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State of the Economy 33

Semiconductors industry spillover in the automobile industry
A report by investment bank Goldman Sachs 2021 states that the supply chain disruptions in the
semiconductor industry have spillovers in over 169 industries. The manufacturing of semiconductors
requires 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 . With the delay in supply, the average lead time in the automobile
7
6
industry for 2021 has been around 14 weeks globally . India has also experienced similar trends in
8
the automobile sector. As per data from the Society of Indian Automobile Manufacturers (SIAM),
carmakers sold 219,421 passenger vehicles in the domestic market in December 2021, down 13 per
cent (YoY). This is not a demand problem but 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.
9

SUPPLY SIDE REFORMS

1.39 Another distinguishing feature of India’s economic response has been an emphasis on
supply-side reforms rather than a total reliance on demand management. These supply-side
reforms include deregulation of numerous sectors, simplification of processes, removal of legacy
issues like ‘retrospective tax’, privatisation, production-linked incentives and so on. Some of
these have been listed in Table 7, and have been discussed in detail in the respective chapters.
Even the sharp increase in capital spending by the Government can be seen as both demand and
supply response as it creates infrastructure capacity for future growth.

1.40 An important theme that has been discussed through the course of the Economic Survey
is that of ‘process reforms’. It is important to distinguish between deregulation and process
reforms. The former relates to reducing or removing the role of government from a particular
activity. In contrast, the latter broadly relates to simplification and smoothening of the process
for activities where the government’s presence as a facilitator or regulator is necessary. Chapter
2 discusses the reforms undertaken in the public procurement policy- launch of Government e-
Marketplace (GeM) in 2016 for standard routine use items and the new procurement guidelines
issued in October 2021 for non-standard items and projects. Chapter 4 discusses for the need for
simplification of voluntary liquidation process for corporates and for institutionalising a standard
process for Cross Border Insolvency Process. Similarly, chapter 9 discusses the simplification
of Drone rules and reforms in telecom sector, and the need for reforms in the patent application
regime.

1.41 The emphasis given to the supply-side in India’s COVID-19 response is driven by two
important considerations. First, Indian policy-makers saw the disruptions caused by travel-

6 https://www.msn.com/en-us/news/crime/global-chip-shortage-hit-these-169-industries-gs/vi-BB-
1g4hv8
7 Lead time: The difference between the date of order and actually receiving
8 https://www.goldmansachs.com/insights/pages/the-daily-check-in/the-semiconductor-short-
age-of-2021/transcript.pdf
9 Various company websites.