Why in News:

• The Russian invasion is making the global chip shortage situation worse.

How did the shortage crisis begin?

• After reaching its peak in 2011, the laptop market growth slowed down with the rise of alternatives such as smartphones and tablets. Then, the pandemic hit. People switched to work from home, children connected to schools through laptops, and get-togethers happened over video calls. This shift led to a surge in demand for laptops and tablets.
• But high consumer demand for low-end products, coupled with large orders from tech firms choked chip makers whose factories were also closed during lockdowns. As the industry gradually tried to pull itself out of the supply crunch, logistical complexities exacerbated the problem. And then the cost of moving containers across the world drove up the price of the core component used in most electronic devices and automobiles.

Why is the Russian invasion impacting chip shortage?

• According to a report by Moody’s Analytics, Ukraine supplies rare gases used to produce semiconductor fab lasers, and Russia exports rare metals like palladium to make semiconductors. This combination is required to build chipsets that power a range of devices, from automobiles to smartphones.
• Palladium is often used as an alternative to gold in making various devices as the metal is highly malleable and resistant to corrosion. The rare metal is considered to be softer than gold, but is still much harder and durable than gold. This quality of palladium gives it more protection against an impact and a greater resistance to denting. 
• It is used to make multi-layer ceramic capacitors (MLCCs), which are important to make smartphone screens, stereo systems, and power circuit breakers.

Who is producing the semiconductor chips?

• Corporations and consumers globally use semiconductors in millions of devices, including space vehicles, car computers, smartphones, medical equipment, appliances, and more.
• In 2019, the semiconductor industry in the United States accounted for 47 percent of the global semiconductor market.
• Korean manufacturers are second in the world with about 19 percent of the market, with companies from Japan and the European Union (EU) each accounting for ten percent of the market.

India and IC production

• The Indian electronics sector is tremendously growing with the demand expected to cross USD 400 billion by 2023-24.
• Domestic production has grown from USD 29 billion in 2014-15 to nearly USD 70 billion in 2019-20 (Compounded Annual Growth Rate of 25%).
• Microchip production will help India move up from an assembler to a manufacturer, with considerable multiplier effect on the economy.
• Most of this production takes place in the final assembly units (last-mile industries) located in India and focussing on them would help develop deep backward linkages, thus inducing industrialisation. This was an idea propounded by economist Albert O Hirschman in his theory of ‘Unbalanced Growth’.
• The Economic Survey 2019-20 also promoted this idea and suggested “assembly in India for the world”, in a bid to create four crore well-paid jobs by 2025 and eight crore jobs by 2030.
• The government recently unveiled three schemes (Production Linked Incentive, Component Manufacturing Scheme and Modified Electronics Manufacturing Clusters Scheme).
• The Government is also planning to establish an “India Semiconductor Mission” to drive long-term strategies for the sustainable development of the chip and display industry. 

What are rare earth elements?

• The rare earth elements (REE) are a set of seventeen metallic elements. They are called ‘rare earth’ because earlier it was difficult to extract them from their oxides forms technologically.
• They are an essential part of many high-tech devices. The 17 Rare Earths are cerium (Ce), dysprosium (Dy), erbium (Er), europium (Eu), gadolinium (Gd), holmium (Ho), lanthanum (La), lutetium (Lu), neodymium (Nd), praseodymium (Pr), promethium (Pm), samarium (Sm), scandium (Sc), terbium (Tb), thulium (Tm), ytterbium (Yb), and yttrium (Y).

Why are they important?

• Rare earth minerals are crucial to the manufacture of magnets used in industries of the future, such as wind turbines and electric cars.
• And they are already being used in consumer goods such as smartphones, computer screens and telescopic lenses.
• REEs are needed in high-temperature superconductivity, safe storage and transport of hydrogen for a post-hydrocarbon economy, reduce sulphur oxide emissions and hence it has abundant value.

 Reference:

1. https://www.thehindu.com/news/international/the-russian-invasion-is-making-the-global-chip-shortage-situation-worse/article65183693.ece