India signs a chips agreement with Singapore

Sep 10, 2024

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Today on The Daily Brief:

Modi Ji wants to make India the new Taiwan
Another mega trading scam
Tel (oil) lene gaya
Mera corn kidhar hai?

Modi Ji wants to make India the new Taiwan

India and Singapore recently signed an agreement to team up on semiconductors. But what does this partnership really mean for India’s chip industry ambitions? Let's break it down and take a look at India’s broader semiconductor journey.

First, let's quickly explain what semiconductors are. These chips are like the "brains" of electronic devices. They handle everything from processing information and storing data to controlling how devices work – whether it's your smartphone, computer, car, or even home appliances. Basically, semiconductors are what make modern electronics smart and able to perform complex tasks.

Even though Singapore is a small country, it plays a big role in the semiconductor world, with a well-developed ecosystem. This partnership is a key step in India’s plans to boost its own semiconductor capabilities.

Here’s what’s happening

Singapore will help by training Indian workers in critical areas like chip design and manufacturing. This will help India build the skilled workforce it needs for the semiconductor industry.

The hope is that this partnership will attract investments from Singaporean tech companies, helping to jumpstart India’s chip ecosystem. Right now, Singapore produces 10% of the world’s semiconductor output, and most of the big semiconductor companies are already there. With this deal, India aims to tap into these networks, attract investments, and learn from their experience.

This is crucial because while India has big plans for its semiconductor industry, we’re still in the early stages. At the moment, India is mostly involved in Outsourced Semiconductor Assembly and Testing (OSAT), which means we focus on testing, assembly, and packaging – not manufacturing just yet.

The only real exception is the Tata-PSMC fabrication facility planned in Gujarat, which is set to be India’s first major semiconductor manufacturing plant. It’s a huge project with an investment of over 90,000 crores. But India will have to overcome significant challenges before it becomes a reality.

To understand how tough it is to break into semiconductor manufacturing, just look at the global leaders.

TSMC (Taiwan Semiconductor Manufacturing Company) is the top player, holding about 53% of the market. Then there’s Samsung, Intel, GlobalFoundries, and SMIC. These companies have decades of experience, established ecosystems, and huge investments behind them. Even Intel, one of the biggest names in the industry, has struggled to keep up with TSMC despite its long history and resources.

So if Intel, with all its expertise and money, is facing challenges in the semiconductor space, how can India, which is just starting out, hope to succeed?

Building a chip-making industry from scratch is incredibly difficult. It requires an understanding of complex manufacturing processes, a skilled workforce, and a massive ecosystem of specialized suppliers and partners – all of which take years, if not decades, to develop.

To give you an idea, TSMC has been building a manufacturing plant in Arizona since 2020. It was supposed to start making chips by 2024, but due to issues like cultural differences, labor challenges, and technology transfer problems, the start date has been pushed to 2025.

India’s initial focus on chip packaging is, in some ways, a smart move. Here's why:

It's less expensive and less complicated than full-scale chip manufacturing.
It allows India to slowly build the expertise and infrastructure it needs for chip manufacturing through knowledge transfer.
It lays a solid foundation for India to eventually dive into chip manufacturing, which might attract future investments in more advanced manufacturing capabilities.

However, moving from packaging and testing to actual chip fabrication is a completely different game. According to a BCG report, semiconductor manufacturing relies heavily on global supply chains, specialized knowledge, and massive capital investments. As we mentioned, India still has to build all of this from the ground up.

Even with the right strategies and support, India’s path to becoming a semiconductor hub won’t be easy. But partnerships like the one with Singapore, along with government initiatives and private investments, are definitely steps in the right direction. Let’s see how it all unfolds.

Another mega trading scam

In recent times, the rise in investment and trading scams in India has been really alarming. People have lost thousands of crores to these scams. Just in the past few months, scams worth ₹10,000 crores have been uncovered in Assam alone. And those are just the ones we know about! Who knows how many more are out there?

One of the big scams happening now is through illegal forex trading platforms. According to The Economic Times, the Enforcement Directorate (ED) recently banned dozens of shady forex platforms that were involved in money laundering. This particular scam was worth over ₹10,000 crores!

But this isn’t the first time the ED has busted a forex trading scam. This year alone, they’ve cracked down on several across the country.

What’s truly shocking is how these fraudsters operate. They don’t just create a few fake forex websites—they build entire fake ecosystems! They set up fake e-commerce sites, sketchy forex platforms, and illegal payment gateways. And this isn’t just a local scam—these fraudsters have connections with international networks in places like Spain, Dubai, Russia, Pakistan, and more.

So, how did these scams go unnoticed for so long?

The answer is simple: these scammers are sneaky. They don’t just stop at creating fake websites. They go all out—setting up networks of shell companies, opening multiple bank accounts under fake names, and even hiring former bank officials to help them move the money around! Some platforms even open new bank accounts and change their UPI IDs regularly to keep the money flowing, even when one account gets flagged.

Take OctaFX, for example. This platform has been at the center of many scams, and they’ve even roped in Bollywood stars and famous cricketers to promote their schemes!

Here’s how these scams usually play out

Scammers set up unregulated trading platforms that manipulate trading conditions. They make it look like users are making profitable trades, which draws in more investors. But when people try to withdraw their money, it’s nearly impossible.

Some platforms operate like Ponzi schemes. They pay out returns to older investors using the money from newer investors. But eventually, the whole system collapses, and everyone loses their money.

Another trick these scammers use is routing money through fake forex sites to make illegal funds look clean. The ED found that money from people who thought they were trading forex was actually being moved into SEBI-registered Alternative Investment Funds, giving it a legal appearance.

The Reserve Bank of India (RBI) has repeatedly warned people about these platforms, saying that anyone caught trading on them could face serious consequences. Yet, these platforms keep popping up, and lakhs of Indians are still falling for them.

But it doesn’t stop there.

These scammers have also found ways to exploit the digital payment system. They use illegal payment aggregators to route funds, creating layers of transactions that make it almost impossible for authorities to trace the money back to its source.

With so many of these platforms still active, what the ED has uncovered is probably just the tip of the iceberg. So, the main takeaway for all of us is: if you’re thinking about trading forex or investing online, do your research. Make sure the platform is registered with the RBI, watch out for promises of crazy-high returns, and always be cautious about where you’re putting your money.

Tel (oil) lene gaya

Since the last time we talked about crude oil prices, things have changed quite a bit—and not in a good way. Given that India imports 90% of its oil, this is something we really need to keep an eye on.

As of now, WTI crude is trading at around $68 a barrel, and Brent Crude is sitting at about $71.

Just to give you some context: WTI, or West Texas Intermediate, is the main benchmark for oil produced in the U.S. Brent, on the other hand, originally referred to oil from the North Sea but is now used as a global benchmark for light, sweet crude oil.

The difference between these two prices is called the Brent-WTI spread. This spread can change depending on things like supply-demand, geopolitical events, and transportation costs. Typically, Brent trades at a higher price than WTI because it has a broader global reach and better access to shipping routes.

Now, back to crude prices—these current numbers are a big drop from earlier this year, when Brent was trading at around $90.

So, what’s causing crude prices to tumble, you might wonder?

First, there are growing concerns about global demand, especially from China. As the world’s second-largest economy, China’s struggles to keep up its growth are putting serious pressure on oil consumption.

Recently, Trafigura, one of the largest commodity traders, said that crude prices could drop to as low as $60 a barrel. At the same time, the co-founder of Gunvor, another big player in the commodities space, mentioned that oil’s fair value should be around $70, given the current supply and demand situation.

Adding to the gloomy outlook, the market is currently dealing with an oversupply. Even though OPEC+ recently decided to hold off on increasing output, there’s still a lot of oil sloshing around in the market. Historically, OPEC has cut production whenever prices fall below $75 to keep them stable, but the current market dynamics are trickier than usual.

To make things more complex, non-OPEC countries like the U.S., Canada, Guyana, and Brazil are all set to increase production next year, which could flood the market even more.

It’s not just traders who are feeling bearish—big banks are also lowering their forecasts. Morgan Stanley recently cut its oil price outlook because of worsening market concerns. They now expect oil to average around $75 a barrel. For context, earlier this year, they were expecting oil prices to be $85!

Interestingly, Goldman Sachs highlighted an unexpected factor—artificial intelligence. They believe AI could help reduce costs in the oil industry by improving logistics and resource allocation, which could eventually lead to more supply and lower prices. It’s an optimistic view, but only time will tell if AI really makes that big of a difference.

Now, after all this talk about crude prices, you might be wondering, “Does this really matter to me in India?” The answer is—absolutely.

Let us explain

For starters, lower oil prices are generally good news for India’s trade balance. As one of the world’s largest oil importers, our import bill is highly influenced by crude prices. To give you some context, the price of oil in India’s crude basket has dropped from $84 a barrel in July to $75 right now. This could help India save billions on its import bill, reduce the trade deficit, and even support the Rupee.

For oil companies, lower crude prices are a mixed bag. It’s great for oil marketing companies like HPCL and BPCL since lower input costs can boost their profit margins. This is already being reflected in the stock market—while the Nifty 50 is up about 15% year-to-date, the Nifty Oil & Gas index has jumped by 34%! Lower oil prices also benefit industries that rely heavily on crude, like paint manufacturers, airlines, and pharma companies.

However, it’s not such great news for oil exploration and production companies like Oil India and ONGC. Lower prices can squeeze their margins, making it tougher for them.

A few key events in the coming days—such as OPEC and IEA’s monthly reports and China’s trade data—could shake things up in the oil markets, so it’s worth keeping an eye on those.

Mera corn kidhar hai?

India, which was once a major corn exporter, is now turning into an importer. And the reason for this shift? Our push for more ethanol production, especially from corn.

Let us break it down for you

In the September 3rd edition, we talked about how the Indian government allowed sugar mills to produce more ethanol from sugarcane and rice. But why ethanol? There are a few key reasons:

Ethanol, when mixed with petrol, burns cleaner than pure petrol, which means fewer harmful emissions from vehicles.
India imports most of its oil, so using more ethanol as fuel can help reduce our dependence on foreign oil, save money, and improve energy security.
Increasing demand for crops used in ethanol production can provide farmers with a steady income.

Now, the government is pushing for more corn-based ethanol, and here’s why:

Relying only on sugarcane for ethanol isn’t sustainable in the long run, and corn offers a good alternative.
Unlike sugarcane, which has a specific harvest season, corn can be grown and harvested at different times across various parts of India.
By using corn for ethanol, India can maintain a balance between using sugarcane for food production and ethanol for fuel.

Because of this policy shift, more corn is now going toward ethanol production instead of other uses. India used to export 2 to 4 million tons of corn each year. But this year, exports might drop to just 450,000 tons—a massive decline. For the first time in many years, India is buying corn from other countries and could import up to 1 million tons this year.

This shift has ripple effects on different groups:

Poultry Farmers: They rely on corn to feed chickens, but with more corn being used for ethanol, feed prices are going up, making it harder for them to turn a profit.
Former Buyers of Indian Corn: Countries like Vietnam, Bangladesh, and Nepal, which used to buy corn from India, now have to look for new suppliers.
Ethanol Producers: They’re benefiting from the increased support for corn-based ethanol.

The government’s ethanol push is set to continue, especially since it aims to blend 20% ethanol with petrol by 2025-26 (it’s currently at 13%). This means the demand for corn will likely remain high. To meet this growing demand, India is now buying corn from countries like Myanmar and Ukraine. There’s even talk of making it easier and cheaper to import corn by reducing import duties.

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