Auto sales fall not due to demand dip but on chip paucity

The global semi-conductor shortage, which has severely hit several industries including automobiles and mobile phones, found strong mentions in the Economic Survey for the FY22 tabled in Parliament on Monday.

Citing data from the Society of Indian Automobile Manufacturers (SIAM), the survey said that domestic auto sales in December declined 13% from a year ago to 219,421 passenger vehicles. It noted that the fall in sales was not on the back of a fall in demand, rather it was a supply-side issue.

“The information from various car manufacturer’s websites reveals a cumulative pendency of over 7 lakh orders, as of December 2021,” it said.

It added that according to a report by Goldman Sachs, supply chain disruptions in the semiconductor industry have spillovers in over 169 industries. The manufacturing of semiconductors requires a large amount of capital and has an average gestation period of 6-9 months.

“Moreover, it has a fairly long production cycle of about 18-20 weeks. Hence, any recovery from the supply chain disruptions will be a slow and costly affair. The report further stated that microchips and semiconductors account for about 4.7 per cent of value added by the automotive industry,” it said.

With the delay in supply, the average lead time in the automobile industry has been around 14 weeks globally.

Regarding the government’s emphasis on semi-conductor production , the Survey noted, the government has approved an outlay of ₹76,000 crore for the development of a semi-conductor and display manufacturing ecosystem.

“Government’s intervention to boost this industry has come at a time when the global economy is facing an acute shortage of semiconductors due to severe disruptions in supply chains,” the survey said,

“The comprehensive interventions being introduced by the government will aid in the establishment of an ecosystem that boosts semiconductor production in India,” it added.