South Asia Strategy Monitor No. 18

INDIA EYES THE SEMICONDUCTOR MARKET
In a major step toward its goal of establishing itself as a leading player in the global chip industry, India has approved its first semiconductor fabrication plant. In collaboration with Powerchip Semiconductor Manufacturing Corp., the Tata Group will construct the plant in Gujarat. The estimated $11 billion facility will, once operational, be capable of producing 50,000 wafers monthly. The initiative is part of a broader strategy on the part of the Indian government to develop a robust domestic semiconductor ecosystem - one that New Delhi aims to make a $110 billion industry by 2030. As part of the effort, Tata and partners from Japan, Thailand, and Taiwan will establish assembly units in Assam and Gujarat, with 48 million and 15 million daily chip production capacities, respectively.

India's strategy is rooted in hopes that it can become a reliable alternative to China in the global semiconductor supply chain. To that end, New Delhi is also, for the first time, planning to host Semicon, an exhibition convened by international chip industry group SEMI. The event, which will boast participation from firms like Tokyo Electron, Applied Materials, and Lam Research, is intended to demonstrate India's potential for substantial market growth. India's increasing appeal as a manufacturing hub, evidenced by Apple's and VinFast's recent investments, aligns with its desire to capitalize on global shifts away from Chinese manufacturing. (Nikkei, February 24, 2024; Nikkei, June 14, 2024)

A POLITICAL RESHUFFLE IN NEPAL
On July 14th, K.P. Sharma Oli was appointed as Nepal's Prime Minister for the fourth time, as the country's volatile political landscape finds itself in flux once again. Oli's election follows the dismissal of former Prime Minister Pushpa Kamal Dahal, who lost a confidence vote after Oli's party withdrew its support to join a new coalition agreement. The veteran leader's return to office comes as part of a power-sharing deal with the Communist Party of Nepal (UML) and the Nepali Congress, promising rotating leadership until 2027. Nepal's political instability, which has impaired its development and emergency response capabilities, like recent monsoon-related disasters, also calls the stability of Oli's current tenure into question. His foremost challenge as prime minister will be managing Kathmandu's relations with its two powerful neighbors, India and China, both of which are striving to increase their influence in the region. (Reuters, July 3, 2024; New York Times, July 14, 2024)

INDIA BANKS ON MEGAPORT TO REBOOT ITS EUROPE TRADE PLANS
India is investing $9 billion in the Vadhavan deep-water port in Maharashtra, which is set to become a cornerstone of the India-Middle East-Europe Economic Corridor (IMEC). Slated for completion by 2036, the project aims to build one of the world's largest ports, with nine container terminals and large-scale cargo handling capacity. The port is expected to create 1.2 million jobs and streamline trade from India to southern Europe through the UAE, Saudi Arabia, Jordan, and Israel. Despite rising tensions in the Middle East and the current Israel-Gaza conflict, the IMEC has secured backing from both the EU and the U.S. for its potential as an alternative to China's Belt & Road Initiative. The success of the Vadhavan port, in turn, could advance New Delhi's efforts to reduce its present dependence on Chinese-operated ports while strengthening its economic ties with Europe and the Gulf. (South China Morning Post, June 29, 2024)

MODI HEADS TO MOSCOW
While recent years have seen India draw considerably closer to the West, the country remains committed to a multilateralist course. In keeping with that objective, even as it has strengthened its position regarding China by expanding ties to Washington, New Delhi is also maintaining an active and robust dialogue with Russia. To that end, early July saw Indian Prime Minister Narendra Modi take a high-profile two-day visit to Moscow to reaffirm his country's long-standing strategic partnership with Russia. Modi and Russian President Vladimir Putin used the occasion to take steps to strengthen their bilateral relationship, discussing expanding trade, addressing trade imbalances, and increasing Russian investment in India. In addition, major topics of conversation included the possibility of partially relocating Russian defense production to India.

Notably, defense featured prominently in the dialogue. The two countries have maintained defense ties since the Cold War, and ahead of Modi's visit, the Russian state-owned Rostec corporation announced a significant new defense collaboration: plans to produce advanced armor-piercing projectiles and gunpowder in India. These projectiles, designed for Russia's T-72 and T-90 tanks, are a major step in localizing military production. (Reuters, July 2, 2024; Reuters, July 4, 2024; BBC, July 9, 2024)