Manjeet Kripalani

Just about everyone has heard of Nasscom, the powerful Indian software industry association. Now other groups are popping up along India’s technology corridor to try and mimic Nasscom’s success in promoting the business of its members.

The latest is the ISA, or Indian Semiconductor Association, whose aim is to promote India as a destination for commercial chip fabs and develop “clusters” of fabs that the world can come and use. The chip fabs, says Poornima Shenoy, president of the year-old outfit based in Bangalore, will “encourage local manufacturers to become important worldwide players in electronics.” The association has 104 members, but they are all chip design houses including heavy hitter Broadcom. The group is hoping that manufacturing will happen and those new players will participate.

Sounds good, but so far, India doesn’t have a single commercial chip fab. Getting one is high on the agenda of India’s technology minister Dayanidhi Maran, who regards it as a matter of prestige – and his political standing. Last June he made a trip to California to ink a deal for a chip testing facility in India, which he thought Intel would build. But Intel was noncommittal, and he returned disappointed and empty-handed. Shortly thereafter, a consortium of expat Indians under the name SemIndia announced that, with Maran’s support, they would build a fab in the southern city of Hyderabad. Then AMD said it would increase its investment in India and support the building of SemIndia’s fab in Hyderabad in exchange for parity with Intel over state contracts.

The truth, say experts, is that India is really only suited for testing and assembly facilities, not full blown fabs. There is enough chip fab capacity in the world, so India’s effort would create a surplus. Nearby Singapore and Malaysia largely have testing and assembly units, so India should continue to do what it does best: software. Sure, testing and assembly combined with software expertise would be great. But India does not have the environment to make fabs – the country’s infrastructure is exceptionally poor. And the highly mechanized fabs are not big employers. Finally, fabs everywhere in the world require a heavy government subsidy, which the Indian government cannot afford. So why bother?

ISA’s Shenoy says India has had fabs for 30 years. But the 11 that exist are non-commercial, reserved for defense and space research. These are behind on the latest technologies. The eco system for commercial fabs in India exists, insists Shenoy – India already has a sophisticated chip design industry, with 130 companies in the business, dominated by Texas Instruments, which began doing chip design in India in 1985. And India is tops in software. The combination of chip fabs, chip design and software on embedded systems to link the two will be dynamite. “That will help spur innovation by combining software strength to make processes more efficient, by reducing costs and shrinking time-to-market ,” Shenoy says. A survey Frost & Sullivan conducted for ISA found that an in-country commercial fab would lead to the boost of consumer electronics in India, taking the country’s global share of the electronics industry from 2.8% currently to 11% by 2015.

ISA’s dream is to develop a physical fab city like Hsinchu Park in Taiwan. It has scope for employment too, because Hsinchu Park, Shenoy says, has 250 ancillary units which require physical labor, and about 200 design houses as well. “These are what seed electronics products,” says Shenoy, adding that the whole eco-system, if it comes together, will create 3.6 million jobs by 2015 in India, and “will be one of the biggest drivers of the economy.”

For now, ISA is selling a dream, so Shenoy and her members are spending all their time lobbying for a manufacturing unit in India. If they succeed, India will really have a jump start on manufacturing of all kind. If they don’t? Well, blame it on India’s bad old ways that’ll never change. Or on ISA tilting at windmills.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE