Like taxes are to any government, semiconductors play a crucial role in the modern economy. The use of semiconductors is required by practically every electronic business, just as every government requires taxes; thus, this analogy may not be the greatest to make between these two significant economic engines.
Therefore, it is crucial to take into account the current developments in the sector, which have been negatively impacted by shortages, price increases, and a spiraling effect on output and consumption among both individuals and industries. As a means of addressing the shortages and enhancing national security, governments of various regions have been supporting businesses looking to build semiconductor facilities.
Semiconductors are so crucial that they can be found in technology devices across different sectors like the military, healthcare, gaming, computing, and communication, making them faster, smaller, and more reliable.
The scarcity of the global Semiconductors market started due to the imbalance of the demand and supply in the sector. Before this period, the manufacturing and distribution of these microchips have considerably been on the good books of the market.
The manufacturing process is complicated since the end product must attain a high purity level through intensive heating and extensive water sourcing, which demand adequate planning, a substantial investment, precise technology, and infrastructure by any government or conglomerate.
What is Semiconductor
Semiconductors can be called microchips or Integrated Circuit Units(ICU); they usually consist of material elements like silicon, germanium, Neon, and Palladium mixed with other materials called impurities.
According to the Semiconductor Industry Association, SIA, there are about 100 billion semiconductors in use today, equating to the number of stars in our milky way.
On the World stage, some countries have industries specializing in manufacturing semiconductors known as foundries due to nearness to raw materials amidst other supply factors. In contrast, some others only focus on the design and are considered fabless.
Those that combine these two activities as a single function are referred to as Integrated Device Manufacturers. Taiwan is currently the world’s largest foundry producer. They manufacture about 60% of the world’s semiconductors. The United States and China are other key players contributing almost more than half of global semiconductor sales.
What’s Behind the Global Shortage?
That being said, what is behind the global shortage of semiconductors? The current world economy is slipping in and out of inflation. Statistics made available by SPRF India revealed that not only did the supply-chain gap and Covid disrupt the world supply chain of semiconductors but a hike in the price due to increased demand for consumer electronics during this period.
Russia-Ukraine is another factor that has further impacted the semiconductor industry with less availability of raw materials like Neon and Palladium, which are essential in semiconductors.
The continuous persistence of the war has further left a spiral effect . Semiconductors are produced with severe impact on the supply chain, as revealed by KPMG, especially with price fluctuations and inflation.
The war is gradually altering how microchips are produced, forcing the industry’s chip manufacturers to take a chance on either scrambling for alternatives or closing their businesses; and as a result, the Indian market is exposed to a high level of dependency.
Consequences of Semiconductor
The shortage of semiconductors has had untold consequences on the world economy that has seen chip stock prices decline and automotive stock fluctuate, secondary products like Crude oil, and emerging industries like electric cars, Communications (5G network).
For example, emerging sectors like electric vehicles have not been spared. The expected global production level of EV vehicles has deepened with a high rise in their average global price.
What does this Shortage mean for Indians?
These shortages imply that more individuals would have less access to essential consumer electronics. More Indians would be unable to obtain essential consumer goods as a result of these shortages, and those who did require them would have to pay “extra” over the going rate, particularly in the short term.
Indians will eventually lag behind in the consumption of electronic goods if India cannot find a way to reduce the deficit gap for its customers in numerous supply chain areas.
How it affects Industries
According to the world, popular finance agency–– Goldman Sachs, about 169 industries have been affected by the semiconductor shortage. It is expected that industries that cannot cope with this disruption will cut off their production and, invariably, their supply.
It is not all gloomy, however, but it is difficult for the semiconductor industry to adjust in economic quarters but can also do some in multiple economic years.
India Reactionary Measures
India currently imports the majority of its microchips and excels in the design of semiconductors. If given the chance to enter these industries, it can leverage its established design skills to lessen dependence by fusing it with manufacturing, especially over the medium and long terms.
With the chip crisis being far from over, the Indian government is reportedly looking into this by investing in the semiconductor sector with an estimated Rs 76,000 Cr amidst other intangible resources to boost India’s presence in the design and manufacturing ecosystem of semiconductors.
