The chips are down

Indian consumer-led industries – be it automotive or cellular phones; electronics appliances or computer manufacturers – are facing an unprecedented situation. Though there is a lot of pent-up demand coming to the fore post the lockdown, many consumer goods makers, faced they are with global shortage of semiconductors or chips, are unsure of meeting the demands in time.

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. The biggest carmaker Maruti had seen its September production down by 51 per cent owing to production disruption arising from semiconductor shortage. Tata Motors also flagged concerns over chip shortage. As a result, waiting period for most of models went 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 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 slowed down in the last one month.

This global demand-supply mismatch is a result of pandemic impact. The demand saw a drastic change as countries went under varying lockdowns to check the spread of 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 demand-supply mismatch.

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 warlike situation can severely impair its ability to operate critical devices. Of late, India is taking aggressive steps to set up chip manufacturing bases. It is in talks with Taiwan to set up a $7.5 billion plant apart from rolling out production-linked incentive (PLI) scheme for attracting large-scale semiconductor manufacturers. It is imperative that India should succeed fast to become self-reliant on the chip manufacturing front for strategic reasons.