Former Reserve Bank of India Governor Raghuram Rajan has questioned India’s push to build a domestic semiconductor manufacturing industry, arguing that spending billions of dollars to manufacture chips may not be necessary when they can be sourced globally, including through smuggling.
Speaking in an interview with Frontline, Rajan criticised industrial policies that identify certain sectors as “strategic” and then justify large government investments and incentives to build domestic capacity.
“This is why when you hear me rail in public [against industrial policy], it’s when I see people say that India needs to make semiconductor chips [by pouring several billion dollars.] My question is: why?” Rajan said.
He then pointed to the ease with which semiconductors can be moved through international supply chains and illicit channels.
“This is the most easily smuggled thing on earth,” he said.
‘China Is Procuring Nvidia Chips Through The Backdoor’
Rajan cited China as an example, saying it is procuring Nvidia’s advanced chips through indirect routes.
“China is procuring Nvidia’s frontline chips through the backdoor,” he said, adding that units are set up in countries such as Thailand and Malaysia, with their services ultimately being provided to China.
He also pointed to Russia, saying that despite the restrictions it faces, it has continued to obtain chips needed for its war effort.
“Russia has run a war since 2022, and it requires chips which are probably not frontline but second- or third-line chips, and it smuggles them in,” Rajan said.
According to him, even though the most advanced Nvidia chips cannot simply be carried around in suitcases, other types of chips can be moved relatively easily.
“Those big Nvidia chips, you can’t smuggle them in suitcases, but the rest you can. Who’s going to prevent you from buying it?” he asked.
Questions India’s Push For Self-Sufficiency
Rajan’s broader argument is that India cannot realistically become completely independent in semiconductor manufacturing.
He pointed to India’s large overseas diaspora as another source through which products could continue to be procured internationally.
“We can never be so independent in chip manufacturing that we will not need to source inputs globally,” he said.
He also warned that complete semiconductor self-sufficiency would be impossible if global supply chains were disrupted by war.
“If, tomorrow, the world breaks into isolated countries because of war, then forget about chip manufacturing because we will need the machines, we will need the silicon, we will need all that from elsewhere,” Rajan said.
Rajan contrasted semiconductors with defence production. He said domestic production of munitions makes strategic sense because a country could run out of ammunition during a war and may not be able to obtain it from elsewhere.
In toto, Rajan seemed to be questioning India’s rationale to to spend several billion dollars to manufacture chips domestically, stating that complete self-sufficiency would remain difficult because semiconductor manufacturing itself depends on globally sourced machinery, silicon and other inputs.
Subscribe to our channels on WhatsApp, Telegram, Instagram and YouTube to get the best stories of the day delivered to you personally.
