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The 'new oil'

The new oil
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So far as the 21st century is concerned, many have called semiconductors the 'new oil'. That is to say that much like oil was and still is at the centre of many supply chains, semiconductors would be central to the future. This is because semiconductor chips form the 'brain' of our high-tech modern societies. It is easy to see from this point of view why some view the current global chip shortage as a major turning point globally. But let's begin with a short background. Two-thirds of advanced semiconductor manufacturing in the world today is done in Asia. Taiwan Semiconductor Manufacturing Company Limited (TSMC) is the world's leading semiconductor manufacturer though it has been challenged in recent years by South Korea-based Samsung. In recent years, China has vowed to be self-sufficient in its supply chains and it identified semiconductor chips as a vital part of this self-sufficiency moving into the future, China is the world's largest consumer of semiconductor chips and its imports of the all-important chip have soared past its oil imports particularly now during the pandemic when general demand for semiconductors worldwide is soaring as well. China, like much of the world, is suffering through a crippling semiconductor chip shortage as a bottleneck forms with demand outstripping supply at the moment. While leading chip manufacturers are expanding their production capabilities at the moment, this shortage is set to continue for the time being. This shortage has affected a wide range of global industries. Everything from gaming chip manufacturing to automotive manufacturing has been severely affected. Even Samsung, a company that sells around USD 56 billion worth of semiconductors worldwide, has had to delay certain product launches due to this chip-crunch. This shortage is likely to see a corresponding price hike in many of the sectors that are now reliant on semiconductor chips. It is no wonder why semiconductor nationalism has soared worldwide due to the pandemic. It is not just China that has vowed semiconductor self-sufficiency going into the future. Intel just invested USD 20 billion expanding its chip manufacturing capability in America so that the US may maintain leadership in the market and also 'strengthen US economic and national security'. Intel hopes to become a supplier of chips to many companies worldwide but specifically to American electronic giants like Apple which rely on TSMC for a large part of their chip manufacturing. In fact, the US in a large part relies on TSMC for its semiconductor chip needs and has been fiercely protective of the company, previously limiting what kind of chips the company could sell to Chinese companies for the fear of China acquiring advanced manufacturing techniques. It is clear that semiconductors are now increasingly being seen as central to both economic functions of a nation and national security with self-sufficiency the need of the hour. India too has been concerned with strengthening its chip manufacturing capability. While India has had a robust industry for chip design, it has lagged behind in chip manufacturing, Heavy investment and government support is a critical requirement for setting up advanced fabrication units that can supply semiconductor chips on the scale that they can meet a significant portion or all of India's electronic demands. This is typically why past projects in India have failed to gain traction but this may be about to change. Reuters this week reported senior Indian government sources stating that India will now be offering cash incentives of more than USD 1 billion to each company that will set up chip manufacturing units in India. This will be part of PM Modi's flagship Make in India policy thrust. There is very little in the way of specifics now as the government is currently in the state of consultation with industry experts as per the Reuters report. But it has been mentioned that the government is pursuing this route with a significant emphasis on national security as it looks to cut dependences on China following recent border tensions. Semiconductor manufacturing in India could meet the demand for 'sensitive' technology like CCTV cameras and 5G equipment in the nation. It is too early to tell how the plan would unfold but given the critical importance of the industry in question and the growing chip crisis the world is currently finding itself in, the government will likely look towards being more directly involved in the industry. If India is to continue on its course of attaining 'Aatmanirbhar Bharat', then securing the future and moving away from a risky chip-dependence on China is absolutely vital.

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