New policy to promote India as chip manufacturing hub

New Delhi: The Government of India has unveiled a new policy initiative that provides incentives, such as tax-breaks and subsidies, to set up factories for microchip makers. The policy is an attempt to lure global giants to invest in the country and turn it into a chip-manufacturing hub. According to industry observers, the newly unveiled policy will go a long way in making India an attractive destination for global semiconductor and hi-tech companies.

As per estimates by information technology and communications minister, Dayanidhi Maran, who unveiled the plan in New Delhi on Thursday, the new policy will attract up to US$9 billion of investment, and spur rapid growth in India's electronics industry. Industry observers back up that claim by saying that India's electronics market are now likely to rapidly expand.

According to these observers, local demand for chips that go into products ranging from mobile phones, liquid-crystal-displays and smart cards to personal computers and automobiles makes a compelling case for chip manufacturers to set up factories in the country. They point out that there are at least two major multinationals that are currently looking at investing in India, apart from local manufacturers.

Investments in chip manufacturing, in turn, are likely to spark off wider investments across the entire electronics spectrum. India is already a software powerhouse, with exports likely to reach $32 billion in the year ending March 2007. Observers point out that the country's high-tech manufacturing has however failed to keep pace. A lack of infrastructure and expertise in chip manufacturing has created a glaring lacuna, which the new policy will hopefully address.

India's current expertise, and emphasis, on design of chips is now likely to undergo a change that will turn it into a chip manufacturing base that will allow it to compete with the likes of China, Singapore and Taiwan, countries that have long nursed their semiconductor industry. With the possibility of attracting high-end capital intensive IT manufacturing, the policy is also likely to enable the industry to transit form its current assembly-oriented operations to a more competitive manufacturing capability.

Globally, says the India Semiconductor Association, the microchip industry is worth an annual US$240 billion. Currently, India has 11 non-commercial chip fabrication units that are focused, almost entirely, on defence and aerospace. Now chipmakers can address the manufacturers of products such as liquid crystal and plasma display panels, storage devices, solar cells and photo-voltaics, as all these industry segments would be eligible for incentives under the new plan. Financial incentives, for chip manufacturing operations, would be valid for the first 10 years of operations.

A viable semiconductor manufacturing industry, say observers, is the key to bringing about an electronic revolution.