By Kalpana Shah

Hindustan Semiconductor Manufacturing (HSMC), a consortium founded by a group of overseas Indians led by Devendra Verma, said it will invest over $4 billion to set up a semiconductor-manufacturing plant in India now that the Indian government has announced its chip policy.

The company has been in stealth mode for several months. Its partner in the joint venture will be one of the top five chip companies in the world, said Mr. Verma, and a firm announcement will come in a few weeks’ time. He declined to name the mystery partner.

Last week, the Indian government announced its long-awaited chip policy, saying it would pick up 20 percent of capital expenditures for manufacturing facilities, if the minimum investment by companies totals $550 million (see India Reveals Chip Policy).

The policy will help India become more competitive with other emerging countries like China in the battle for chip-manufacturing plants.

Negotiations are also on with Indian state governments, several of which are eager to have a chip fabrication facility, or “fab,” that can catapult them into becoming a top manufacturing region in India.

On top of the Indian government’s 20 percent subsidy, state governments can decide on a further subsidy in the form of cheap land, water, and electricity, all of which can bring down the infrastructure cost and make the plant more competitive.

Huge Potential

Raj Khare, chairman of the Bangalore-based India Semiconductor Association (ISA) and a vociferous advocate of manufacturing plants in India, believes that apart from multinational companies, large Indian conglomerates may decide to invest in fabs too because of the huge domestic market potential.

A study by the analyst firm Frost & Sullivan in February 2006 said the Indian electronics industry will grow to $360 billion by 2015, with the chip sector worth $35 billion to $40 billion.

Currently, India has only a couple of government-owned fabs that cater to the defense sector. The big sales numbers, coupled with attractive incentives to start operations, will soon attract a lot of investors, said Mr. Khare. At least two more semiconductor manufacturing facilities are expected to be announced in the next few weeks, he added.

“We will see investment coming in not just for chip manufacturing, but also in the entire electronics ecosystem,” said Poornima Shenoy, president of the ISA.

According to Mr. Khare, a manufacturing base in India will greatly help the 100-plus chip design firms in the country to bring out their own products, simply because testing and packaging will be available not only nearby but also at Indian prices.

India has about 125 companies doing design, including multinationals, domestic companies such as Wipro and Sasken, and a handful of Silicon Valley startups with Indian research and development centers.

In 2005, giant multinationals like Texas Instruments, Intel, Cypress, Infineon, and STMicroelectronics comprised about 70 percent of the total semiconductor design industry in India. Approximately 30 percent was produced by home-grown companies, noted the research firm iSuppli. All of them stand to benefit if nearby manufacturing becomes possible.

“So far we were after the low-hanging fruit of design,” said Mr. Khare. “Now we’re gearing up to compete with the best in the world. We’re ready to join the big boys.”