Acute shortage of semiconductors: Why it is an opportunity for India

The auto industr y is recovering at a steady pace. The numbers have been encouraging and pent-up demand has sustained.

However, it doesn't mean the end of structural changes that the industr y has been going through. The industry has seen several disruptions which include a shif t to BS-VI, change in axle loading norms and increased insurance cost. The sword on transiting to the electric vehicles continues to hang on its head.

Woes of the auto industry :

To its credit, the industr y has bared it all. But, just when it was moving on, the pandemic struck. The industr y is lef t to deal with supply-side constraints since then.

Currently, global automobile and electronic equipment manufacturers are facing an acute shortage of semiconductors. It is a crucial component in vehicles. This has directly impacted vehicle production. It can not be good news at a time when the economy is thought to be at a cusp of an upcycle.

Emerging reports suggest that it could take anywhere between 4-6 months for supplies to normalize. While this is a matter of concern for the global auto industr y, India is particularly exposed to this given its dependence on imports of semiconductors.

Presently, 75% of global manufacturing takes place in East Asia. But, India is not on the list of semiconductor manufacturing countries. Taiwan is a global leader with a 22% share, followed by South Korea with a 21% share, Japan and China are at 15% each. The USA and Europe form 12% and 9% part of the global supply chain.

Implications beyond the auto industry : The usage of semiconductors is not just restricted to automobiles. It is an irreplaceable commodity to manufacture all electronic products. Given that India is looking to become one of the biggest players in mobile manufacturing and automobiles, developing a manufacturing base for semiconductors is crucial for the country.

The opportunity :

The semiconductor industr y carries huge potential. It is a highly demanded commodity. There is a huge scope not just in the domestic market but also to emerge as a global supplier. However, the industr y requires heavy capital expansion. Before manufacturing semiconductor chips, India will need to be self-sufficient in manufacturing Printed Circuit Board Assembly (PCBA). It is the board on which various electronic components are mounted.

As per the India Cellular and Electronics Association (ICEA), the current market size for PCBAs in India is $16 billion. It is expected to grow to $87 billion by 2025-26. ICEA says that with government support 99% of the PCBAs can be assembled in India. Hence, there is a huge incremental opportunity. Also, it will reduce the imports drastically, making Indian manufacturers more competitive.

Semiconductor shortage is turning into an acute issue. Due to it, the growth prospects of the auto industry are once again in jeopardy. This issue also offers immense opportunity. But, will India be able to grab it?