India Semiconductor Mission: Should India be worried about possible sanctions?

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As Russia and Ukraine engage in a ravaging war that keeps the world on tenterhooks, another serious concern grips businesses across the world; the sanctions imposed on Russia by NATO and other countries, and endorsed by their supporters.

India has not publicly condemned Russia’s invasion of Ukraine but has called for an immediate end to violence, suggesting diplomacy and dialogue to resolve the conflict. India abstained from voting against Russia at the UN Security Council and the UN General Assembly yesterday .

Will this invite sanctions on India and derail its semiconductor mission? Will technology partners, who are crucial to setting up a highly specialised industry, be banned from collaborating with Indian companies? After all, 70-80% of the global semiconductor business is owned by US companies and, when the US imposed technology sanctions on Russia, the Semiconductor Industry Association (SIA) stated that it would comply fully with them. 

Read also: India considers relief for exporters hit by Ukraine crisis: Report

Currently, US President Joe Biden is deciding on whether sanctions under the Countering America’s Adversaries through Sanctions Act (CAATSA) should be waived or applied in India’s case.

Experts in the industry, who Moneycontrol spoke to, said that they don’t see any immediate threat of sanction and therefore any immediate threat to the national mission. If, however, the conflict is prolonged and India maintains its stand, the threat of sanctions could be placed.

It won’t be easy for India to take a position that antagonises Russia. The nation’s close trade ties with Russia are well established. Though mainly in the area of oil, fertiliser, pharmaceuticals, automobile components, and tea, Russia is India's main supplier of hardware and technology for strategic sectors such as defence.

For now, sanctions on Russia are not likely to directly impact India's electronics and semiconductor industry, since our collaborations and partnerships in that domain are largely with the US, Europe, and East Asia. The direction of the war is unclear, so the longer-term and indirect ramifications remain to be seen.

Here's a what experts Moneycontrol spoke to say:

K Krishna Moorthy, Electronics Industry Veteran, President and CEO IESA

A majority of the world’s semiconductor business is driven by American companies (some from Japan, Korea and Europe). 70-80% of semiconductor business is US-owned.

The only place where sanctions may have an impact for India would be the dependence on Russia for strategic semiconductor electronics that they supply to Indian defence. Only possibility is that if they don’t have enough stock of parts to supply or spares for defence supply, there could be some delays.

As far as the US wanting to impose sanctions on India, I don’t think that will happen.

India is a huge market, the US cannot think of imposing an embargo on India. Last year we imported $25 to $30 bn worth of semiconductors. The number of US companies starting operations in India is only increasing. It’s going to affect their business interests in the long run, I don’t think US can impose any sanctions on India even indirectly. Whichever way I look at it, it’s not going to happen.

How this war can affect Indian technology industry, particularly electronics and semiconductors is; the East European countries were looked at as an alternative because technologically they were strong. In countries like Armenia there was a lot of software development activity happening. Now because of the war many of these have come to a halt. The demand for growing Indian enterprises of US and European companies probably will increase, indirectly benefiting the employment situation in India. This is an immediate fallout I can think of because of the war.

The statement issued by US considering sanctions on India is all posturing, they do it to bring pressure on India to talk to Putin. Even the US knows that one person who can speak to Putin is Modi.

Also, India is already on the path for self-reliance in semiconductors and electronics.  Post-Pokhran sanctions, India successfully came out of it by designing its own aerospace and defence equipments. I don’t think they will risk it again.

Read also: Fitch, Moody's slash Russia's sovereign debt to junk

Arun Mampazhy, semiconductor veteran and analyst

It is Russia’s war.  India is only abstaining from voting. So I don’t see any reason why this should stop exports of semiconductors to India. But in future that can be used as a pressure tactic. Post-Pokhran sanctions included even basic components such as power transistors and the DRDO suffered. That’s why building a fab in India is a strategic need.

Sanjeev Keskar, CEO, Arvind Consultancy

India is in a strong position as a domestic market, both from a (general) consumption point of view and in electronics. Every country; Japan, Korea, US,  Europe… is looking at India as their market. They will have to think twice if they plan any kind of embargo on India for its neutral stance on Russia.  They understand India’s position for abstaining from voting. I don’t think sanctions on Russia will impact India. There are no major tie-ups for our electronics and semiconductor industry with Russia.

Dr. MU Sharma, former CEO STARC

We don’t have direct semiconductor-related activities with Russia, they are not our only source. As regards sanctions, we have faced bigger sanctions after Pokhran and we emerged stronger. I remember way back in the late nineties when I visited Moscow, that time also the West was not supplying to Russia. But they still moved ahead.