Israel Hamas War: Effects On Indian Semiconductor Industry Israel is one of the few places outside of East Asia where advanced chip production is done. This conflict has disrupted supply chains, logistics and even the availability of skilled labor. For India, this scenario could also present opportunities: If global companies seek to diversify their risk by not over-relying on a single region, India could position itself as an alternative destination for semiconductor manufacturing and R&D

The semiconductor industry is highly globalized and any regional conflict has the potential to have ripple effects. Israel, despite its modest size, exerts a significant impact on the global semiconductor industry. The war between Israel and Hamas, threatens to further complicate the chip supply chain.

Earlier, the supply of semiconductors, plummeting due to Covid-related disruptions, had started picking up as manufacturing chains normalized, but soon the Russian Ukraine crisis exacerbated semiconductor supply chain on account of the supply of two key raw materials — neon and palladium — that were at a risk of being constrained. Today, the semiconductor industry, pivotal in global technology, is grappling with supply shortages, causing production bottlenecks across various sectors. Navigating the current landscape of demand and supply challenges alongside heightened uncertainty requires strategic decision-making.

Israel is one of the few places outside of East Asia where advanced chip production is done. Renowned for its abundant engineering expertise, it serves as a vital center for international chip manufacturers and a nurturing environment for semiconductor startups, which frequently attract acquisition interest from larger corporations. This conflict has disrupted supply chains, logistics, and even the availability of skilled labor.

India's relationship with Israel in terms of defense, technology and trade is significant. "For India, this scenario could also present opportunities. If global companies seek to diversify their risk by not over-relying on a single region, India could position itself as an alternative destination for semiconductor manufacturing and R&D. This would require proactive policy measures, infrastructure development, and creating a favorable business environment," said Kanishk Maheshwari, co-founder, Primus Partners.

The government's proactive measures to incentivize semiconductor manufacturing under the ambitious Production-Linked Incentive (PLI) scheme have attracted significant investments from global technology giants. Reportedly, Israel-based chip manufacturing company Tower Semiconductor has revived its interest in India's chip incentive scheme for a second time and is considering setting up a semiconductor fabrication plant in the country. In October, Russell C Ellwanger, CEO, Tower Semiconductor and other senior executives from the Israeli chipmaker met officials at the ministry of electronics and information technology (MeitY) as well as from the India Semiconductor Mission. "Always good to welcome Russell C. Ellwanger and discuss about India - Tower partnership in semiconductors," Union minister of state Rajeev Chandrasekhar had tweeted.

The ongoing geopolitical uncertainties have compelled global semiconductor companies to diversify their supply chains, seeking alternate manufacturing hubs beyond traditional centers like Taiwan and South Korea. "Instead of adversely affecting the semiconductor supply chain, this conflict could potentially fast-track India's journey to emerge as a key semiconductor hub," said Eswara Rao Nandam, founder & CEO, Polymatech, India's first semiconductor chips manufacturer specialized in Opto- semiconductors.

According to TechSci Research India's proactive stance in offering a stable and conducive environment for semiconductor manufacturing has positioned it favorably as a viable destination for global tech players seeking to mitigate risks associated with concentrated supply chains. Nevertheless, challenges persist on India's path to semiconductor prominence, including the need for sustained investments in infrastructure, research, and talent development. Addressing these hurdles will be critical to consolidating India's position and achieving long-term competitiveness in the semiconductor industry.

India's ambition to become a semiconductor hub primarily hinges on its own policy environment, infrastructure, talent pool and investment in R&D. While the conflict might have some indirect effects, such as delays in technology transfer or collaborations, the primary drivers for India's semiconductor ambitions are internal.