Chip shortages hit local production: Economic Survey

The global semiconductor shortage, commonly referred to as ‘chip shortage’ which has severely hit several industries including automobile and mobile phone, found glaring mentions in the Economic Survey for the FY22 tabled in the parliament on Monday.

Citing data from the Society of Indian Automobile Manufacturers (SIAM), the survey said that domestic auto sales in December declined 13% on a year-on-year basis to 2,19,421 passenger vehicles. It noted that the fall in sales was not on the back of fall in demand, rather it was a supply-side issue.

“The information from various car manufacturer’s websites reveals a cumulative pendency of over 7 lakh orders, as of December 2021,” it said.

It added according to a report by Goldman Sachs, the supply chain disruptions in the semiconductor industry have spillovers in over 169 industries. The manufacturing of semiconductors requires large amount of capital and has an average gestation period of 6-9 months.

“Moreover, it has a fairly long production cycle of about 18-20 weeks. Hence, any recovery from the supply chain disruptions will be a slow and costly affair. The report further stated that microchips and semiconductors account for about 4.7 per cent of value added by the automotive industry,” said the survey.

With the delay in supply, the average lead time in the automobile industry for 2021 has been around 14 weeks globally, it added.

Regarding the government’s emphasis on semi-conductor production in the country, the Economic Survey noted that recently, the government has approved an outlay of ₹76,000 crore for the development of semi-conductors and display manufacturing ecosystem.

“Government’s intervention to boost this industry has come at a time when the global economy is facing an acute shortage of semiconductors due to severe disruptions in supply chains.”

Several companies from diverse industries have been forced to either shut or curtail production in response to breakdown of supply chains, it said, adding that production linked incentive (PLI) scheme and other schemes to boost semiconductors will not only help domestic companies to overcome the challenges posed by Covid-19 but also assist them to become globally competitive especially in chip making.

Semiconductors are integral part of modern technology used in automobiles and its components, electronic and medical devices.
“The comprehensive interventions being introduced by the government will aid in the establishment of an ecosystem that boosts semiconductor production in India,” the survey said.

The government’s focus on semi-conductor production also featured in the President’s address to a joint session of the Parliament marking the initiation of the budget session.

Apart from talking of the government’s efforts to boost domestic production of semi-conductors, President Ram Nath Kovind said that the efforts on boosting semi-conductor manufacturing will significantly benefit India’s growing startup ecosystem. Livemint