Electronic System Design and Manufacturing Sector – M-SIPS, National Policy on Electronics, etc.

Semiconductor Shortage and the tech industry


From UPSC perspective, the following things are important :

Prelims level : Semiconductor, Rare earth elements

Mains level : Semiconductor industry

Chips or processors power every possible product on the market from high-end cars to washing machines. There is a worldwide shortage of semiconductor chips.

What are Semiconductors?

  • A semiconductor sits between a conductor and an insulator and is commonly used in the development of electronic chips, computing components, and devices.
  • It’s generally created using silicon, germanium, or other pure elements.
  • Semiconductors are created by adding impurities to the element.

Giants of global chip industry

  • Semiconductor manufacturing is now dominated by Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan and Samsung Electronics in South Korea.
  • American chipmaker Intel now plans to spend $20 billion to build two new chip factories in Chandler, Arizona.
  • These new fabs will also manufacture chips designed by Amazon, Qualcomm, and other customers.

Why is there a semiconductor shortage?

  • During the pandemic, manufacturing came to a standstill impacting the supply chains of products that need one or more of these.
  • As the automotive sector almost shut down last year, chip makers shifted capacity to cater to increased demand for electronics items such as cell phones and laptops.
  • Since orders for advanced chips are placed well in advance, manufacturers have not yet been able to come back to pre-pandemic production schedules to cater to all sectors.
  • The automotive chips are of medium-level complexity, compared to the really small and extremely complicated ones on smartphones and personal computers.
  • Building something this small, featuring billions of transistors is an expensive process.

Has India missed the bus in setting up chip factories?

  • There is a lot of risks involved in setting up a chip plant.
  • Past initiatives to set up chip manufacturing units in the country never took off due to lack of long-term vision, lack of government incentives, and poor planning.
  • Now the government is keen to promote manufacturing and has even proposed tax incentives under Production Linked Incentive Scheme.
  • Things are progressing slowly, but the recent announcement of Tata Group entering semiconductor manufacturing is being seen positively.

How is the chip crisis playing out in geopolitics?

  • The global chip crisis and geopolitical tensions with China have shifted focus back on semiconductors.
  • The US, which was once a leader in chip manufacturing, wants the crown back.
  • The protectionist US is looking to bring manufacturing back to America and reduce its dependency on a handful of chipmakers mostly concentrated in Taiwan and South Korea.
  • China’s renewed aggression on Taiwan is also being seen in light of the chip crisis.


  • The crisis is expected to cost the global automotive industry $210 billion in revenue in 2021.
  • The global semiconductor shortage has affected many industries for more than a year and because of that, they are either forced to pay more for products or being asked to wait a little more.
  • The consumption of integrated circuits in products is ever increasing and a large manufacturing sector for these kinds of integrated circuits are a part of the supply chain.
  • The shortage has affected smartphones, personal computers, game consoles, automobiles, and medical devices.


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