Time for India to go Aatmanirbhar in chip manufacturing

Indian consumer-led industries - be it automotive or cellular phones; electronics appliances or computer manufacturers - are facing an unprecedented situation. Though demand environment remains strong with a lot of pent-up demand coming to the fore post the lockdown, many of these consumer goods manufacturers are not sure of meeting all these demands in time. And the reason is global shortage of semiconductors or chips.

The festive season starting with Navratri is the most important one for all consumer goods companies. A large share of the sales in a year happens during this time. However, this crucial season is going to witness lacklustre sales this time around as manufacturers are not able to produce goods in time. The biggest carmaker Maruti had seen its September production by 51 per cent owing to production disruption arising from semiconductor shortage. Similarly, Tata Motors has also flagged up concerns owing to chip shortage earlier. Due to such production disruptions, the waiting period on most of the models has gone up drastically from the earlier period of 1-3 months in the passenger vehicle segment. Similarly, many global phone makers including Apple and Samsung are also being affected due to the ongoing scarcity of semiconductors. Currently, the latest models of Apple, iPhone13 are facing delivery delays up to one to five weeks owing to this phenomenon. Samsung has also cancelled launches of some new phones, according to reports. This chip shortage has spiralled beyond cars and smart phones to laptops, large-screen televisions and premium appliances as supplies to wholesalers and retailers have further slowed down in the last one month.

This global demand-supply mismatch emanates from events during the pandemic period. Due to the pandemic, the demand saw a drastic change as countries went under varying lockdowns to check the spread of the virus, and work from home became a norm. This led to an explosive rise in sales of tablets, personal computers, and mobile handsets. As most of the existing semiconductor supply gets absorbed by these businesses, other industries such as automobile, mining, and gaming started facing a supply crunch since the end of 2020.

Currently, the global semiconductor industry is dominated by the US, with a 47 per cent market share in the total sales, followed by South Korea, Japan, and Europe. Despite being a large consumer of electronic goods, chip manufacturing capacity in India is dismal and depends heavily on China. India's dependence is due to heavy imports of cellular and electronics products from China in which chips are embedded.

Therefore, it's time for India to step on the gas and bridge this supply mismatch with setting up manufacturing bases in the country. Globally, devices are getting smarter as these articles are powered through IoT (Internet of things) and ML (machine learning) among others. Given the strategic importance, India should rely less on more countries for chips as any war like situation with a dependent country can severely impair its ability to operate critical devices. Of late, India is taking aggressive steps to set up chip manufacturing bases in the country. It is in talks with Taiwan to set up a $7.5 billion chip manufacturing plant in the country apart from rolling out Production-Linked Incentive (PLI) Scheme for attracting large scale semiconductor manufacturers. It is imperative that India should succeed fast to make it self-reliant on the chip manufacturing front for strategic reasons.