Semiconductor crunch: Why India may have a bargaining chip in future

Several recent developments such as the global chip shortage and geopolitical tensions among key economies such as US-China, China-Taiwan, and Japan-South Korea have turned the spotlight on the semiconductor industry. The global chip shortage, in particular, has somewhat dampened economic recovery from the Covid-19 pandemic for various industries.

While the effect of the shortage on the auto industry and the ensuing production loss, plant shutdowns and worker layoffs has received significant attention, Goldman Sachs analysts have estimated that as many as 169 end-use industry sectors ranging from consumer appliances to gaming systems and industrial machinery have been affected in some way by the crisis.

The Indian auto industry has also keenly felt the effects of the chip shortage, with a variety of foreign players operating in India as well as domestic players such as Bajaj Auto, Mahindra & Mahindra, Tata Motors and TVS Motors, raising concerns over the impact of the chip shortage on production.

The widespread knock-on effects of the chip shortage have highlighted how semiconductors have become a foundational technology for the functioning of the modern world. Commercially, high volume manufacturing of chips is done only in a handful of countries, with around 78% of the global installed capacity located in Taiwan, South Korea, Japan, and China. In addition, over 90% of manufacturing on leading-edge technology is concentrated in Taiwan.