A 'Made in India' chip may be a reality soon

India could soon be getting its first high-tech chip fabrication facility. According to TheEconomicTimes, STMicroelectronics, Europe's largest chip-maker, and a consortium led by IBM are in advanced stages of talks with the government for an investment of over Rs 50,000 crore for a fab unit. Both companies are likely to invest over Rs 25,000 crore each.

If the investments materialise, India will get its first chip-making facility. The demand for electronic hardware is growing quickly. The current demand for electronic hardware is $45 billion and according to government estimates it is expected to reach $400 billion by 2020. India has been an important centre for chip design and verification, it is unfortunate that fabrication is almost non-existent here. If the chip-making facility is set-up, it would help create a large vendor base and eventually attract further foreign investment.

We may soon get a chip-making facility in India

The location for the chip-making facility isn’t finalised yet. Reportedly, one of the proposed locations is Greater Noida while the other is Gujarat. Apart from these two a third option near Bangalore, where an information technology investment region ( ITIR) spread over 42 square kilometers is being set up, is also being considered.

Both the companies have refused to comment on the investment. On the other hand, Commerce & Industry minister Anand Sharma confirmed that talks were underway but did not disclose any details. With this move, the government plans to reduce dependence on import of products and shift to local manufacturing to deal with the problem of current account deficit.

If set up, the chip-making unit is expected to get concessions worth nearly Rs 60,000 crore during its three-year construction period and the first 10 years of operations. Fabrication units are energy intensive and require consistent power supply as well as high quality water. Both these would require massive investments and SOPs such as tax incentives and subsidised power and water, among other things to make it an interesting proposition for the companies involved. High-tech hubs in China, Taiwan and South Korea have routinely used these concessions to corner a large percentage of this market.