Easing India’s Chip Shortage: Explained

Photo by Brian Kostiuk on Unsplash

Semiconductor chips, also known as microchips or integrated circuits, are the backbone of nearly every industry, from consumer electronics to healthcare – you name it.

The recent limited supply is causing a chip shortage that the world is grappling with.

Enter India.

The government rolled out an incentive scheme worth Rs.76,000 Cr (roughly $10 billion) in 2021 to attract international semiconductor and display manufacturers to establish the country as a global chip manufacturing hub.

Did it succeed?

Well, at a time when companies were forced to shut operations due to the supply chain breakdown, the government’s PLI scheme to boost semiconductors received an encouraging response of 5 applications for Semiconductor and Display Fabs with an investment of Rs.1.53 trillion.  

The policy, which aims at supporting 4 “buckets” of initiatives, including Silicon (CMOS) fabs, Display fabs, Compound Semiconductors, OSAT, and Design-Linked Incentives, received an expression of interest from companies including Foxconn, IGSS, and ISMC.

So wait. Don’t we already make semiconductors?

Yes.

So why is there a global chip shortage?

The short answer is – because of the pandemic. Office work, social interaction, and entertainment have all shifted to screens.

COVID-19 forced a significant portion of the population indoors, leading to a sudden increase in the demand for consumer electronics like laptops, phones, and gaming consoles.

The sudden popularity of cryptocurrencies also led more mining operations to come up across the world, requiring more processing units.

Carmakers lowered their chip orders at the start of the pandemic, assuming that consumers wouldn’t be interested in buying new vehicles, leading to a miscalculated drop in supply.

Oops!

Tense relations between the US and China throttled the supply, too, since China is one of the biggest manufacturers of chips.

Bottom line? Although demand increased, the supply dropped.

Tata joins the race

Japanese chipmaker Renesas Electronics Corp and India’s Tata Motors have formed a strategic partnership to design, develop and make semiconductor solutions.

Renesas will work with Tata group firm Tejas Networks to make products initially destined for India and eventually global markets.

Take it easy

As the semiconductor chips supply ease, Indian automakers are lining up new launches to rebound sales. Carmakers Maruti Suzuki and Mahindra & Mahindra are revving up production as semiconductor supplies have begun to improve from June and are expected to rise from here onwards.

Too long? Here’s a one-liner: The Government’s PLI scheme of Rs.76,000 Cr for semiconductor chip manufacturing received an encouraging response as 5 applications were registered, Japan’s Renesas and Tata Motors have partnered to solve the chip shortage problem.

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