BENGALURU: The two months long festive season is around the corner, bringing with it a huge demand for products ranging from mobile phones, electronic appliances to even PCs/ laptops. But this year, the demand and supply gap for these most sought products may be even wider — thanks to the global shortage of semiconductor chips.
Although the government has envisioned to make India a global electronics manufacturing hub — and a viable alternative to China (which dominates the supply chain), Covid pandemic, huge capex requirements and the stockpiling by the original electronic manufacturers (OEMs) has resulted in a shortage of semiconductor chips, which has hit auto and electronics industries the most.
The global chip shortage, as per the experts, will hit Indian smartphone brands like Jio, Lava, Micromax etc the most. On Thursday, Reliance Jio acknowleged that the semiconductor supply limitations has caused delay in the launch of its budget smartphone by a couple of months. The additional time will also help mitigate the current global industry-wide semiconductor shortage,” Jio said.
“The large brands like Apple, Samsung, Xiaomi will not face any imminent concerns and have been able to secure their supplies, However, it is the home-grown brands which will have to bear the brunt in near-term due to the unfolding situation of semiconductor shortage,” noted Pankaj Mohindroo, National President, All India Cellular Association.
The reasons, according to Mohindroo, are 5G rollout, spike in internet devices due to remote work culture, growth in the number of smartphone users and Covid related supply chain disruptions.
He, however, dismissed fears of smartphone prices shooting up due to rising input costs. “On the contrary, demand has exploded and higher dependence on select countries for securing raw materials has spiraled,” Mohindroo said.
India in global electronic manufacturing landscape
The Modi government’s production-linked incentive (PLI) scheme aimed at attracting large firms to India may be a good start. However, analysts say the pandemic-induced supply chain disruptions, economic losses may be a dampener. India’s participation in the semiconductor industry is negligible. A report by the Indian Cellular and Electronics Association (ICEA) and Ernst and Young says that India imports $ 7 bn worth of integrated circuits from China, which is 70% of its total imports.
The report notes that in order to be able to avoid heavy dependence on China, India needs to find a track to build Printed Circuit Boards (PCBs). Starting PCB operations will cut down the import of semiconductors and PCBA from China and India will be able to reduce its $19 billion electronics trade deficit with China, the report stated. Mega volume of PCBAs can trigger the setting up of component ecosystem and assembly testing marking and packaging (ATMP) of semiconductor units over the next four to five years. China is testimony for this phenomenon, it stated.
The government’s Economic Survey 2019-2020 noted that by importing components and assembling them in China for the world, China created jobs at an unprecedented scale. Similarly, by integrating “Assemble in India for the world” into Make in India, India can raise its export market share to about 3.5% by 2025 and 6% by 2030, which is highly feasible,” it said.
The impediments to achieve this target are many which include capital intensive nature of this industry, inadequate infrastructure in power and logistics, limited R&D facilities. Faisal Kawoosa, tech analyst and CEO of Gurgaon-based tech research firm Tech Arc, explains: “An expert committee set up by the government almost a decade ago had recommended setting up a semiconductor fabrication facilities. But each manufacturing facility required an investment of more than$ 5-6 billion then. The initiative failed to take off. The unique technology necessary to create these microprocessor chips lie with only global firms like Qualcomm, Intel, Samsung etc. which have been able to leverage the low-cost labour and other incentives in China for manufacturing purposes for years now.”“There is a need for big Indian corporate houses to become contract manufacturers or establish partnerships with semiconductor companies,” he added.