nations for the majority of their leading and legacy semiconductor supply.

“The G7 nations, i.e., Canada, France, Germany, Italy, Japan, the UK, and the US—all of the G7 nations are dependent on non-G7 nations, primarily on their semiconductor fabrication and packaging supply across leading and legacy generations of logic, memory, and analogue semiconductors—in every case, dependence is more than 50%. The situation got worsened for the G7 when chip shortages hit globally in 2020, especially the automotive end market, which was the major revenue loss segment due to the shortage of semiconductors holding productisation,” says Danish Faruqui, CEO of Fab Economics.

The impact of the chip shortage in 2020 was significant; as for the G7 nations, there was approximately $760 billion in annual revenue loss across just three end markets, per Fab Economics R&A.

Even though the loss was significant, it is only after four years of the advent of the chip shortage that the G7 Nations have finally acted on an integrated strategy to develop resilience for another chip shortage and ensure security of semiconductor supply for their domestic end markets, including automotive, communications, data centres, consumer electronics, defence, and more. The reason is the fear of Taiwan’s invasion by China.

Faruqui explains, “It is the geo-political forcing function cantered around Taiwan and South Korea that has operationalised the pending actions on enacting integrated global strategies to embrace a chip shortage driven by geo-political vulnerabilities of disconnected supply chains from Taiwan and South Korea. Thus, it becomes imperative for G7 Nations to avoid Too Little, Too Late scenarios and rather act along with non-G7 Nations to develop resilient and sustainable semiconductor supply chains.”

As per Faruqui, this new development is being built upon the Partnership for Global Infrastructure and Investment (PGII) launched in June 2022 by US President Joe Biden and G7 Leaders, reflecting the shared urgency to secure global supply chains.

“A dedicated pledge of $600 billion in PGII investment funds focuses on establishing global supply chain resiliency as a top priority, alongside the expansion of open trade and enhancement of national and regional security. However, how this $600 billion investment will impact critical infrastructure and the semiconductor industry remains unknown without any details on where and how the money will be spent.”

"This 2024 G7 enactment of the semiconductor group is the first operational step of the PGII $600 billion investment as a result of geo-political situations and the imperative to safeguard against any demand exasperation or vulnerability-driven chip shortage.”

India, among other emerging countries, can be one of the major beneficiaries of the G7 Semiconductor Group enactment, which is backed by the $600 billion PGII fund.

India can unlock its biggest semiconductor opportunity out of the $600 billion PGII G7 fund. Faruqui states, “It’s a multi-dimensional effort. When coordinated with the G7 nations, there are specific leadership roles that India can play in delivering creative, resilient supply chain solutions for specific semiconductor types.

As India is amongst various world regions offering unparalleled subsidies, commitment from the highest level of government, and the fastest pace of doing business for semiconductor manufacturing and packaging players, it can help the country leverage the current geopolitics and geo-economics of semiconductors.”