GLOBAL SEMICONDUCTORS SHORTAGE - Hardik Lohiya

Earlier this year, it appeared that the chip scarcity will be alleviated by 2022. Now, that forecast appears to have been optimistic. It is becoming clear that this crisis is going to last for some more years and the snarls in the semiconductor supply chain are weighing not only on the Indian economy but also on the global economy. Even after a year into this global chip crisis, the problems are only increasing for the final consumers and the allied industries as the wait-time is constantly rising and has reached almost 25 weeks in October. (Generally, wait time of 8-9 weeks is considered a healthy one)

What caused the shortage?

The semiconductor industry was one of the businesses hardest hit by the trade war, and the problems only got worse when global supply networks were disrupted by the epidemic. Multiple times in 2020 and 2021, Malaysia, one of the world's top semiconductor suppliers, was placed under a severe lockdown. Similarly, TSMC (Taiwan Semiconductors Manufacturing Corporation), one of the world's top contract chipmakers, was affected by the pandemic due to factory closures and restrictions on people's transportation.

Now, to add to these companies' troubles, poor weather and fires have disrupted wafer production, supply chains have been hit by a scarcity of basic materials, and delays have occurred owing to global shipping limits such as container availability, among other things.

How does this crisis affect you?

When we try to connect the impact of the chip crisis on our daily lives, we usually think of our cell phones, laptops, televisions, and automobiles, but apart from these few commodities, there are chips in nearly everything electric you own, including items you wouldn't expect, such as your washing machine, LED bulb, electric toothbrush, and refrigerator.

Now, let's take a look at some of the recent events in the automobile sector to see how this issue is affecting the business as well as the consumers. Maruti Suzuki decided to cut production by 60% in September 2021 and 40% in October 2021, respectively which has increased the overall wait time for your booked car. In August 2021 the company also decided to raise the prices of its product range by 1.5-2 percent from September'21. As a result, you are paying more than you were earlier, and your wait time has also increased. Similarly, in other industries like consumer electronics and paints, overall product prices have grown as a result of companies' decision to pass on the burden of rising input costs owing to chip shortages to ultimate customers.

What lies ahead?

According to a Bloomberg report “Manufacturing a chip typically takes more than three months and involves giant factories, dust-free rooms, multi-million-dollar machines, molten tin, and lasers.” This remark gives us an understanding of the complexities involved in the entire chip manufacturing process. So, I believe that even if top corporations such as Intel, TSMC, Samsung, and others have increased and announced to invest heavily in increasing production in the coming months, supply chains can only be expected to return to normal after one to one and a half years because it takes time to set up niche factories and procure all factors of production to produce at such a large scale.

From the standpoint of the Indian economy, I believe that private actors will play a significant role in establishing the semiconductor industry in India. This might be accomplished by leveraging the government's proposed PLI scheme or by large private-sector investments in chip-producing enterprises in other nations. The Tata group has already proclaimed its intention to enter the semiconductor business, other conglomerates such as Reliance and the Adani group could also be seen entering the chip manufacturing industry. Apart from them, major vehicle manufacturers such as Maruti Suzuki, Hyundai may also be interested.

So, it remains to be seen what comes out of this crisis for the global as well as for the Indian economy.