India Lures High-Tech Manufacturers

India is introducing new measures to make it a preferred location for manufacturing computer chips and other high-tech goods, its finance minister announced on Tuesday. The absence of large-scale semiconductor manufacturing in the country has been a weak spot in India’s advancement as a center for high-tech development.

The government will assist high-tech manufacturing ventures with both equity participation and “viability gap funding,” which aims to offset additional costs incurred by new ventures due to India’s poor infrastructure, finance minister P. Chidambaram said Tuesday while presenting his annual budget to parliament.

The incentives will be available for three years to accelerate investment in the sector. In addition, India’s IT ministry will soon announce a new policy to attract high-tech manufacturers to India, Chidambaram said

The measures announced Tuesday are a step in the right direction, said Rajendra Kumar Khare, chairman of the Indian Semiconductor Association and head of the Bangalore-based design subsidiary of U.S. chip maker Broadcom Corp.

The measures should help to attract large foreign chip makers, who typically expect the local government to participate in the cost of projects, he said. The viability gap funding will offset additional, extraneous costs incurred by new ventures due to the country’s poor infrastructure, he said. India wrestles with poor road, communications and port facilities, as well as water and power supply issues in most areas.

The presence of large-scale chip manufacturing has so far eluded India, even as it continues to expand its IT services, software development and other high-tech industries. Several big chip makers, including Texas Instruments Inc. and Intel Corp., have chip design facilities in India, but they have been reluctant to set up fabrication plants in the country, in part because of the poor infrastructure.

Semiconductor Complex Ltd. (SCL) in Chandigarh, which is owned by the Indian government, operates a semiconductor fab with outdated process technologies and sub-optimal production scales. It has a 6-inch wafer fabrication facility capable of processing wafers using 0.8-micron manufacturing technology, far behind today’s most advanced technologies. This facility is used primarily for pilot production runs of chips the company designs.

In addition, a consortium of investors calling itself SemIndia Inc. announced last year that it plans to set up a chip fabrication, assembly and test operation in India in collaboration with the Indian government and Advanced Micro Devices Inc (AMD) of Sunnyvale, California.

Vinod Agarwal, SemIndia’s chairman, president and chief executive, has said the cost of the facility would be about US$3 billion. The investment plan depended on the Indian government also investing in the project, he said.

India’s minister of communications and IT, Dayanidhi Maran, met with Intel Chairman Craig Barrett last year at the company’s Santa Clara headquarters to persuade Intel to set up a test and assembly facility in India. The Indian government reportedly was not willing to share the costs of the Intel project, however. Intel has declined to comment on the matter.

For related coverage, read Study Downplays Outsourcing of Computer Jobs, Dell Working on Plans to Build PCs in India, Outsourcing Moves on Up and How India Became a Global Force.

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-John Ribeiro, IDG News Service