Should India Make Its Own Chips?

The article "Smuggling Is Not an Industrial Policy" discusses Raghuram Rajan's thoughts on India's semiconductor industry and questions whether India should focus on making chips domestically or rely on imports. It connects industrial policy with national security, economic growth, and technology.

Rajan says that semiconductors are easy to move across borders and that India could continue buying them even if other countries restricted trade. He also suggests that India should focus more on education and universities rather than trying to build a domestic semiconductor industry. He points out that India's manufacturing employment has not increased in 10 years and that Indian companies have depended too much on protection from foreign companies. His criticism of India's education system also makes sense because better universities and research institutions are important for long-term innovation rather than the government investing in mid-tier universities.

However, the article strongly disagrees with Rajan's argument that India can simply rely on imported chips. The author gives examples of the United States restricting advanced Nvidia processors and China restricting exports of rare-earth magnets. These points show that countries can use control over important technologies and resources as an economic and political advantage. If India becomes completely dependent on other countries for important parts like these, its industries could be affected by sudden shocks.

I found the comparison between chips and munitions particularly convincing. Rajan believes India must be able to produce its own military equipment because other countries may stop supplying it during a conflict. The article says that modern weapons depend heavily on semiconductors. This means that having domestic semiconductor capabilities could also be important for national security.

Another point that stood out to me was the argument that taking a long time to develop an industry is not necessarily a reason to avoid starting it. Semiconductor manufacturing can take five, ten, or even fifteen years to develop, but countries such as South Korea and Taiwan also took years to build their industries. Their governments supported these sectors so that they can even become competitive and have those advantages.

The article also states that India does not have to choose between semiconductors and education. The government can invest in both because the semiconductor programme and the education budget are separate and operate on different levels. I thought this was an important point because economic development requires investment in several areas at the same time.