Russia-Ukraine crisis may worsen global chip shortage

• IAS NEXT, Lucknow
• 03, Mar 2022

Reference News:-

Russia and Ukraine are important centres of the global semiconductor supply chain, providing rare metals like palladium, and gases like neon, that are needed in the production of the silicon wafers present in almost all modern devices and equipment.

• Amid the ongoing Russia-Ukraine crisis, it is expected that the situation may worsen global chip shortage.

What’s the issue?

Just as Russia supplies the global semiconductor industry with rare metals, Ukraine supplies (speciality) gases required by the chip-making industry. Thus, there is potential to extend the stress in the supply chain of semiconductors, which are key to manufacturing autos and other electronic equipment in the Asia-Pacific region.

What are Semiconductor Chips?

Semiconductors are materials which have a conductivity between conductors and insulators. They can be pure elements, silicon or germanium or compounds; gallium, arsenide or cadmium selenide.

Significance of Semiconductor Chips:

• They are the basic building blocks that serve as the heart and brain of all modern electronics and information and communications technology products.
• They are now an integral part of contemporary automobiles, household gadgets and essential medical devices such as ECG machines.

Recent Increase in Demand:

• The Covid-19 pandemic-driven push to take sizable parts of daily economic and essential activity online, or at least digitally enable them.
• The pandemic and the subsequent lockdowns across the world also forced shut crucial chip-making facilities in countries including Japan, South Korea, China and the US.

India’s Semiconductor Demand and Related Initiatives:

India currently imports all chips and the market is estimated to touch $100 billion by 2025 from $24 billion now.

Efforts by the government to address the shortage:

• Earmarked Rs 76,000 crore for semiconductors and display manufacturing segment.
• Launched the PLI and other schemes to boost semiconductors.
• Released a vision document for the electronics sector which envisages that the domestic electronic production has potential to reach around Rs 22 lakh crore by 2026.
• Launched the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) under which a budget outlay of Rs 3,285 crore is spread over a period of eight years for manufacturing of electronics components and semiconductors.

Challenges ahead:

1. High Investments Required.
2. Minimal Fiscal Support from Government.
3. Lack of Fab Capacities.
4. Insufficient Grants under PLI Scheme.
5. Resource Inefficient Sector.