28 Sep Chip Shortage: Global Semiconductor Shortage and ramifications for India

Chip Shortage: Global Semiconductor Shortage and ramifications for India

The topic is based on Science and Technology. The world is facing a Semiconductor shortage. India is trying to make a contribution to make up to fulfill the Global Semiconductor Shortage.

CONTEXT

The Semiconductor Industry is facing severe semiconductor shortages worldwide for almost a year due to limited supply. Semiconductor chips are a vital component in a wide number of industries like the automobile sector, electronic goods, etc. As a result, the shortfall has crippled many crucial sectors. The current issue is exacerbated by the fact that the production process is itself complex, expensive, and time taking and hence no immediate respite can be seen. 

WHAT ARE SEMICONDUCTORS?

A semiconductor is a material that conducts electricity more than an insulator (ex. glass) but less than a pure conductor (ex. Copper or aluminum). It is mostly made of silicon. They are also called chips and are found in a great number of products such as computers, smartphones, electronic gadgets, and aviation and medical equipment.

Pic: Semiconductors

REASONS FOR Global Semiconductor Shortage

•  Crisis in Taiwan strait: Taiwan produces 63% of global semiconductors. The recent turn of events in Taiwan has created tensions and limited production. Ever since US House of Representatives Speaker Nancy Pelosi visited Taiwan, China has been uncomfortable with Taiwan’s growing closeness to the USA. In retaliation, China sent fighter jets into Taiwan’s air defense zone and there has been fear of a possible Chinese invasion of Taiwan.
• Russia- Ukraine Conflict: The war has contributed to the shortfall. Ukraine’s two leading companies of neon gas, which is used as a key ingredient for making chips, have stopped their operations since the city of manufacturing has been seized by Russian forces. Russia supplies 25 to 30 percent of palladium, a rare metal used for semiconductors. There has been a downfall in its supply too. Moreover, the war has also led to supply chain blockages.
• COVID-19: The crisis started with the imposition of the first lockdown and though supply picked up , the resurgence of the virus with a new strain again affected the industry. It all led to bottlenecks in the supply chain. Chip packaging and testing are labor intensive in nature and hence more affected by the pandemic.
• Structural Issues: Various problems like insufficient capability, and changes in the auto industry leading to automation and e-vehicles which create more demand for chips and shift to work from home model contributing to greater demand for wireless connectivity and PCs have added to the problem. 

INDIA’s ROLE IN SEMICONDUCTOR MANUFACTURING

• The chip-making industry is a highly-concentrated one, with the big players being Taiwan, South Korea and the U.S. among others
• India imports 100% of its chips, memory, and display, with about 37% coming from China.
• The Indian semiconductor story has been full of missed opportunities. The only government-owned fabrication plant, Semiconductor Complex Limited (SCL), started operations in 1983 in Mohali but had to stop due to a fire incident. It now focuses mostly on R&D.
• India has an advantage due to the industry being software driven and having a pool of talented engineers. It can work to scale up the industry for global production.
•  Although India has two units producing semiconductors- SITAR, under Defense Research and Development Organization(DRDO), Bangalore and the semiconductor laboratory in Chandigarh, they manufacture chips for strategic use like defense and space and not for commercial use

GOVERNMENT INITIATIVES TO BOOST PRODUCTION

• PLI Scheme to boost semiconductor manufacturing: Due to low labor cost and vast production capacity, India will have an advantage in this sector.  It would not only help domestic companies to reduce reliance on semiconductor imports, but also generate revenue from exports to other nations.
• National Policy on Electronics 2019 (NPE 2019): It aims to make India  a global hub for Electronics System Design and Manufacturing – (ESDM) by enhancing capabilities to produce core components like chipsets
• Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) :It will provide financial incentive of 25% on capital expenditure for the identified list of electronic goods that comprise the downstream value chain of electronic products which will include semiconductors thus giving a boost to the sector. 
• Increased FDI limit: Government has permitted 100 percent (FDI) under the automatic route in the Electronics Systems Design & Manufacturing sector.

CHALLENGES

• High Investment: Manufacturing of semiconductors is capital intensive and finding local investors remains a challenge
• Technological Hurdles: The indigenous manufacturing of semiconductors requires the use of high-end technologies which are licensed from patent holders at an enormous price.
• Lack of continuous uninterrupted power supply: The production of semiconductors needs an uninterrupted power supply 24×7. This is difficult in India
• Lack of pure water supply: Chip making required gallons of ultrapure water in a single day, which for a country battling drought conditions in various parts becomes difficult

WAY FORWARD

There is a need to establish a few successful units, to begin with, which can be increased to more in upcoming years. Both State and Central governments should come forward to provide infrastructure and long-term incentives. Scaling up our production will not only reduce our import dependence but also establish India as a potential player in the supply of chips to the global world. Fiscal support and fixing the supply chain should be the immediate task at hand. Further, India needs a dedicated semiconductor policy and not occasional reimbursement schemes.

SOURCES:

• The Hindu
• Financial Express (Semiconductor crisis an opportunity for India)
• The Print (How India is trying to win the semiconductor race, fighting decades of challenges & setbacks)

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saumya khedwal