Why in News:
- Intel Corp’s CEO said it could take several years for a global shortage of semiconductors to be resolved, a problem that has shuttered some auto production lines and is also being felt in other areas, including consumer electronics.
What is a semiconductor chip?
- Semiconductors are materials which have a conductivity between conductors (generally metals) and nonconductors or insulators (such as most ceramics). Semiconductors can be pure elements, such as silicon or germanium, or compounds such as gallium arsenide or cadmium selenide.
- A monolithic integrated circuit (IC) also known as microchip, silicon chip, computer chip or chip is basically a miniaturized electronic circuit that consists mainly of semiconductor devices, as well as passive components.
- ICs are now used in virtually all electronic equipment and have revolutionized the world of electronics. Computers, mobile phones, and other digital home appliances are now inextricable parts of the structure of modern societies, made possible by the small size and low cost of ICs.
- Automotive semiconductor ICs with different functionalities are used in various automotive products, like navigation control, infotainment systems, and collision detection systems.
Why is there a shortage?
- When the pandemic started shutting down parts of the global economy last year, most economists thought consumer spending would drop off a cliff as people lost their jobs or stopped buying nonessential goods.
- Auto companies cut back on production and ordered fewer of the chips needed to make their cars run. At the same time, millions of people forced to work or learn from home poured money they may have otherwise spent on movie tickets or vacations into TVs, computers and video game systems. Electronics companies bought up all extra chips to meet that demand, and when auto companies realized people still wanted cars it was too late.
- Soaring demand for smartphones, gaming consoles, tabs and other electronics by homebound consumers has prompted semiconductor makers to divert capacity away from the auto industry, leaving car parts suppliers struggling to keep their customers supplied.
- After the global auto industry shut down in the early phase of the coronavirus crisis and the resulting abrupt drop in demand, automobile manufacturers across all regions increased their production volumes much faster than expected by market experts. This resulted in large scale supply shortages for semiconductors.
Who is producing these 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 Scheme, Component Manufacturing Scheme and Modified Electronics Manufacturing Clusters Scheme) with an outlay of about ₹48,000 crore to promote electronics manufacturing in India.
What are the challenges faced in India?
- Huge Investments involved
- Semiconductor Fabrication will require cheap but skilled labor
- Requirement of very specific raw materials
- Hazardous Waste
- Infrastructure Requirement
- Absence of Foundries