Shortages of computer chips held back production of cars and some consumer goods
Shortages of computer chips held back production of cars and some consumer goods

India has rolled out the red carpet for semiconductor and display manufacturers to put up shop in the country as industries worldwide, led by automakers and tech firms, are facing acute chip shortages.

The Indian move to churn out the "brain" found inside all modern electronic devices, from PCs and TVs to games consoles and cars, comes as the many transnational firms are trying to diversify their manufacturing bases beyond China due to the ongoing US-China trade war.

A latecomer to the semiconductor industry, China is the world's largest manufacturing hub, producing more than 36 percent of the world's electronics. With nearly one-fifth of the world's population under its belt, it is the second-largest consumption market after the U.S. for electronic devices embedded with semiconductors

As many as 169 industries have been impacted by the global shortage which first hit the automotive industry during the COVID-19 pandemic. Tech major Apple is reported to have cut production of iPad in half due to the shortage.

Due to the shortage, growth at factories in China dwarfed to a four-month low and Japan witnessed the biggest monthly fall in industrial output in a year.

Massive digitization during the outbreak of the pandemic drove demand for chips up and resulted in the global supply chain imbalance. The rapid demand for the Internet of Things (IoT) is another reason. As demand for 5G and cloud-based services skyrocketed, more chips are needed for communication platforms like Zoom and other streaming services.

As demand exceeds supply, the auto industry is forecast to lose up to $20 billion in operating profit, according to global financial services firm Goldman Sachs.

As the chip shortage has taken the steam out of industries worldwide, India has approved a $10 billion plan to attract semiconductor and display manufacturers, according to India's IT ministry. The move is aimed at establishing the country as a global electronics production hub.

Israel's Tower Semiconductor, Taiwan's Foxconn, and a Singapore-based consortium have shown interest in starting units in India, Reuters reported.

Tata Group, a leading domestic conglomerate, is in talks with three provincial governments to invest up to $300 million to set up chip assembly and test units.

"The program will usher in a new era in electronics manufacturing by providing a globally competitive incentive package to companies in semiconductors and display manufacturing as well as design," the ministry said in a statement.

Under the scheme, the government will extend financial support and will work with provincial governments to set up high-tech clusters. The production-linked incentives (PLI) will be available for companies over six years and an experts' group under the India Semiconductor Mission (ISM) will also be established.

In developing and selling semiconductors, the U.S. leads the world, accounting for 50 percent of global billings. However, manufacturing has shifted to Asia. Taiwan and Korea account for 83 percent of global processor chip production and 70 percent of memory chip output. In the foundry market, Taiwan Semiconductor Manufacturing Co lords over, accounting for 54 percent of the total global foundry revenue in 2020.

The Indian federal government has already asked local carmakers to reduce electronics imports from China. "In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance," the ministry said in a statement Dec .15.

India has tied its new chip strategy to its geopolitical interests to make it more attractive. Any country that does not learn to make semiconductors "will lag behind others in the days to come," information technology minister Ashwini Vaishnaw warned while underlining the importance of the incentive plan.

The Indian government is planning to reverse the brain-drain trend and hopes to generate 35,000 direct and 100,000 indirect jobs under the scheme, according to the ministry.

While India is seen as strong in the area of chip design, it is yet to make an impact on manufacturing. Previous efforts to get companies to invest in the semiconductor space in India did not take off due to heavy investments and the need for uninterrupted clean water and electricity.

Amidst the global shortage and China-US trade war, India is banking on the strategy of many global companies to look at the 'China plus 1' policy for their procurement needs.