Self-sufficiency in semi-conductor chips may not be feasible, but there are options the govt can explore
Just as India’s economy is charting a tentative recovery from Covid, its automobile and electronics industries are at the receiving end of global semi-conductor supply chain disruptions threatening the turnaround. With manufacturers such as Maruti and M&M cutting output significantly, the chip shortage looks likely to take the sheen out of upcoming festival sales. While the industry is hoping it will be resolved in a quarter, agencies such as Goldman Sachs predict, based on manufacturing lead times, that it could be 2023 before global chip supplies get back to pre-pandemic levels.
The chip crisis is now triggering a structural change in the procurement policies of global manufacturers, which their Indian counterparts must follow. Automakers are busy replacing their just-in-time sourcing for semi-conductors with long-term supply contracts, while electronics firms like Samsung are sinking multi-billion-dollar investments into semi-conductor production. The US-China trade wars last year, in which chips featured prominently, highlighted the strategic implications of external dependence for such a critical input; the US, Europe and China have committed billions in subsidy to on-shoring production. Given that chip fabrication is capital-intensive (an average sized facility costs $7-10 billion) with long gestation and rapid technological obsolescence, it appears infeasible for India to strive for full self-sufficiency on chip fabrication. But the country can still consider a two-pronged strategy to secure its strategic interests in semi-conductors. One, it can double down on budgetary outlays to expand and upgrade government-owned semi-conductor facilities already operated by ISRO and DRDO. Two, it can showcase its high-potential consumer electronics market and skilled talent pool in R&D to woo global consumer electronics manufacturers to onshore part of their semi-conductor supply chain to India. The production-linked incentive scheme will be an apt vehicle for this.